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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1997
REGISTRATION STATEMENT NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACC CONSUMER FINANCE CORPORATION
(SPONSOR OF THE TRUSTS DESCRIBED HEREIN)
DELAWARE 12750 HIGH BLUFF DRIVE 33-0682821
(JURISDICTION) SUITE 320 (I.R.S. EMPLOYER
SAN DIEGO, CALIFORNIA 92130 IDENTIFICATION NO.)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
JACK COHEN, ESQ.
ACC CONSUMER FINANCE CORPORATION
12750 HIGH BLUFF DRIVE
SUITE 320
SAN DIEGO, CALIFORNIA 92130
619-793-6300
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
CHRIS DIANGELO, ESQ.
DEWEY BALLANTINE
1301 SIXTH AVENUE
NEW YORK, NEW YORK 10019
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box./ /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box./X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering./ /
If this Form is filed as a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
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Auto Receivables Asset Backed Notes and Auto $1,000,000 100% $1,000,000 $303.03
Receivables Asset Backed Certificates (together,
the "Securities)
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(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CROSS REFERENCE SHEET
TO FORM S-3
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CAPTION OR LOCATION
ITEM AND CAPTION IN FORM S-3 IN PROSPECTUS
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1. Forepart of the Registration Statement
and Outside Front Cover Page of Forepart of Registration Statement;
Prospectus.......................................................... Outside Front Cover Page**
2. Inside Front and Outside Back Cover Page of Inside Front Cover Page**; Outside
Prospectus.......................................................... Back Cover Page**
3. Summary Information, Risk Factors and Ratio Summary of Prospectus**; Special
of Earnings to Fixed Charges........................................ Considerations**;*
4. Use of Proceeds........................................................ Use of Proceeds
5. Determination of Offering Price........................................ *
6. Dilution............................................................... *
7. Selling Security Holders............................................... *
8. Plan of Distribution................................................... Methods of Distribution**
Outside Front Cover Page**;
Summary of Prospectus**;
Description of the
Securities**;
Certain Federal Income Tax
9. Description of Securities to be Registered............................. Consequences**
10. Interests of Named Experts and Counsel................................. *
11. Material Changes....................................................... *
Inside Front Cover Page**;
Incorporation of Certain
12. Incorporation of Certain Information by Reference...................... Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities...................... See page II-3
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* Not applicable or answer is negative.
** To be completed from time to time
by Prospectus Supplement.
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PROSPECTUS
Auto Receivables Backed Securities Issuable in Series
ACC CONSUMER FINANCE CORPORATION
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series, in amounts, at prices and on terms to be determined at the
time of sale and to be set forth in a supplement to this Prospectus (each, a
"Prospectus Supplement"). Each series of Securities may include one or more
classes of Notes and one or more classes of Certificates, which will be issued
either by ACC Consumer Finance Corporation (the "Company" or "ACC"), a
Transferor (as hereinafter defined), or by a trust to be formed by the Company
for the purpose of issuing one or more series of such Securities (each, a
"Trust"). The Company, a Transferor or a Trust, as appropriate, issuing
Securities as described in this Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer."
Capitalized terms used herein are defined terms having specific
meanings. An "Index of Defined Terms" is set forth at page __ hereto, which
indicates the page on which such defined terms defined.
Each class of Securities of any series will evidence beneficial
ownership in a segregated pool of assets (the "Trust Property") (such
Securities, "Certificates") or will represent indebtedness of the Issuer secured
by the Trust Property (such Securities, "Notes"), as described herein and in the
related Prospectus Supplement. The Trust Property may consist of any combination
of retail installment sales contracts between manufacturers, dealers or certain
other originators and retail purchasers secured by new and used automobiles and
light duty trucks financed thereby, or participation interests therein, together
with all monies received relating thereto (the "Contracts"). The Trust Property
may also include a security interest in the underlying new and used automobiles
and light duty trucks and property relating thereto, together with the proceeds
thereof (the "Vehicles" together with the Contracts, the "Receivables"). If and
to the extent specified in the related Prospectus Supplement, credit enhancement
with respect to the Trust Property or any class of Securities may include any
one or more of the following: a financial guaranty insurance policy (a "Policy")
issued by an insurer specified in the related Prospectus Supplement, a reserve
account, letters of credit, credit or liquidity facilities, third party payments
or other support, cash deposits or other arrangements. In addition to or in lieu
of the foregoing, credit enhancement may be provided by means of subordination,
cross-support among the Receivables or over-collateralization. See "Description
of the Trust Agreements -- Credit and Cash Flow Enhancement." The Receivables in
the Trust Property for a series will have been originated by the Company on or
prior to the date of issuance of the related Securities, as described herein and
in the related Prospectus Supplement. The Receivables included in a Trust Fund
will be serviced by a servicer (the "Servicer") described in the related
Prospectus Supplement.
Each series of Securities may include one or more classes (each, a
"Class"). A series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A series may include two or more Classes of
Securities which differ as to the timing, order or priority of payment, interest
rate or amount of distributions of principal or interest or both. Information
regarding each Class of Securities of a series, together with certain
characteristics of the related Receivables, will be set forth in the related
Prospectus Supplement. The rate of payment in respect of principal of the
Securities of any Class will depend on the priority of payment of such a Class
and the rate and timing of payments (including prepayments, defaults,
liquidations or repurchases of Receivables) on the related Receivables. A rate
of payment lower or higher than that anticipated may affect the weighted average
life of each Class of Securities in the manner described herein and in the
related Prospectus Supplement. See "Description of the Securities."
It is not expected that any Securities described herein will be listed
on any securities exchange. Such lack of exchange listing is likely to result in
a relatively illiquid market for the Securities. It is, however, further
expected that the underwriter(s) of each series of Securities will make a market
for such Securities for so long as they remain outstanding, although such
underwriter(s) will have no obligation to the Company or the related
Securityholders so to make a market.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE 15 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
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THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT OBLIGATIONS OF THE COMPANY, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL INTERESTS IN
THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY, ANY TRANSFEROR, ANY SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE GUARANTEED OR
INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, ANY
SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH
IN THE RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK FACTORS" ON PAGE 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Securities may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement. Prior to issuance, there will have been no market for the Securities
of any series, and there can be no assurance that a secondary market for the
Securities will develop, or if it does develop, it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS
MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this Prospectus is August , 1997.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities to be
offered hereunder, among other things, will set forth with respect to such
series of Securities: (i) a description of the Class or Classes of such
Securities, (ii) the rate of interest, the "Pass-Through Rate" or "Interest
Rate" or other applicable rate (or the manner of determining such rate) and
authorized denominations of such Class of such Securities; (iii) certain
information concerning the Receivables and insurance polices, cash accounts,
letters of credit, financial guaranty insurance policies, third party guarantees
or other forms of credit enhancement, if any, relating to one or more pools of
Receivables or all or part of the related Securities; (iv) the specified
interest, if any, of each Class of Securities in, and manner and priority of,
the distributions from the Trust Property; (v) information as to the nature and
extent of subordination with respect to such series of Securities, if any; (vi)
the payment date to Securityholders; (vii) information regarding the Servicer(s)
for the related Receivables; (viii) the circumstances, if any, under which the
Trust Property may be subject to early termination; (ix) information regarding
tax considerations; and (x) additional information with respect to the method of
distribution of such Securities.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding registrants that file electronically
with the Commission. The address for such Web site is: http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Company with respect to the
Registration Statement, either on its own behalf or on behalf of an Issuer,
relating to any series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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REPORTS TO SECURITYHOLDERS
So long as the Securities are in book-entry form, monthly and annual
reports concerning the related Securities and the related Issuer will be sent by
the Trustee to Cede & Co., as the nominee of DTC and as registered holder of the
Securities pursuant to the related Trust Agreement. DTC will supply such reports
to Securityholders in accordance with its procedures. If such Securities are not
in book-entry form, the Securityholders will receive such reports directly from
the related Trustee, rather than indirectly from DTC. In connection with their
distribution on each Payment Date, the related Securityholders will receive a
statement containing the following information, at a minimum: the amount of such
distribution relating to interest, the amount of such distribution relating to
principal, the Pool Factor, the interest rate (for variable rate Securities) and
delinquency information with respect to the related Receivables. To the extent
required by the Securities Exchange Act of 1934, as amended, the related Issuer
will provide financial information to the Securityholders which has been
examined and reported upon, with an opinion expressed by, an independent public
accountant; to the extent not so required, such financial information will be
unaudited. The Company has determined that the financial statements of no entity
other than the Security Insurer are material to the offering made hereby. Each
Issuer will be formed to own the Receivables, hold and administer the
Pre-Funding Account, to issue the Securities and to acquire the Subsequent
Receivables, if available. Each Issuer will have no assets or obligations prior
to issuance of the Securities and will engage in no activities other than the
holdings of the related trust Property and the issuance of the related
Securities. Accordingly, no financial statements with respect to the related
Issuer will be included in the related Prospectus Supplement. The audited
financial statements of the Security Insurer will be set forth in (or
incorporated by reference in) the related Prospectus Supplement, and the
unaudited interim financial statements of the Security Insurer will be set forth
in (or incorporated by reference in) the related Prospectus Supplement. The
Company intends to discontinue filing periodic reports at the beginning of the
company's next fiscal year, to the extent permitted by Section 15(d) of the
Exchange Act.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms," which appears on page __ hereof.
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Issuer ............................... With respect to each series of Securities, either the Company, a
special-purpose finance subsidiary of the Company which may be
organized and established by the Company with respect to the Trust
Property (each such special-purpose finance subsidiary, a
"Transferor"), ACC Receivables Corp. or a trust (each, a "Trust") to be
formed by the Company. For purposes of this Prospectus, the term
"Company" includes the term "Transferor". The Company, a
Transferor or a Trust issuing Securities pursuant to this Prospectus
and the related Prospectus Supplement shall be referred to herein as
the "Issuer" with respect to the related Securities. See "The Issuers."
Company .............................. ACC Consumer Finance Corporation (the "Company", or "ACC" ), a
Delaware corporation. ACC is the successor corporation to ACC
Consumer Finance Corporation, a California corporation, which was
formerly named American Credit Corporation. American Credit
Corporation was incorporated under the laws of California in July
1993. On October 17, 1995, American Credit Corporation changed its
name to ACC Consumer Finance Corporation, which, on November 9,
1995, merged with and into ACC. The Receivables will be either (i)
originated by various dealers, which may or may not be affiliated with
one or more manufacturers of vehicles ("Dealers", and together with
such manufacturers, "Vendors") or (ii) acquired by the Company from
other originators or owners of Receivables. The Company's
origination business consists of both "indirect" originations (i.e.,
originations through the Company's network of unaffiliated originators)
as well as "direct" originations (in which prospective borrowers, having
decided to purchase a specific Vehicle, approach the Company or its
affiliates directly (or are contacted directly by the Company, as through
a mail solicitation or telemarketing effort) rather than through a dealer
or a broker). The Company is not affiliated with any dealers. The
Company's principal executive offices are located at 12750 High Bluff
Drive, San Diego, California 92130, and its telephone number is (619)
793-6300. See "The Company and the Servicer."
Servicer ............................. ACC Consumer Finance Corporation ("ACC" or, in its capacity as the
servicer, the "Servicer"). See "ACC's Automobile Financing Program -
Servicing and Collections."
Trustee .............................. The Trustee for each series of Securities will be specified in the
related Prospectus Supplement. In addition, a Trust may separately
enter into an Indenture and may issue Notes pursuant to such
Indenture; in any such case the Trust and the Indenture will be
administered by separate, independent trustees as required by the
rules and regulations under the Trust Indenture Act of 1939 and the
Investment Company Act of 1940.
The Securities ....................... Each Class of Securities of any series will either evidence beneficial
ownership in a segregated pool of assets (the "Trust Property") (such
Securities, "Certificates") or will represent indebtedness of the Issuer
secured by the Trust Property (such Securities, "Notes"), as described
under Description of the Securities" herein and in the related
Prospectus Supplement. The Trust Property may consist of any
combination of retail installment sales contracts between
manufacturers, dealers or certain other originators and retail
purchasers secured by new and used automobiles and light duty
trucks financed thereby, together with all monies received relating
thereto (the "Contracts"). The Trust Property also may include a
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security interest in the underlying new and used automobiles and
light duty trucks and property relating thereto, together with
the proceeds thereof (the "Vehicles" and together with the
Contracts, the "Receivables").
The Trust Property will include Receivables with respect to which the
related Contract or the related Vehicles is subject to federal or state
registration or titling requirements.
If and to the extent specified in the related Prospectus Supplement,
credit enhancement with respect to the Trust Property or any class of
Securities may include any one or more of the following: a financial
guaranty insurance policy (a "Policy") issued by an insurer specified
in the related Prospectus Supplement, a reserve account, letters of
credit, credit or liquidity facilities, third party payments or other
support, cash deposits or other arrangements. In addition to or in lieu
of the foregoing, credit enhancement may be provided by means of
subordination, cross-support among the Receivables or over-
collateralization. The Company will originate Receivables or acquire
Receivables from one or more originators on or prior to the date of
issuance of the related Securities, as described herein and in the
related Prospectus Supplement.
With respect to Securities issued by a Trust, each Trust will be
established pursuant to an agreement (each, a "Pooling Agreement")
by and between the Company and the Trustee named therein. Each
Pooling Agreement will describe the related pool of Receivables held
by the Trust.
With respect to Securities that represent debt issued by the Issuer, the
Issuer will enter into an indenture (each, an "Indenture") by and
between the Issuer and the trustee named on such Indenture (the
"Indenture Trustee"). Each Indenture will describe the related pool of
Receivables comprising the Trust Property and securing the debt
issued by the related Issuer.
The Receivables comprising the Trust Property will be serviced by the
Servicer pursuant to a servicing agreement (each, a "Servicing
Agreement") by and between the Servicer and the related Issuer.
In the case of the Trust Property of any class of Securities, the
contractual arrangements relating to the establishment of a Trust, if
any, the servicing of the related Receivables and the issuance of the
related Securities may be contained in a single agreement, or in
several agreements which combine certain aspects of the Pooling
Agreement, the Servicing Agreement and the Indenture described
above (for example, a pooling and servicing agreement, or a servicing
and collateral management agreement). For purposes of this
Prospectus, the term "Trust Agreement" as used with respect to Trust
Property means, collectively, and except as otherwise described in the
related Prospectus Supplement, any and all agreements relating to the
establishment of a Trust, if any, the servicing of the related
Receivables and the issuance of the related Securities. The term
"Trustee" means any and all persons acting as a trustee pursuant to
a Trust Agreement.
Securities Will Be Non-Recourse.
The Securities will not be obligations, either recourse or non-recourse
(except for certain non-recourse debt described under "Certain Tax
Considerations"), of the Company, the related Servicer or any person
other than the related Issuer. The Notes of a given series represent
obligations of the Issuer, and the Certificates of a given series
represent beneficial interests in the related Issuer only and do not
represent interests in or obligations of the Company, the related
Servicer or any of their respective affiliates other than the related
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Issuer. In the case of Securities that represent beneficial ownership
interest in the related Issuer, such Securities will represent the
beneficial ownership interests in such Issuer and the sole source of
payment will be the assets of such Issuer. In the case of Securities
that represent debt issued by the related Issuer, such Securities will
be secured by assets in the related Trust Property. Notwithstanding the
foregoing, and as to be described in the related Prospectus Supplement,
certain types of credit enhancement, such as a letter of credit,
financial guaranty insurance policy or reserve fund may constitute a
full recourse obligation of the issuer of such credit enhancement.
General Nature of the Securities as Investments.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest
rating categories by one or more Rating Agencies (as defined herein).
Additionally, except to the extent provided in the related Prospectus
Supplement, all of the Securities offered pursuant to this Prospectus
and the related Prospectus Supplement will be of the fixed-income
type ("Fixed Income Securities"). Fixed Income Securities will
generally be styled as debt instruments, having a principal balance
and a specified interest rate ("Interest Rate"). Fixed Income Securities
may either represent beneficial ownership interests in the related
Receivables held by the related Trust or debt secured by certain
assets of the related Issuer.
Each series or Class of Fixed Income Securities offered pursuant to
this Prospectus may have a different Interest Rate, which may be a
fixed or adjustable Interest Rate. The related Prospectus Supplement
will specify the Interest Rate for each series or Class of Fixed Income
Securities described therein, or the initial Interest Rate and the method
for determining subsequent changes to the Interest Rate.
A series may include one or more Classes of Fixed Income Securities
("Strip Securities") entitled (i) to principal distributions, with
disproportionate, nominal or no interest distributions, or (ii) to interest
distributions, with disproportionate, nominal or no principal
distributions. In addition, a series of Securities may include two or
more Classes of Fixed Income Securities that differ as to timing,
sequential order, priority of payment, Interest Rate or amount of
distribution of principal or interest or both, or as to which distributions
of principal or interest or both on any Class may be made upon the
occurrence of specified events, in accordance with a schedule or
formula, or on the basis of collections from designated portions of the
related pool of Receivables. Any such series may include one or more
Classes of Fixed Income Securities ("Accrual Securities"), as to which
certain accrued interest will not be distributed but rather will be added
to the principal balance (or nominal balance, in the case of Accrual
Securities which are also Strip Securities) thereof on each Payment
Date, as hereinafter defined, or in the manner described in the related
Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series may
include one or more other Classes of Fixed Income Securities
(collectively, the "Senior Securities") that are senior to one or more
other Classes of Fixed Income Securities (collectively, the
"Subordinate Securities") in respect of certain distributions of principal
and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in
respect of such distributions or losses.
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General Payment Terms of Securities.
As provided in the related Trust Agreement and as described in the
related Prospectus Supplement, the holders of the Securities
("Securityholders") will be entitled to receive payments on their
Securities on specified dates (each, a "Payment Date"). Payment
Dates with respect to Fixed Income Securities will occur monthly,
quarterly or semi-annually, as described in the related Prospectus
Supplement.
The related Prospectus Supplement will describe a date (the "Record
Date") preceding such Payment Date, as of which the Trustee or its
paying agent will fix the identity of the Securityholders for the purpose
of receiving payments on the next succeeding Payment Date. As
described in the related Prospectus Supplement, the Payment Date
will be a specified day of each month, quarterly or semi-annual period.
Each Trust Agreement will describe a period (each, a "Remittance
Period") preceding each Payment Date (for example, in the case of
monthly-pay Securities, the calendar month preceding the month in
which a Payment Date occurs). As more fully described in the related
Prospectus Supplement, collections received on or with respect to the
related Receivables constituting Trust Property during a Remittance
Period will be required to be remitted by the Servicer to the related
Trustee prior to the related Payment Date and will be used to fund
payments to Securityholders on such Payment Date. As may be
described in the related Prospectus Supplement, the related Trust
Agreement may provide that all or a portion of the payments collected
on or with respect to the related Receivables may be applied by the
related Trustee to the acquisition of additional Receivables during a
specified period (rather than be used to fund payments of principal to
Securityholders during such period), with the result that the related
Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization
period. Any such interest only or revolving period may, upon the
occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related
Securities. Such events which may result in an early amortization
event will generally consist of (i) the Company's inability to deliver
sufficient, additional Receivables to maintain the revolving period, (ii)
an event of default by the Company or the Servicer (i.e., the
Company's or the Servicer's failure to perform their respective duties
under the related Trust Agreement) and (iii) the occurrence of a
bankruptcy event with respect to the Company or the Servicer.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreement may provide that all or a
portion of such collected payments may be retained by the Trustee
(and held in certain temporary investments, including Receivables) for
a specified period prior to being used to fund payments of principal to
Securityholders.
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Agreement
for the purpose of (a) slowing the amortization rate of the related
Securities relative to the installment payment schedule of the related
Receivables, or (b) attempting to match the amortization rate of the
related Securities to an amortization schedule established at the time
such Securities are issued. Any such feature applicable to any
Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an acceleration of the
amortization of such Securities.
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As more fully specified in the related Prospectus Supplement, neither
the Securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the
Company, the related Servicer, any Trustee, or any of their affiliates.
No Investment Companies .............. Neither the Company nor any Trust will register as an "investment
company" under the Investment Company Act of 1940, as amended
(the "Investment Company Act").
Risk Factors ......................... There are material risks associated with an investment in the
Securities offered hereby; prospective Securityholders should read
"Risk Factors" herein, as well as the "Risk Factors" section of the
related Prospectus Supplement.
Securities will not be
listed on any Exchange ............... It is not expected that any Securities described herein will be listed on
any securities exchange. However, it is expected that the
underwriter(s) of each series of Securities will make a market for such
Securities for so long as they remain outstanding, although such
underwriter(s) will have no obligation to the Company or the related
Securityholders so to make a market.
See "Risk Factors -- Limited Liquidity" herein.
The Residual Interest ................ With respect to each Trust, the "Residual Interest" at any time
represents the rights to the related Trust Property in excess of the
Securityholders' interest of all series then outstanding that were issued
by such Trust. The Residual Interest in any Trust Property will
fluctuate as the aggregate Pool Balance of such Trust Fund changes
from time to time. A portion of the Residual Interest in any Trust may
be sold separately in one or more public or private transactions.
Master Trusts; Issuance of
Additional Series .................... As may be described in the related Prospectus Supplement, the
Company may cause one or more of the Trusts (such a Trust, a
"Master Trust") to issue additional series of Securities from time to
time. Under each Trust Agreement relating to a Master Trust (each,
a "Master Trust Agreement"), the Company may determine the terms
of any such new series. See "Description of the Securities -- Master
Trusts."
The Company may cause the related Trustee to offer any such new
series to the public or other investors, in transactions either registered
under the Securities Act or exempt from registration thereunder,
directly or through one or more underwriters or placement agents, in
fixed-price offerings or in negotiated transactions or otherwise.
A new series to be issued by a Master Trust which has a series
outstanding may, only be issued upon satisfaction of the conditions
described herein under "Description of the Securities -- Master Trusts".
Securities secured by Receivables held by a Master Trust shall be
entitled to moneys received relating to such Receivables on a equal
priority basis with other Securities issued pursuant to the other Trust
Agreements by such Master Trust.
Cross-Collateralization .............. As described in the related Trust Agreement and the related
Prospectus Supplement, the source of payment for Securities of each
series will be the assets of the related Trust Property only.
However, as may be described in the related Prospectus Supplement,
a series or class of Securities may include the right to receive moneys
from a common pool of credit enhancement which may be available
for more than one series of Securities, such as a master reserve
account, master insurance policy or a master collateral pool consisting
of similar Receivables. Notwithstanding the foregoing, and as
described in the related Prospectus Supplement, no payment received
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on any Receivable held by any Trust may be applied to the payment of
Securities issued by any other Trust (except to the limited extent that
certain collections in excess of the amounts needed to pay the related
Securities may be deposited in a common master reserve account or an
overcollateralization account that provides credit enhancement for more
than one series of Securities issued pursuant to the related Trust
Agreement).
Trust Property ....................... As specified in the related Prospectus Supplement, the Trust Property
will consist of the related Contracts, and may include a security
interest in the related Vehicles. If and to the extent specified in the
related Prospectus Supplement, credit enhancement with respect to
Trust Property or any class of Securities may include any one or more
of the following: a Policy issued by a Security insurer specified in the
related Prospectus Supplement, a reserve account, letters of credit,
credit or liquidity facilities, repurchase obligations, third party payments
or other support, cash deposits or other arrangements. In addition to
or in lieu of the foregoing, credit enhancement may be provided by
means of subordination, cross-support among the Receivables or
over-collateralization. See "Description of the Trust Agreement --
Credit and Cash Flow Enhancement." The Contracts are obligations
for the purchase of the Vehicles, or evidence borrowings used to
acquire the Vehicles.
The related Prospectus Supplement will further describe the type and
characteristics of the Contracts included in the Trust Property relating
to the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement.
The Company will either transfer Receivables to a Trust pursuant to
a Pooling Agreement or pledge the Company's right, title and interest
in and to such Receivables to a Trustee on behalf of Securityholders
pursuant to an Indenture. The obligations of the Company, the
Servicer, the related Trustee and the related Indenture Trustee, if any,
under the related Trust Agreement include those specified below and
in the related Prospectus Supplement.
In addition, if so specified in the related Prospectus Supplement, the
Trust Property will include monies on deposit in a Pre-Funding
Account (the "Pre-Funding Account") to be established with the
Trustee, which will be used to acquire Additional Receivables (as
hereinafter defined) from time to time during the "Pre-Funding Period"
specified in the related Prospectus Supplement. The Pre-Funding
Account, if any, will be reduced during the related Pre-Funding Period
by the amount thereof used to purchase Additional Receivables. Any
amount remaining in the Pre-Funding Account at the end of the related
Pre-Funding Period will be distributed to the related Securityholders,
pro rata, on the Payment Date immediately following the end of the
Pre-Funding Period.
If and to the extent provided in the related Prospectus Supplement,
the Company will be obligated [(subject only to the availability thereof)]
to either transfer to a Trust or pledge to a Trustee on behalf of
Securityholders, additional Receivables (the "Additional Receivables")
from time to time during any Pre-Funding Period specified in the
related Prospectus Supplement.
Special Payment
Features ........................... The Receivables may contain the following special payment features:
"Balloon" Payments: In a "balloon" payment Receivable, the final
scheduled payment may be substantially higher than the preceding
scheduled payments. Such balloon payment Receivables may have
a higher risk of loss than Receivables that do not contain such a
feature, as borrowers may have difficulty in paying (or refinancing) the
large final payment.
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Adjustable Rate Receivables: Certain of the Receivables may
calculate interest on an adjustable rate basis (an index such as Prime
or LIBOR) rather than on a fixed rate basis. Such Receivables may
be subject to minimum ("floors") and maximum ("caps") rates of
interest. Such adjustable rate Receivables may have higher risk of
loss than do Receivables with a fixed rate of interest, as borrowers
may have difficulty paying the higher monthly payments which result
from an increase in rates.
"Pay for Performance" Program: The Company may offer loans in
which the interest rate may decrease if the borrower maintains a
steady history of timely payment over a specified period of time. Any
such decrease in rate, although generally indicative of good
performance, may result in decreased cash received by the related
Issuer.
Registration of Securities ........... Securities may be represented by global securities registered in the
name of Cede & Co. ("Cede"), as nominee of The Depository Trust
Company ("DTC"), CEDEL, Euroclear or another nominee. In such
case, Securityholders will not be entitled to receive definitive securities
representing such Securityholders' interests, except in certain
circumstances described in the related Prospectus Supplement. See
"Description of the Securities -- Book Entry Registration" herein.
Credit and Cash Flow
Enhancement .......................... If and to the extent specified in the related Prospectus Supplement,
credit enhancement with respect to Trust Property or any class of
Securities may include any one or more of the following: a Policy
issued by an insurer specified in the related Prospectus Supplement
(a "Security Insurer"), a reserve account, letters of credit, credit or
liquidity facilities, third party payments or other support, cash deposits
or other arrangements. Any form of credit enhancement will have
certain limitations and exclusions from coverage thereunder, which will
be described in the related Prospectus Supplement. See "Description
of the Trust Agreement -- Credit and Cash Flow Enhancement."
Repurchase Obligations and
the Receivables Acquisition
Agreement ............................ As more fully described in the related Prospectus Supplement, the
Company will be obligated to acquire from the related Trust Property
any Receivable which was transferred pursuant to a Pooling
Agreement or pledged pursuant to an Indenture if the interest of the
Securityholders therein is materially adversely affected by a breach of
any representation or warranty made by the Company with respect to
such Receivable, which breach has not been cured. In addition, if so
specified in the related Prospectus Supplement, the Company may
from time to time reacquire certain Receivables of the Trust Property,
subject to specified conditions set forth in the related Trust Agreement.
Servicer's Compensation .............. The Servicer shall be entitled to receive a fee for servicing the Trust
Property equal to a specified percentage of the value of such Trust
Property, as set forth in the related Prospectus Supplement. See
"Description of the Trust Agreements -- Servicing Compensation"
herein and in the related Prospectus Supplement.
Certain Legal Aspects
of the Contracts ..................... With respect to the transfer of the Contracts to the related Trust
pursuant to a Pooling Agreement or the pledge of the related Issuer's
right, title and interest in and to such Contracts on behalf of
Securityholders pursuant to an Indenture, the Company will warrant,
in each case, that such transfer is either a valid transfer and
assignment of the Contracts to the Trust or the grant of a security
interest in the Contracts. Each Prospectus Supplement will specify
what actions will be taken by which parties as will be required to
perfect either the Issuer's or the Securityholders' security interest in
the Contracts. The Company may also warrant that, if the transfer or
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pledge by it to the Trust or to the Securityholders is deemed to be a
grant to the Trust or to the Securityholders of a security interest in
the Contracts, then the related Issuer or the Securityholders will have
a first priority perfected security interest therein, except for
certain liens which have priority over previously perfected security
interests by operation of law, and, with certain exceptions, in the
proceeds thereof. Similar security interest and priority
representations and warranties, as described in the related Prospectus
Supplement, may also be made by the Company with respect to the
Vehicles.
Perfection of security interests in automobiles and light duty trucks is
generally governed by the vehicle registration or titling laws of the
state in which each vehicle is registered or titled. In most states, a
security interest in a vehicle is perfected by notation of the secured
party's lien on the vehicle's certificate of title. Each Prospectus
Supplement will specify whether the Company, the Servicer or the
Trustee, in light of the administrative burden and expense, will amend
any certificate of title to identify the Company or the Trustee as the
new secured party on the certificates of title relating to the Vehicles.
See "Certain Legal Aspects of the Receivables."
Each Prospectus Supplement will specify if the Company has filed or
will be required to file UCC financing statements identifying the
Vehicles as collateral pledged in favor of the related Trust or Trustee
on behalf of the Securityholders. In the absence of such filings any
security interest in the Vehicles will not be perfected in favor of the
related Trust or Trustee. See "Certain Legal Aspects of the
Receivables."
Optional Termination ................. The Servicer, the Company, or, if specified in the related Prospectus
Supplement, certain other entities may, at their respective options,
effect early retirement of a series of Securities under the
circumstances and in the manner set forth herein under "Description
of The Trust Agreement -- Termination" and in the related Prospectus
Supplement. Such termination may occur either at a date certain or
at such time as the Pool Factor has declined to a specified level. The
specific date and/or Pool Factor level at which such termination may
occur with respect to a series of Securities shall be set forth in the
related Prospectus Supplement.
Mandatory Termination ................ The Trustee, the Servicer or certain other entities specified in the
related Prospectus Supplement may be required to effect early
retirement of all or any portion of a series of Securities by soliciting
competitive bids for the purchase of the Trust Property or otherwise,
under other circumstances and in the manner specified in "Description
of The Trust Agreement -- Termination" and in the related Prospectus
Supplement. Such termination may occur either at a date certain or
at such time as the Pool Factor has declined to a specified level. The
specific date and/or Pool Factor level at which such termination may
occur with respect to a series of Securities shall be set forth in the
related Prospectus Supplement.
Tax Considerations ................... Securities of each series offered hereby will, for federal income tax
purposes, constitute either (i) interests in a Trust treated as a grantor
trust under applicable provisions of the Code ("Grantor Trust
Securities"), (ii) debt issued by an Issuer or by the Company ("Debt
Securities"), (iii) interests in a Trust which is treated as a partnership
("Partnership Interests") or (iv) interests in a Trust which elects to be
treated as a "financial asset securitization investment trust" (a
"FASIT"). The tax characterization of any series of Securities will be
described in the related Prospectus Supplement, and the related
Opinion of tax counsel will be filed as part of a Current Report 8-K
filing in connection with each issuance.
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Investors are advised to consult their tax advisors and to review
"Federal Income Tax Consequences" in the related Prospectus
Supplement.
ERISA Considerations ................. The Prospectus Supplement for each series of Securities will
summarize, subject to the limitations discussed therein, considerations
under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), relevant to the purchase of such Securities by
employee benefit plans and individual retirement accounts. See
"ERISA Considerations" in the related Prospectus Supplement.
Ratings .............................. Each Class of Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest
rating categories by one or more "national statistical rating
organizations", as defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and commonly referred to as "Rating
Agencies". Such ratings will address, in the opinion of such Rating
Agencies, the likelihood that the Issuer will be able to make timely
payment of all amounts due on the related Securities in accordance
with the terms thereof. Such ratings will neither address any
prepayment or yield considerations applicable to any Securities nor
constitute a recommendation to buy, sell or hold any Securities.
The ratings expected to be received with respect to any Securities will
be set forth in the related Prospectus Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
NONPRIME LENDING MAY POSE SPECIAL RISKS TO INVESTORS IN THE SECURITIES.
The Company specializes in the indirect financing of Contracts in the
automobile lending industry for "nonprime" borrowers. The nonprime market for
credit consists of making loans which may not be made by traditional sources of
credit, which in the automobile finance business is comprised of insured-deposit
taking institutions such as banks, thrifts and credit unions, and finance
companies which are "captives" (i.e., finance subsidiaries) of automobile
manufacturers.
A loan may be considered "nonprime" primarily for one, or both, of two
reasons: borrower credit considerations, and collateral considerations. It is
also possible that the nonprime automobile finance business is more susceptible
to loss than other segments of the nonprime lending business generally, such as
nonprime mortgage lending, due to the mobility and depreciation of the
collateral.
"NONPRIME" BORROWERS ARE CONSUMERS WITH RELATIVELY WEAK CREDITS WHO MAY
BE UNABLE (OR UNWILLING) TO REPAY THEIR LOANS. A borrower may be considered a
"nonprime" credit due to limited income, past credit problems (e.g., prior
bankruptcy, history of delinquent payments on other types of installment credit)
or limited or no credit histories.
"NONPRIME" LOANS MAY ALSO HAVE LESS VALUABLE COLLATERAL. Collateral
considerations in the nonprime market primarily result from the financing, in
many cases, of used vehicles. Although depreciation also affects new
automobiles, the market value of an automobile which is several years old may be
more difficult to ascertain than for a new vehicle since such value will
depend on mileage and general condition, which may vary substantially for
different vehicles of a similar model year.
"NONPRIME" ASSET-BACKED OFFERINGS ARE FREQUENTLY GUARANTEED BY A SMALL
NUMBER OF CREDIT ENHANCERS, WHOSE OWN CREDIT MAY BE ADVERSELY AFFECTED BY A
DOWNTURN IN THE NONPRIME LENDING BUSINESS. Another consideration with respect to
the nonprime automobile lending business relates to the degree to which the
industry's asset-backed securities (such as the Securities offered hereby) are
guaranteed, in whole or in part, by Credit Enhancers which themselves have
assumed substantial exposure to this industry. See "Security Rating may be
highly dependent on the ratings of an external Credit Enhancer" below. Although
such Credit Enhancers typically have a "AAA" rating, if portfolios of nonprime
automobile receivables generally suffer lower than expected levels of
performance, the ratings of such Credit Enhancers as have concentrated on this
industry may be adversely affected, even if a specific receivables pool (such as
one of the Company's pools) has not suffered such a lower than expected level of
performance.
ACC'S UNDERWRITING PROCESS AND SUBJECTIVE CREDIT STANDARDS. The
underwriting standards applied by the Company may not be as stringent as those
of the finance companies of motor vehicle manufacturers or other financial
institutions since the Company purchases retail automobile installment contracts
which may not meet the credit standards of traditional primary lenders. The ACC
finance program focuses on the non-prime market including obligors with below
average credit profiles who may not be able to receive financing from more
traditional sources. The ACC finance program sets specific limits for the credit
amount extended. The Company's credit decisions are judgmental. See "ACC's
Automobile Financing Program -- Application Processing and Purchasing Criteria."
OWNERSHIP OF CONTRACTS WILL NOT NECESSARILY BE VESTED IN THE RELATED
TRUSTEE, WITH THE RESULT THAT DELAYS AND DISRUPTIONS IN PAYMENTS MAY OCCUR. In
connection with the issuance of any series of Securities, the Company will
originate Contracts. The Company will warrant in a Trust Agreement (i) if the
Company retains title to the Contracts, that the Trustee for the benefit of
Securityholders has a valid security interest in such Contracts, or (ii) if the
Company transfers such Contracts to a Trust, that the transfer of the Contracts
to such Trust is either a valid assignment, transfer and conveyance of the
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Contracts to the Trust or the Trustee on behalf of the Securityholders has a
valid security interest in such Contracts. As will be described in the related
Prospectus Supplement, the related Trust Agreement will provide either that the
Trustee will be required to maintain possession of the original copies of all
Contracts that constitute chattel paper or that the Company or the Servicer will
retain possession of such Contracts; provided that in case the Company retains
possession of the related Contracts, the Servicer may take possession of such
original copies as necessary for the enforcement of any Contract. If any
Contracts remain in the possession of the Company, the related Prospectus
Supplement may describe specific trigger events that will require delivery to
the Trustee. If the Company, the Servicer, the Trustee or other third party,
while in possession of the Contracts, sells or pledges and delivers such
Contracts to another party, in violation of the Receivables Acquisition
Agreement or the Trust Agreement, there is a risk that such other party could
acquire an interest in such Contracts having a priority over the Issuer's
interest. Furthermore, if the Company, the Servicer or a third party, while in
possession of the Contracts, is rendered insolvent, such event of insolvency may
result in competing claims to ownership or security interests in the Contracts.
Such an attempt, even if unsuccessful, could result in delays in payments on the
Securities. If successful, such attempt could result in losses to the
Securityholders or an acceleration of the repayment of the Securities. The
Company will be obligated to repurchase any Contract originated by the Company
and currently in the related Trust Property if there is a breach of the
Company's representations and warranties that materially and adversely affects
the interests of the Trust in such Contract and such breach has not been cured.
SECURITY INTERESTS IN BOTH THE RECEIVABLES AND THE UNDERLYING VEHICLES
MAY NOT BE VALID UNDER CERTAIN CIRCUMSTANCES. The transfer of the Receivables by
the Company to the Trustee pursuant to the related Trust Agreement, Indenture or
Trust Agreement, the perfection of the security interests in the Receivables and
the enforcement of rights to realize on the Vehicles as collateral for the
Receivables are subject to a number of federal and state laws, including the UCC
as in effect in various states. As specified in each Prospectus Supplement, the
Servicer will take such action as is required to perfect the rights of the
Trustee in the Receivables. If, through inadvertence or otherwise, a third party
were to purchase (including the taking of a security interest in) a Receivable
for new value in the ordinary course of its business, without actual knowledge
of the Trustee's interest, and take possession of a Receivable, the purchaser
would acquire an interest in such Receivable superior to the interest of the
Trustee, with the result that such Receivable would no longer be available as
part of the Trust Property for the related series of Securities. As further
specified in each Prospectus Supplement, no action will be taken to perfect the
rights of the Trustee in proceeds of any insurance policies covering individual
Vehicles or Obligors. Therefore, the rights of a third party with an interest in
such proceeds could prevail against the rights of the Trustee prior to the time
such proceeds are deposited by the Servicer into a Trust Account. See "Certain
Legal Aspects of the Receivables".
Except to the extent specified in the related Prospectus Supplement,
each Contract will include a perfected security interest in the related Vehicle
in favor of the Trustee or the Company (and, if perfected in the name of the
Company, assigned pursuant to the related Trust Agreement to the Trustee for the
benefit of the Securityholders). However, to the extent provided in the related
Prospectus Supplement, due to the administrative burden and expense, the
certificates of title of the Vehicles securing certain Contracts which reflect
the security interest of the Company or an unaffiliated originator in such
Vehicles may not be endorsed to reflect the Trustee's interest therein or
delivered to the Trustee. In the absence of such endorsement and delivery, the
Trustee may not have a perfected security interest in such Vehicles. As a
result, a third party buyer of a Vehicle for value from an Obligor may
extinguish the interest of the Trust in the Vehicle, a subsequent perfected
lienholder may obtain a security interest senior in right to that of the Trust,
and a trustee in bankruptcy of the Company may be able to assert successfully
that the Trust did not have a security interest in the Vehicle. In addition,
statutory liens for repairs or unpaid taxes and other liens arising by operation
of law may have priority even over prior perfected security interests in the
name of the Trustee in the Vehicles.
RESTRICTIONS ON RECOVERIES MAY RESULT IN THE RELATED ISSUER RECEIVING
SUBSTANTIALLY LESS THAN THE FACE AMOUNT OF THE RELATED CONTRACT. Unless specific
limitations are described on the related Prospectus Supplement with respect to
specific Contracts, all Contracts will provide that the obligations
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of the Obligors thereunder are absolute and unconditional, regardless of any
defense, set-off or abatement which the Obligor may have against the Company or
any other person or entity whatsoever. The Company will warrant that no claims
or defenses have been asserted or threatened with respect to the Contracts and
that all requirements of applicable law with respect to the Contracts have been
satisfied.
In the event that the Company or the Trustee must rely on repossession
and disposition of Vehicles to recover scheduled payments due on defaulted
contracts, i.e., Contracts which are seriously delinquent (such as 90 or 120
days), or as to which the related Obligor has affirmatively indicated an
inability or unwillingness to make payment ("Defaulted Contracts"), the Issuer
may not realize the full amount due on a Contract (or may not realize the full
amount on a timely basis). Other factors that may affect the ability of the
Issuer to realize the full amount due on a Contract include whether amendments
to certificates of title relating to the Vehicles had been filed, whether
financing statements to perfect the security interest in the Vehicles had been
filed, depreciation, obsolescence, damage or loss of any Vehicle, and the
application of Federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
THE COMPANY IS NOT CORPORATELY LIABLE ON THE SECURITIES, AND THE ONLY
SOURCE OF REPAYMENT WILL BE THE RELATED TRUST PROPERTY. Moreover, the Trust
Property will not have, nor is it permitted or expected to have, any significant
assets or sources of funds other than the related Receivables and, to the extent
provided in the related Prospectus Supplement, the related reserve account and
any other credit enhancement. The Securities represent obligations solely of the
related Issuer or debt secured by the related Trust Property, and will not
represent a recourse obligation to other assets of the Company. No Securities of
any series will be insured or guaranteed by the Company, the Servicer, or the
applicable Trustee. Consequently, holders of the Securities of any series must
rely for repayment primarily upon payments on the Receivables and, if and to the
extent available, the reserve account, if any, and any other credit enhancement,
all as specified in the related Prospectus Supplement.
ALTHOUGH THE TRANSACTIONS WILL BE STRUCTURED SO AS TO MINIMIZE THE
RISKS ASSOCIATED WITH THE COMPANY'S BANKRUPTCY, SUCH SAFEGUARDS MAY NOT
ELIMINATE ALL SUCH RISKS. The Company will take steps in structuring the
transactions contemplated hereby that are intended to ensure that the voluntary
or involuntary application for relief by the Company under the United States
Bankruptcy Code or similar applicable state laws ("Insolvency Laws") will not
result in the Trust Property becoming property of the estate of the Company
within the meaning of such Insolvency Laws. Such steps will generally involve
the creation by the Company of one or more separate, limited-purpose
subsidiaries (each, a "Finance Subsidiary") pursuant to articles of
incorporation containing certain limitations (including restrictions on the
nature of such Finance Subsidiary's business and a restriction on such Finance
Subsidiary's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all its
directors). However, there can be no assurance that the activities of any
Finance Subsidiary would not result in a court's concluding that the assets and
liabilities of such Finance Subsidiary should be consolidated with those of the
Company in a proceeding under any Insolvency Law.
While an originator is the Servicer, cash collections held by such
originator may, subject to certain conditions, be commingled and used for the
benefit of such originator prior to each Payment Date and, in the event of the
bankruptcy of such originator, the Company, a Trust or Trustee may not have a
perfected interest in such collections.
The Company believes that the transfer of the Receivables by the
Company to a Finance Subsidiary should be treated as a valid assignment,
transfer and conveyance of such Receivables. However, in the event of an
insolvency of the Company, a court, among other remedies, could attempt to
recharacterize the transfer of the Receivables by the Company to the Finance
Subsidiary as a borrowing by the Company from the Finance Subsidiary or the
related Securityholders, secured by a pledge of such Receivables. Such an
attempt, even if unsuccessful, could result in delays in payments on the
Securities. If such an attempt were successful, a court, among other remedies,
could elect to accelerate payment of the Securities and liquidate the
Receivables, with the Securityholders entitled to the then outstanding principal
amount thereof and interest thereon at the applicable Security Interest Rate to
the date of
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payment. Thus, the Securityholders could lose the right to future payments of
interest and might incur reinvestment losses. As more fully described in the
related Prospectus Supplement, in the event the related Issuer is rendered
insolvent, the related Trustee for a Trust, in accordance with the Trust
Agreement, will promptly sell, dispose of or otherwise liquidate the related
Receivables in a commercially reasonable manner on commercially reasonable
terms. The proceeds from any such sale, disposition or liquidation of such
Receivables will be treated as collections on such Receivables. If the proceeds
from the liquidation of the Receivables and any amount available from any credit
enhancement, if any, are not sufficient to pay Securities of the related series
in full, the amount of principal returned to such Securityholders will be
reduced and such Securityholders will incur a loss.
Obligors of the Vehicles may be entitled to assert against the Company,
the Issuer, or the Trust, if any, claims and defenses which they have against
the Company with respect to the Receivables. The Company will warrant that no
such claims or defenses have been asserted or threatened with respect to the
Receivables and that all requirements of applicable law with respect to the
Receivables have been satisfied.
FINANCIAL CONDITION OF ACC MAY NEVERTHELESS AFFECT ON INVESTOR'S
RETURN, EVEN IF THE INTENDED BANKRUPTCY CHARACTERIZATION IS SUSTAINED. The
Company is generally not obligated to make any payments in respect of the
Securities or the Receivables of a specific Trust. If the Company were to cease
acting as Servicer, delays in processing payments on the Receivables and
information in respect thereof could occur and result in delays in payments to
the Securityholders.
In certain circumstances, the Company will be required to acquire
Receivables from the related Trust Property with respect to which such
representations and warranties have been breached. In the event that the Company
is incapable of complying with its reacquire obligations and no other party is
obligated to perform or satisfy such obligations, Securityholders may be subject
to delays in receiving payments and suffer loss of their investment in the
Securities.
The related Prospectus Supplement will set forth certain information
regarding the Company. In addition, the Company is subject to the information
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the Commission. For further information regarding the
Company reference is made to such reports and other information which are
available as described under "Available Information."
INSURANCE ON VEHICLES WILL GENERALLY BE REQUIRED AT THE TIME OF
ORIGINATION, ALTHOUGH NO ASSURANCE CAN BE GIVEN THAT SUCH INSURANCE WILL BE
MAINTAINED. The Company generally requires that the Obligor insure the related
Vehicle with a physical damage policy naming the Company as loss payee. Although
such insurance on the Vehicle is generally required at the time of the Contract
origination, there can be no assurance that the Obligor will maintain the
appropriate coverage on the Vehicle. The Company does not anticipate force
placing insurance (i.e., obtaining such insurance coverage without the consent
of the related Obligor) on the related Vehicles. The Company will not represent
and warrant to the related Trustee that each Vehicle is in fact covered by a
physical damage policy, although the Company will represent and warrant that the
procedures described above will be followed with respect to each Vehicle. As a
consequence of the foregoing, the Vehicles may not be covered by physical damage
insurance and losses to Securityholders may result from such lack of coverage.
DELINQUENCIES MAY VARY OVER TIME, AND ANY INCREASE IN DELINQUENCIES MAY
RESULT IN AN UNANTICIPATED LEVEL OF LOSS. There can be no assurance that the
historical levels of delinquencies and losses experienced by the Company on its
respective loan and vehicle portfolio will be indicative of the performance of
the Contracts included in the related Trust Property or that such levels will
continue in the future. Delinquencies and losses could increase significantly
for various reasons, including changes in the local, regional or national
economies, the failure to service the Receivables Pool adequately, or the
transfer or relocation of the Servicing from the Company or any Sub-Servicer to
another.
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PROVISIONS APPLICABLE TO A SERIES WILL HAVE ADVERSE CONSEQUENCES FOR
THE SUBORDINATE CLASSES. To the extent specified in the related Prospectus
Supplement, distributions of interest and principal on one Class of Securities
of a series may be subordinated in priority of payment to interest and principal
due on other Classes of Securities of a related series. Consequently, the risk
of loss on the related Receivables pool may be disproportionately allocated to
the holders of the more subordinate classes, making the return on investment on
such classes highly sensitive to the loss and delinquency levels of the related
pool.
MASTER TRUSTS MAY POSE SPREAD RISKS, SINCE ADDITIONAL SERIES MAY BE
ISSUED WITHOUT THE CONSENT OF THE HOLDERS OF PRIOR SERIES. As may be described
in the related Prospectus Supplement, a Master Trust may issue from time to time
more than one series. While the terms of any additional series will be specified
in a supplement to the related Master Trust Agreement, the provisions of such
supplement and, therefore, the terms of any additional series, will not be
subject to prior review by, or consent of, holders of the Securities of any
series previously issued by such Master Trust. Such terms may include methods
for determining applicable investor percentages and allocating collections,
provisions creating different or additional security or credit enhancements and
any other provisions which are made applicable only to such series. The
obligation of the related Trustee to issue any new series is subject to the
condition, among others, that such issuance will not result in any Rating Agency
reducing or withdrawing its rating of the Securities of any outstanding series
(any such reduction or withdrawal is referred to herein as a "Ratings Effect").
There can be no assurance, however, that the terms of any series might not have
an impact on the timing or amount of payments received by a Securityholder of
another series issued by the same Master Trust. See "Description of the
Securities -- Master Trusts."
BOOK-ENTRY REGISTRATION MAY FURTHER REDUCE LIQUIDITY AND MAY LEAD TO
PAYMENT DELAYS. Issuance of the Securities in book-entry form may reduce the
liquidity of such Securities in the secondary trading market since investors may
be unwilling to purchase Securities for which they cannot obtain definitive
physical securities representing such Securityholders' interests, except in
certain circumstances described in the related Prospectus Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct Participants" or "Indirect Participants") or CEDEL or Euroclear
or certain banks, the ability of a Securityholder to pledge a Security to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect to such Securities, may be limited due to lack of a
physical security representing the Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities -- Book Entry
Registration."
SECURITY RATING MAY BE HIGHLY DEPENDENT ON THE RATINGS OF AN EXTERNAL
CREDIT ENHANCER. The rating of Securities credit enhanced by a letter of credit,
financial guaranty insurance policy, reserve fund, credit or liquidity
facilities, cash deposits or other forms of credit enhancement (collectively
"Credit Enhancement") will depend primarily on the creditworthiness of the
issuer of such external Credit Enhancement device (a "Credit Enhancer"). Any
reduction in the rating assigned to the claims-paying ability of the related
Credit Enhancer to honor its obligations pursuant to any such Credit Enhancement
below the rating initially given to the Securities would likely result in a
reduction in the rating of the Securities.
THE RATE OF PAYMENT ON THE SECURITIES IS UNPREDICTABLE, AND MAY BE
HIGHLY VOLATILE; IF THE ACTUAL PAYMENT RATE DEVIATES FROM AN INVESTOR'S
EXPECTATIONS, SUCH INVESTOR'S YIELD MAY BE REDUCED SUBSTANTIALLY. Because the
rate of payment of principal on the Securities will depend, among other things,
on the rate of payment on the related Contracts, the rate of payment of
principal on the Securities cannot
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be predicted. Payments on the Contracts will include scheduled payments as well
as partial and full prepayments (to the extent not replaced with substitute
Contracts), payments upon the liquidation of Defaulted Contracts, payments upon
acquisitions by the Servicer or the Company of Contracts from the related Trust
Property on account of a breach of certain representations and warranties in the
related Trust Agreement, payments upon an optional acquisition by the Servicer
or the Company of Contracts from the related Trust Property (any such voluntary
or involuntary prepayment or other early payment of a Contract, a "Prepayment"),
and residual payments. The rate of early terminations of Contracts due to
Prepayments and defaults may be influenced by a variety of economic and other
factors, including, among others, obsolescence, then current economic conditions
and tax considerations. The risk of reinvesting distributions of the principal
of the Securities will be borne by the Securityholders. The yield to maturity on
Strip Securities or Securities purchased at premiums or discounts to par will be
extremely sensitive to the rate of Prepayments on the related Receivables. In
addition, the yield to maturity on certain other types of classes of Securities,
including Strip Securities, Accrual Securities or certain other Classes in a
series including more than one Class of Securities, may be relatively more
sensitive to the rate of prepayment of the related Contracts than other Classes
of Securities.
The rate of Prepayments of Contracts cannot be predicted and is
influenced by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternate financing and local and
regional economic conditions. Therefore, no assurance can be given as to the
level of Prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at
a discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of Prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
LIMITED LIQUIDITY MAY RESULT IN A SECURITYHOLDER BEING UNABLE TO
LIQUIDATE ITS INVESTMENT. There can be no assurance that a secondary market for
the Securities of any series or Class will develop or, if it does develop, that
it will provide Securityholders with liquidity of investment or that it will
continue for the life of such Securities. The Prospectus Supplement for any
series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
LIMITATIONS ON INTEREST PAYMENTS AND REPOSSESSIONS MAY RESULT IN
REDUCED AND/OR DELAYED PAYMENTS. Generally, under the terms of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), or similar
state legislation, an Obligor who enters military service after the origination
of the related Receivable (including an Obligor who is a member of the National
Guard or is in reserve status at the time of the origination of the Receivable
and is later called to active duty) may not be charged interest (including fees
and charges) above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Receivables. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
(repossess and sell at auction) on an affected Receivable during the Obligor's
period of active duty status. Thus, in the event that such a Receivable goes
into default, there may be delays and losses occasioned by the inability of the
Servicer to realize upon the Financed Vehicle in a timely fashion.
THE TRUST PROPERTY
The Trust Property will include, as specified in the related Prospectus
Supplement, (i) a pool of Receivables, (ii) all monies (including accrued
interest) due thereunder on or after the applicable Cut-off Date, (iii) such
amounts as from time to time may be held in one or more accounts established and
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maintained by the Servicer pursuant to the related Trust Agreement, as described
below and in the related Prospectus Supplement, (iv) the security interests, if
any, in the Vehicles relating to such pool of Receivables, (v) the right to
proceeds from claims on physical damage policies, if any, covering such Vehicles
or the related Obligors, as the case may be, (vi) the proceeds of any
repossessed Vehicles related to such pool of Receivables, (vii) the rights of
the Company under the related Receivables Acquisition Agreement and (viii)
interest earned on certain short-term investments held in such Trust Property,
unless the related Prospectus Supplement specifies that such earnings may be
paid to the Servicer or the Company. The Trust Property will also include, if so
specified in the related Prospectus Supplement, monies on deposit in a
Pre-Funding Account, which will be used by the Trustee to acquire or receive a
security interest in Additional Receivables from time to time during the
Pre-Funding Period specified in the related Prospectus Supplement. See
"Description of the Securities -- Forward Commitments; Pre-Funding." In
addition, to the extent specified in the related Prospectus Supplement, some
combination of Credit Enhancements may be issued to or held by the Trustee on
behalf of the related Trust for the benefit of the holders of one or more
classes of Securities.
The Receivables comprising the Trust Property will, as specifically
described in the related Prospectus Supplement, be either (i) originated by the
Company, (ii) originated by various manufacturers and acquired by the Company,
(iii) originated by various Dealers and acquired by the Company or (iv) acquired
by the Company from originators or owners of Receivables.
The Trust Property will include Receivables with respect to which the
related Contract or the related Vehicles is subject to federal or state
registration or titling requirements.
The Receivables included in the Trust Property will be selected from
those Receivables held by the Company based on the criteria specified in the
applicable Trust Agreement and described herein under "The Receivables" and
"ACC's Automobile Financing Program" and in the related Prospectus Supplement.
With respect to each series of Securities, on or prior to the Closing
Date on which the Securities are delivered to Securityholders, the Company or a
Finance Subsidiary will form a Trust by either (i) transferring the related
Receivables into a Trust pursuant to a Trust Agreement between the Company or a
Finance Subsidiary and the Trustee or (ii) entering into an Indenture with an
Indenture Trustee, relating to the issuance of such Securities, secured by the
related Receivables.
The Receivables comprising the Trust Property will generally have been
originated by the Company or acquired by the Company from unaffiliated
originators in accordance with the Company's specified underwriting criteria.
The underwriting criteria applicable to the Receivables included in any Trust
Property will be described in all material respects in the related Prospectus
Supplement.
THE ISSUERS
With respect to each series of Securities, the Company will either
establish a separate Trust that will issue such Securities, or the Company will
form a Finance Subsidiary that will issue such Securities, in each case pursuant
to the related Trust Agreement. For purposes of this Prospectus and the related
Prospectus Supplement, the Finance Subsidiary, if the Finance Subsidiary issues
the related Securities, or the related Trust, if a Trust issues the related
Securities, shall be referred to as the "Issuer" with respect to such
Securities.
Upon the issuance of the Securities of a given series, the proceeds
from such issuance will be generally used by the Company to purchase
Receivables. The Servicer will service the related Receivables pursuant to the
applicable Servicing Agreement, and will be compensated for acting as the
Servicer. To facilitate servicing and to minimize administrative burden and
expense, the Servicer may be appointed custodian for the related Receivables by
each Trustee and the Company, as may be set forth in the related Prospectus
Supplement.
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If the protection provided to the Securityholders of a given class by
the subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Vehicles which secure the Defaulted Contracts. In such event, the
factors described above under "Risk Factors -- Ownership of Contracts will not
necessarily be vested in the related Trustee, with the result that delays and
disruptions in payments may occur", "Risk Factors -- Security Interests in both
the Receivables and the underlying Vehicles may not be valid under certain
circumstances" and "Risk Factors -- Restrictions on Recoveries may result in the
related Issuer receiving substantially less than the face amount of the related
Contract" and described below under "Certain Legal Aspects of the Receivables"
may affect such Issuer's ability to realize on the collateral securing such
Contracts, and thus may reduce the proceeds to be distributed to the
Securityholders of such series.
THE RECEIVABLES
RECEIVABLES POOLS
Information with respect to the Receivables in the related Trust
Property will be set forth in the related Prospectus Supplement, including, to
the extent appropriate, the composition of such Receivables and the distribution
of such Receivables by geographic concentration, payment frequency and current
principal balance as of the applicable Cut-off Date.
THE CONTRACTS
As specified in the related Prospectus Supplement, the Contracts may
consist of any combination of Rule of 78s Contracts, or Simple Interest
Contracts. Generally, "Rule of 78s Contracts" provide for fixed level monthly
payments which will amortize the full amount of the Contract over its term. The
Rule of 78s Contracts provide for allocation of payments according to the "sum
of periodic balances" or "sum of monthly payments" method (the "Rule of 78s").
Each Rule of 78s Contract provides for the payment by the Obligor of a specified
total amount of payments, payable in monthly installments on the related due
date, which total represents the principal amount financed and finance charges
in an amount calculated on the basis of a stated annual percentage rate ("APR")
for the term of such Contract. The rate at which such amount of finance charges
is earned and, correspondingly, the amount of each fixed monthly payment
allocated to reduction of the outstanding principal balance of the related
Contract are calculated in accordance with the Rule of 78s. Under the Rule of
78s, the portion of each payment allocable to interest is higher during the
early months of the term of a Contract and lower during later months than that
under a constant yield method for allocating payments between interest and
principal. Notwithstanding the foregoing, as specified in the related Prospectus
Supplement, all payments received by the Servicer on or in respect of the Rule
of 78s Contracts may be allocated on an actuarial or simple interest basis so
that such payments may be accounted for, and presented on a basis consistent
with, the payments on the Securities, which will in no case be on the Rule 78s'
method.
"Simple Interest Contracts" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Contract, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to
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interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s Contract in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest Contract
is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule of
78s Contract calculated in accordance with the Rule of 78s will always be less
than had such rebate been calculated on an actuarial basis and generally will be
less than the remaining scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on schedule.
Distributions to Security holders may not be affected by Rule of 78s rebates
under the Rule of 78s Contract because pursuant to the related Prospectus
Supplement such distributions may be determined using the actuarial or simple
interest method.
DELINQUENCIES, REPOSSESSIONS, AND LOSSES
Certain information relating to the Company's delinquency, repossession
and loss experience with respect to Contracts it has originated or acquired will
be set forth in each Prospectus Supplement. This information may include, among
other things, the experience with respect to all Contracts in the Company's
portfolio during certain specified periods. As of the Cut-Off Date with respect
to any issuance of Securities, the related Trust Property will not contain more
than 5% (by aggregate unpaid principal balance) of Contracts which are 30-59
days delinquent. There can be no assurance that the delinquency, repossession
and loss experience on any Trust Property will be comparable to the Company's
prior experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
As more fully described in the related Prospectus Supplement, if a
Contract permits a Prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of Prepayments on the Receivables may be influenced by a variety of
factors, such as increasing or declining rates of interest, the rate of
inflation, an improvement in the related Obligors' credit standing, and
availability of alternative sources of financing. In addition, under certain
circumstances, the Company will be obligated to acquire Receivables from the
related Trust Property pursuant to the applicable Trust Agreement or Receivables
Acquisition Agreement as a result of breaches of representations and warranties.
Any reinvestment risks resulting from a faster or slower amortization of the
related Securities which results from Prepayments will be borne entirely by the
related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment penalties.
ACC'S AUTOMOBILE FINANCING PROGRAM
GENERAL
ACC is an automobile finance company specializing in the indirect
financing of automobile loans to consumers with non-prime credit. The ACC
program provides automobile dealers with an alternative source of financing for
those consumers who typically do not qualify for financing by the dealer's
traditional financing sources.
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BUSINESS STRATEGY
ACC's primary objective is to increase its net income by expanding
market share. ACC believes it has the operational and administrative capacity to
expand its business and attain this objective. ACC strategies for achieving this
objective, which focus on credit quality, efficiency of operations and
expansion, are as follows:
- Enforcing nationwide consistency of underwriting standards and
controls, including verification and document review;
- Increasing the volume of contract purchases from existing dealers;
- Increasing the number of active dealers in ACC's existing geographic
markets;
- Entering selected new markets in metropolitan areas where ACC can
recruit experienced regional sales managers or correspondents;
- Using ACC's contract database to refine underwriting standards,
program pricing and overall credit risk evaluation capabilities;
- Attracting and retaining qualified employees;
- Maintaining reliable funding sources;
- Approving applications and funding contract purchases in a timely
manner; and
- Maintaining and improving ACC's delinquency monitoring and collective
processes.
Overall, ACC's strategy is to purchase contracts with yields, after
discounts, that compensate for the credit risk inherent in the non-prime market,
and to manage this credit risk through ACC's internal credit evaluation and its
proactive collection processes.
PERFECTION OF SECURITY INTEREST
Each retail installment sales contract contains a clause granting the
Company or one of its affiliates a security interest in the financed vehicle. In
each state in which ACC does business, a security interest is perfected by
noting the secured party's interest on the vehicle's Manufacturers Statement of
Origin ("MSO") or, in a majority of states, the vehicle's Certificate of Title.
The originating dealer is required to complete the title work and take all the
steps required to perfect the security interest. The loan is subject to payoff
by the dealer if the title is not received with the security interest perfected.
ACC's quality control procedures include a title tracking system used
to review and track title processing by dealers and state authorities until such
time as the Certificate of Title has been received.
REGIONAL CREDIT CENTERS
ACC serves its dealers on a regional basis through its regional credit
centers. ACC believes that these regional centers provide a sufficient local
market presence to meet the needs of its dealers, without incurring the
reduction in operating controls and economies of scale that can result from
operating a large number of small branches. ACC currently has regional credit
centers in Atlanta, Georgia; Dallas, Texas; Newark, Delaware; Miami, Florida;
and San Diego, California.
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APPLICATION PROCESSING AND PURCHASING CRITERIA
Dealers submit credit applications to one of ACC's regional credit
centers, typically by facsimile. Upon ACC's receipt of a credit application, a
credit processor uses an automated system to obtain credit histories, determine
the wholesale value of the vehicle and calculate the credit score of the
application. ACC's credit officers use the credit score as a guide to evaluate
applications, but the approval/declination decision is not based solely on the
credit score. Individual credit officers have limited approval authority and the
approval of a more senior credit manager is required when the credit score or
the amount financed exceeds the individual credit officer's approval limits.
ACC's regional credit centers then notify dealers by facsimile of a credit
decision, usually within three hours of receipt of the application.
The non-prime borrowers under contracts of the type typically purchased
by ACC generally have credit histories which include past bankruptcies,
significant charged-off accounts and/or multiple collection accounts. Further,
other contracts may be purchased by ACC for borrowers with limited or no credit
histories. In light of the deficiencies in the borrowers' credit histories,
ACC's credit officers evaluate other potential offsetting factors such as the
borrowers' residence stability, employment stability, income level relative to
expenses and past performance on other automobile-related debt. If, in the
credit officers' judgment, there are enough offsetting positive factors, such
contracts may be approved for purchase by ACC.
To be eligible for purchase, a contract must be fully amortizing and
provide for level payments over the term of the contract, must grant a first
priority security interest in the financed vehicle to OFL-A or ACC, must
prohibit the sale or transfer of the financed vehicle without ACC's consent and
must allow for acceleration of the maturity of the contract if the vehicle is
sold or transferred without this consent. The portions of payments on contracts
allocable to principal and interest are, for payoff and deficiency purposes,
determined in accordance with the law of the state in which the contract was
originated.
FUNDING PACKAGE COMPLETION, VERIFICATION AND FUNDING
After receiving an approval from one of ACC's regional credit centers
and compiling a set of documents the dealers believe to be consistent with ACC's
documentation requirements, the dealers send these funding packages to ACC's
central funding group in San Diego. ACC generally requires that funding packages
include proof of the borrower's residency, income, insurance and title.
ACC's funding department reviews each contract and verifies the
application data and contract documentation. The funding department also
confirms or reconfirms the borrower's employment and the insurance on the
vehicle. ACC believes one of the most important verifications is a direct
telephone interview of the borrower to confirm the terms of the contract, the
source of the down payment and the equipment on the vehicle. ACC typically will
not fund a contract without a prior telephone interview of the borrower. ACC
believes this process reduces the risk of misrepresentation by dealers and/or
borrowers and provides a basis for future borrower contact.
A funding package may be returned if it does not comply with the terms
of the initial approval or if ACC discovers facts that were not disclosed during
the approval process. As an additional quality control check, ACC's data
processing systems perform an automated review of the contracts and identify any
characteristics not in compliance with ACC's minimum underwriting standards.
POST-FUNDING QUALITY REVIEWS
ACC uses its automated systems to continue to monitor contracts after
funding. In addition, ACC's quality control manager, who reports directly to the
Chief Executive Officer, completes a full quality control review of a random
sample of 5% of the newly-originated contracts. This review focuses on
compliance with underwriting standards, the quality of the credit decision and
the completeness of contract documentation. On a monthly basis, ACC's quality
control manager issues a report to ACC's senior management summarizing (by
credit processor and credit officer) policy exceptions, processing errors,
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documentation deficiencies and credit decisions which the quality control
manager considered overly aggressive. The bonuses of ACC's credit officers are,
in part, dependent upon results of these quality control reviews.
SERVICING OF CONTRACTS
ACC services all of the contracts it originates, whether owned by ACC
or sold in an asset-backed security. ACC's servicing generally consists of
payment and pay-off processing, collecting, insurance tracking, title tracking,
responding to borrower inquiries, investigating delinquencies, repossessing and
reselling collateral, collection reporting and credit performance monitoring.
BILLING AND COLLECTION PROCESS
ACC sends each borrower a monthly bill, rather than using payment
coupon books. All payments are directed to ACC's lock-box account at a regional
commercial bank. On a daily basis, the lock-box bank retrieves and processes
payments received, and then deposits the entire amount into the lock-box
account. A simultaneous electronic data transfer of borrower payment data is
made to ACC for posting to ACC's computerized records.
ACC's collection process is based on a strategy of closely monitoring
contracts and maintaining frequent contact with borrowers. As part of this
process, ACC makes early, frequent contact with delinquent borrowers and
attempts to identify the underlying causes of a borrower's delinquency and to
make an early collection risk assessment. ACC believes that its proactive
collection process, including the early identification of payment problems,
reduces its repossession rates and loss levels.
In support of its collection efforts, ACC maintains a collection
software package with customized features designed for high-intensity collection
operations, which includes a high-penetration autodialer. With the aid of the
autodialer, ACC initially attempts to contact any borrower whose account becomes
six days past due.
Although ACC emphasizes telephonic contact, ACC also typically sends
past due notices to borrowers when an account becomes ten days past due. In some
cases, ACC uses the Western Union Quick Collection Service to collect borrowers'
payments and to reduce the incidence of bad checks. When necessary, ACC uses a
network of independent agencies to make field visits to borrowers.
REPOSSESSION
ACC repossesses a vehicle when resolution of a delinquency is not
likely or when it believes that its collateral is at risk. ACC makes these
judgments based upon its collectors' discussions with borrowers, the ability or
inability to locate the borrowers and/or the vehicles, the receipt of notices of
liens and other information. ACC uses independent, licensed and bonded
repossession agencies to repossess vehicles as well as the services of an agency
that traces skips (where neither the borrower nor the vehicle can be located) to
supplement its own efforts in locating vehicles. When a vehicle is repossessed,
it generally is sold through a public auction within 60 days of repossession.
ACC generally uses its own staff to pursue recoveries of deficiency balances,
but ACC may also use outside collection agencies which share in any recoveries.
If ACC has reason to believe that a dealer violated any representations or
warranties made to ACC on a defaulted Contract, ACC may pursue its remedies
against the dealer under the Dealer Agreement.
ACC employs the same policies for charging-off contracts on both
contracts it owns and on contracts sold in asset-backed securities. ACC expects
to incur a loss whenever it repossesses a vehicle. When ACC sells a repossessed
vehicle, it records a net loss equal to the outstanding principal balance of the
contract, less the proceeds from the sale of the vehicle.
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If an account becomes 120 days delinquent (other than accounts in
bankruptcy) and ACC has repossessed the vehicle, but not yet received the sale
proceeds, then ACC records a loss equal to the outstanding principal balance of
the contract, less the estimated auction value of the vehicle (which is based
upon wholesale used car values published by nationally recognized firms) and any
expected recoveries under its VSI Insurance. This VSI Insurance protects ACC's
interest in the collateral against uninsured physical damage (including total
loss). If an account becomes 120 days delinquent and ACC has not repossessed the
vehicle, then ACC records a loss equal to the outstanding principal balance of
the contract. Any recoveries received subsequent to the contract being
charged-off, including amounts (i) from the borrower's insurance policies or
service contracts, (ii) from dealers under a breach of the Dealer Agreements or
(iii) from deficiency balances recovered from borrowers, are treated as loss
adjustments in the period when these recoveries are received.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement
with respect to each series of Securities, the related Securityholders of record
will receive reports on or about each Payment Date concerning the payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Pool Factor and various
other items of information. In addition, Securityholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law.
USE OF PROCEEDS
Except as provided in the related Prospectus Supplement, the proceeds
from the sale of the Securities of a given series will be used by the Company
for the acquisition of the related Receivables, for general corporate purposes,
including, but not limited to, the purchase of additional Receivables from
Dealers, repayment of indebtedness and general working capital purposes. The
Company expects that it will make additional transfers of Receivables to the
Trust from time to time, but the timing and amount of any such additional
transfers will be dependent upon a number of factors, including the volume of
Contracts originated or acquired by the Company, prevailing interest rates,
availability of funds and general market conditions.
THE COMPANY AND THE SERVICER
ACC Consumer Finance Corporation ("ACC") is a Delaware
corporation the common shares of which are listed on the NASDAQ National Market.
ACC is the successor corporation to ACC Consumer Finance Corporation, a
California corporation, which was formerly named American Credit Corporation.
American Credit Corporation was incorporated under the laws of California in
July of 1993. On October 17, 1995, American Credit Corporation changed its name
to ACC Consumer Finance Corporation, a California corporation, which, on
November 9, 1995, merged with and into ACC. ACC thereby succeeded to all liens
in favor of, and contracts and agreements of, American Credit Corporation, so
that, unless otherwise noted herein, any such liens in favor of, or contracts
and agreements previously made in the name of or in favor of, American Credit
Corporation are referred to herein as those of ACC.
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The principal executive offices of ACC are located at 12750 High Bluff Drive,
Suite 320, San Diego, California 92130. The telephone number of such office is
(619) 793-6300.
THE TRUSTEE
The Trustee for each series of Securities will be specified in the
related Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Securities (or,
in certain instances, two or more series of Securities) will be issued pursuant
to a Trust Agreement. The following summaries (together with additional
summaries under "The Trust Agreement" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Trust Agreement for
the related Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A series may include one or more Classes of Strip Securities entitled
(i) to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series may
include one or more other Classes of Senior Securities that are senior to one or
more other Classes of Subordinate Securities in respect of certain distributions
of principal and interest and allocations of losses on Receivables.
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In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As provided in the related Trust Agreement and as described in the
related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi--annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. As more fully described in the related
Prospectus Supplement, the Payment Date, will be a specified date in each month,
e.g., the fifteenth or twenty-fifth day of each month (or, in the case of
quarterly-pay Securities, a specified date in every third month; and in the case
of semi-annual pay Securities, a specified date in every sixth month) and the
Record Date will be either be the close of business as of the last day of the
calendar month that precedes the calendar month in which such Payment Date
occurs, or the close of business on the business day preceding such Payment
Date.
Each Trust Agreement will describe a Remittance Period preceding each
Payment Date (for example, in the case of monthly-pay Securities, the calendar
month preceding the month in which a Payment Date occurs). As more fully
provided in the related Prospectus Supplement, collections received on or with
respect to the related Receivables held by a Trust during a Remittance Period
will be required to be remitted by the Servicer to the related Trustee prior to
the related Payment Date and will be used to fund payments to Securityholders on
such Payment Date. As may be described in the related Prospectus Supplement, the
related Trust Agreement may provide that all or a portion of the payments
collected on or with respect to the related Receivables may be applied by the
related Trustee to the acquisition of additional Receivables during a specified
period (rather than be used to fund payments of principal to Securityholders
during such period) with the result that the related Securities will possess an
interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. Any such interest only or revolving
period may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreement may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders.
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Agreement for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the installment payment schedule of the related Receivables, or (b)
attempting to match the amortization rate of the related Securities to an
amortization schedule established at the time such Securities are issued. Any
such feature applicable to any Securities may terminate upon the occurrence of
events to be described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an acceleration of the
amortization of such Securities. Such events which may result in an early
amortization event will generally consist of (i) the Company's inability to
deliver sufficient, additional Receivables to maintain the revolving period,
(ii) an event of default by the Company or the Servicer (i.e., the Company's or
the Servicer's failure to perform their respective duties under the related
Trust Agreement) and (iii) the occurrence of a bankruptcy event with respect to
the Company or the Servicer.
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Neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Company, the Servicer, any Trustee or any of their respective affiliates unless
specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each series covered by a particular Trust Agreement will either evidence
specified beneficial ownership interests in the Trust Property or represent debt
secured by the related Trust Property.
MASTER TRUSTS
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto, the
Company may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Residual Interest in the related Master Trust. Under each such
Master Trust Agreement, the Company may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula for
the determination thereof); (iv) the Payment Dates and the date or dates from
which interest shall accrue; (v) the method for allocating collections to
Securityholders of such series; (vi) any bank accounts to be used by such series
and the terms governing the operation of any such bank accounts; (vii) the
percentage used to calculate monthly servicing fees; (viii) the provider and
terms of any form of Credit Enhancement with respect thereto; (ix) the terms on
which the Securities of such series may be repurchased or remarketed to other
investors; (x) the number of Classes of Securities of such series, and if such
series consists of more than one Class, the rights and priorities of each such
Class; (xi) the extent to which the Securities of such series will be issuable
in book-entry form; (xii) the priority of such series with respect to any other
series; and (xiii) any other relevant terms. None of the Company, the Servicer,
the related Trustee or any Master Trust is required or intends to obtain the
consent of any Securityholder of any outstanding series to issue any additional
series.
Each Master Trust Agreement provides that the Company may designate
terms such that each Master Trust New Issuance has an amortization period which
may have a different length and begin on a different date than such periods for
any series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by enhancement providers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by the
related Master Trust and then outstanding. Under each Master Trust Agreement,
the related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. The Company will have
the option under each Master Trust Agreement to vary among series the terms upon
which a series may be repurchased by the Issuer or remarketed to other
investors. As more fully described in a related Prospectus Supplement, there is
no limit to the number of Master Trust New Issuances that the Company may cause
under a Master Trust Agreement. Each Master Trust will terminate only as
provided in the related Master Trust Agreement. There can be no assurance that
the terms of any Master Trust New Issuance might not have an impact on the
timing and amount of payments received by Securityholders of another series
issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related supplement,
a Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. The obligation of the
related Trustee to authenticate the Securities of any such Master Trust New
Issuance and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on or
before the date upon which the Master Trust New Issuance is to occur, the
Company shall have given the related Trustee, the Servicer, the Rating Agency
and certain related providers of Credit Enhancement, if any, written notice of
such Master Trust New Issuance and the date upon which the Master Trust New
Issuance is to occur; (b) the Company shall have delivered to the related
Trustee a supplement to the related Master Trust Agreement, in form satisfactory
to such Trustee, executed by each party to the related Master Trust Agreement
other than such Trustee;
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(c) the Company shall have delivered to the related Trustee any related Credit
Enhancement agreement; (d) the related Trustee shall have received confirmation
from the Rating Agency that such Master Trust New Issuance will not result in
any Rating Agency reducing or withdrawing its rating with respect to any other
series or Class of such Trust (any such reduction or withdrawal is referred to
herein as a "Ratings Effect"); (e) the Company shall have delivered to the
related Trustee, the Rating Agency and certain providers of Credit Enhancement,
if any, an opinion of counsel acceptable to the related Trustee that for federal
income tax purposes (i) following such Master Trust New Issuance the related
Master Trust will not be deemed to be an association (or publicly traded
partnership) taxable as a corporation, (ii) such Master Trust New Issuance will
not affect the tax characterization as debt of Securities of any outstanding
series or Class issued by such Master Trust that were characterized as debt at
the time of their issuance and (iii) such Master Trust New Issuance will not
cause or constitute an event in which gain or loss would be recognized by any
Securityholders or the related Master Trust; and (f) the delivery of officers'
certificates by the Company confirming the satisfaction of such conditions to
such Master Trust New Issuance. Upon satisfaction of the above conditions, the
related Trustee shall execute the supplement to the related Master Trust
Agreement and issue the Securities of such new series.
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any class of Securities
of a given series may consist of Securities ("Indexed Securities") in which the
principal amount payable at the final scheduled Payment Date (the "Indexed
Principal Amount") is determined by reference to a measure (the "Index") which
will be related to (i) the difference in the rate of exchange between United
States dollars and a currency or composite currency (the "Indexed Currency")
specified in the applicable Prospectus Supplement (such Indexed Securities,
"Currency Indexed Securities"); (ii) the difference in the price of a specified
commodity (the "Indexed Commodity") on specified dates (such Indexed Securities,
"Commodity Indexed Securities"); (iii) the difference in the level of a
specified stock index (the "Stock Index"), which may be based on U.S. or foreign
stocks, on specified dates (such Indexed Securities, "Stock Indexed
Securities"); or (iv) such other objective price or economic measures as are
described in the applicable Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index (each, an "Index") or other price or economic measures used in such
determination will be set forth in the applicable Prospectus Supplement,
together with information concerning tax consequences to the holders of such
Indexed Securities. Depending upon the Index used, the yield to maturity of an
Indexed Security may be highly volatile. Such yield will be a function of the
performance of the Index, and no necessarily of the level of interest rates
generally, as will be the case with Securities offered hereby which are not
Indexed Securities. Indexed Securities, to the extent offered, are likely to be
appropriate investments only for sophisticated investors which would purchase
such Securities as part of an overall hedging strategy, even though such
Securities would be secured, as a credit matter, by the related pool of
automobile loan receivables.
If the determination of the Indexed Principal Amount of an Indexed
Security is based on an Index calculated or announced by a third party and such
third party either suspends the calculation or announcement of such Index or
changes the basis upon which such Index is calculated (other than changes
consistent with policies in effect at the time such Indexed Security was issued
and permitted changes described in the applicable Prospectus Supplement), then
such Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe
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whether the principal amount of the related Indexed Security, if any, that would
be payable upon redemption or repayment prior to the applicable final scheduled
Distribution Date will be the Face Amount of such Indexed Security, the Indexed
Principal Amount of such Indexed Security at the time of redemption or repayment
or another amount described in such Prospectus Supplement.
BOOK-ENTRY REGISTRATION
As may be described in the related Prospectus Supplement,
Securityholders of a given series may hold their Securities through DTC (in the
United States) or CEDEL or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Securities in respect of
a given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders of a given series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such series may
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do so only through Participants and Indirect Participants. In addition,
Securityholders of a given series will receive all distributions of principal
and interest through the Participants who in turn will receive them from DTC.
Under a book-entry format, Securityholders of a given series may experience some
delay in their receipt of payments, since such payments will be forwarded by the
applicable Trustee to Cede, as nominee for DTC. DTC will forward such payments
to its Participants, which thereafter will forward them to Indirect Participants
or such Securityholders. It is anticipated that the only "Securityholder" in
respect of any series will be Cede, as nominee of DTC. Securityholders of a
given series will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each series that it will take
any action permitted to be taken by a Securityholder of the related series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 28 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear
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Operator, not the Cooperative. The Cooperative establishes policy for the
Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE NOTES
As may be described in the related Prospectus Supplement, the
Securities will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given series or their nominees, rather
than to DTC or its nominee, only if (i) the Trustee in respect of the related
series advises in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Trustee is unable to locate a qualified successor, (ii) such Trustee, at
its option, elects to terminate the book-entry-system through DTC or (iii) after
the occurrence of an "Event of Default" under the related Indenture or a default
by the Servicer under the related Trust Agreements, Securityholders representing
at least a majority of the outstanding principal amount of such Securities
advise the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
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Definitive Securities in respect of a given series of Securities will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on or prior to each Payment
Date for such series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Property setting forth the
information specifically described in the related Trust Agreement which
generally will include the following information:
(i) the amount of the distribution with respect to each class
of Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of
business on the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool
Factor for each Class of Securities after giving effect to all payments
reported under (ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to
the related Remittance Period;
(vii) the amount of the aggregate purchase amounts for
Receivables that have been reacquired, if any, for such Remittance
Period; and
(viii) the amount of coverage under any letter of credit,
financial guaranty insurance policy, reserve account or other form of
credit enhancement covering default risk as of the close of business on
the applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v)
with respect to the Securities of any series will be expressed as a dollar
amount per $1,000 of the initial principal balance of such Securities, as
applicable. The actual information to be set forth in statements to
Securityholders of a series will be described in the related Prospectus
Supplement.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
FORWARD COMMITMENTS; PRE-FUNDING
An Issuer may enter into an agreement (each, a "Forward Purchase
Agreement") with the Company whereby the Company will agree to transfer
additional Receivables to such Issuer following the date on which such Issuer is
established and the related Certificates are issued. The Issuer may enter into
Forward Purchase Agreements to permit the acquisition of additional Receivables
that could not be delivered by the Company or have not formally completed the
origination process, in each case prior to the date on which the Securities are
delivered to the Securityholders (the "Closing Date"). Any Forward
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Purchase Agreement will require that any Receivables so transferred to the
Issuer conform to the requirements specified in such Forward Purchase Agreement.
If a Forward Purchase Agreement is to be utilized, and unless otherwise
specified in the related Prospectus Supplement, the related Trustee will be
required to deposit in a segregated account (each, a "Pre-Funding Account") up
to 100% of the net proceeds received by the Trustee in connection with the sale
of one or more classes of Securities of the related Series; the additional
Receivables will be transferred to the related Issuer in exchange for money
released to the Company from the related Pre-Funding Account. Each Forward
Purchase Agreement will set a specified period (the "Funding Period") during
which any such transfers must occur; a Funding Period will generally not exceed
three months, and in no event will exceed nine months. The Forward Purchase
Agreement or the related Trust Agreement will require that, if all moneys
originally deposited to such Pre-Funding Account are not so used by the end of
the related Funding Period, then any remaining moneys will be applied as a
mandatory prepayment of the related class or classes of Securities as specified
in the related Prospectus Supplement.
During the Funding Period the moneys deposited to the Pre-Funding
Account will either (i) be held uninvested or (ii) will be invested in
cash-equivalent investments rated in one of the four highest rating categories
by at least one nationally recognized statistical rating organization and which
will either mature prior to the end of the Funding Period, or will be drawable
on demand and in any event, will not constitute the type of investment which
would require registration of the related Issuer as an "investment company"
under the Investment Company Act of 1940, as amended.
The related Forward Purchase Agreement and/or Trust Agreement will set
forth the standards and required characteristics for pre-funded Receivables;
such standards and required characteristics will require that the principal
statistical measurements of the final pool do not vary materially from the final
pool as it is required to appear, as disclosed in the related Prospectus
Supplement. In most cases this will also mean that the final pool will not vary
materially, in terms of its principal statistical characteristics, from the
original pool (i.e., the pool before the addition of the pre-funded
Receivables). For purposes of the foregoing, the "principal statistical
characteristics" will be the weighted average Coupon Rate, weighted average
remaining term to maturity and geographic distribution of Obligors.
The related Prospectus Supplement will present the disclosure
concerning the effect on the related Trust of the pre-funded Receivables on an
aggregate basis; i.e., the related Prospectus Supplement will describe the
characteristics of the entire pool of Receivables (on an aggregate basis)
following the addition of the pre-funded Receivables.
In the event that the Company is unable to deliver sufficient
additional, qualifying Receivables to utilize fully the Pre-Funding Account
moneys, the remaining moneys will be applied as a mandatory prepayment of the
related class or classes of Securities as specified in the related Prospectus
Supplement. It is expected that such moneys will be so applied at par, i.e.,
with the payment of any prepayment or other "make-whole" type premium. Depending
upon the movement of interest rates from the pricing date of the related
Securities to the date of such prepayment, holders of the prepaid class(es) may
be unable to reinvest such prepaid amounts at a yield equal to (or in excess of)
the yield that they were expecting to receive on their Securities. Furthermore,
if an investor purchased such Securities at a premium prior to such prepayment,
such investor could suffer a loss due to the prepayment being made at par,
rather than at a premium.
The Company expects to disclose, in its periodic reports to be filed
with respect to each issuance of Securities, as required by the Exchange Act,
the status of any Pre-Funding Account as of each Payment Date occurring during
the related Funding Period. Following the end of any Funding Period the Company
will file, in a Current Report on Form 8-K, statistical information regarding
the additional Receivables added to the related Trust Property during such
Funding Period. Such information will be presented in a similar fashion as the
information on the original pool in the related Prospectus Supplement, and will
be presented for the pool of additional Receivables in isolation, as well as for
the entire pool of Receivables (on an aggregate basis) following the addition of
the pre-funded Receivables.
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DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which a Trust Property will be created and the related Securities in
respect of such Trust Property will be issued. For purposes of this Prospectus,
the term "Trust Agreement" as used with respect to a Trust means, collectively,
and except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Receivables and
the issuance of the related Securities, including without limitation the
Indenture, (i.e. pursuant to which any Notes shall be issued). Forms of the
Trust Agreement have been filed as exhibits to the Registration Statement of
which the Prospectus forms a part. The summary does not purport to be complete.
It is qualified in its entirety by reference to the provisions of the Trust
Agreements.
ORIGINATION OF THE RECEIVABLES BY THE COMPANY AND ACQUISITION OF THE RECEIVABLES
PURSUANT TO A RECEIVABLES ACQUISITION AGREEMENT
On the closing date specified with respect to any given series of
Securities (the "Closing Date"), the Company or a Finance Subsidiary will
transfer Receivables originated by the Company either to a Trust pursuant to a
Pooling Agreement, or will pledge the Company's, or the Finance Subsidiary's
right, title and interests in and to such Receivables to a Trustee on behalf of
the Securityholders pursuant to an Indenture. The Company or a Finance
Subsidiary will either transfer the Receivables to a Trust pursuant to a Pooling
Agreement, or will pledge the Company's right, title and interest in and to such
Receivables to a Trustee on behalf of Securityholders pursuant to an Indenture.
The obligations of the Company or a Finance Subsidiary and the Servicer under
the related Trust Agreement include those specified below and in the related
Prospectus Supplement.
As more fully described in the related Prospectus Supplement, the
Company will be obligated to acquire from the related Trust Property its
interest in any Receivable transferred to a Trust or pledged to a Trustee on
behalf of Securityholders if the interest of the Securityholders therein is
materially adversely affected by a breach of any representation or warranty made
by the Company with respect to such Receivable, which breach has not been cured
following the discovery by or notice to the Company of the breach. In addition,
if so specified in the related Prospectus Supplement, the Company may from time
to time reacquire certain Receivables or substitute other Receivables for such
Receivable subject to specified conditions set forth in the related Trust
Agreement.
ACCOUNTS
With respect to each series of Securities issued by a Trust, the
Servicer will establish and maintain with the applicable Trustee one or more
accounts, in the name of such Trustee on behalf of the related Securityholders,
into which all payments made on or with respect to the related Receivables will
be deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
Any other accounts to be established with respect to a Trust, including
any reserve account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Securities. Subject
to the approval of the Rating Agencies and the related Credit Enhancer, if any,
Eligible Investments may include securities issued by the Company, the
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Servicer or their respective affiliates or other trusts created by the Company
or its affiliates (any such Eligible Investments described in this sentence,
"Company Investment Contracts"). A Company Investment Contract will be a funding
agreement designed to allow the Company or the related Servicer access to the
money held in the related Trust Account prior to the date on which such money is
required to make distributions to the Securityholders. In effect, the money in
the Trust Accounts will be invested in a note issued by the Company or the
related Servicer. Any such Company Investment Contract would be employed to
lessen the effects of "negative carry" or "negative arbitrage" on the structure
of the Securities, i.e., to permit the reinvestment of the Trust Account moneys
at a higher rate than would be obtainable through investment of other types of
Eligible Investments. The terms of any Company Investment Contract will be
described in the related Prospectus Supplement, and a copy thereof will be filed
with the Commission on a Current Report in connection with the issuance of the
related Securities. Except as described below or in the related Prospectus
Supplement, Eligible Investments are limited to obligations or securities that
mature not later than the business day immediately preceding the related Payment
Date. However, subject to certain conditions, funds in the reserve account may
be invested in securities that will not mature prior to the date of the next
distribution and will not be sold to meet any shortfalls. Thus, the amount of
cash in any reserve account at any time may be less than the balance of such
reserve account. If the amount required to be withdrawn from any reserve account
to cover shortfalls in collections on the related Receivables exceeds the amount
of cash in such reserve account a temporary shortfall in the amounts distributed
to the related Securityholders could result, which could, in turn, increase the
average life of the Securities of such series. Except as otherwise specified in
the related Prospectus Supplement, investment earnings on funds deposited in the
applicable Trust Accounts, net of losses and investment expenses (collectively,
"Investment Earnings"), shall be deposited in the applicable Collection Account
on each Payment Date and shall be treated as collections of interest on the
related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
THE SERVICER
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be the Company, its
designee, or an affiliate of the Company and may have other business
relationships with the Company or the Company's affiliates. The Servicer with
respect to each series will service the Receivables contained in the Trust Fund
for such series. Any Servicer may delegate its servicing responsibilities to one
or more sub-servicers, but will not be relieved of its liabilities with respect
thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Trust Agreement. An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Securityholders will constitute a Servicer Default by the Servicer under the
related Trust Agreement.
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SERVICING PROCEDURES
Each Trust Agreement will provide that the Servicer will make
reasonable efforts to collect all payments due with respect to the Receivables
which are part of the Trust Fund and, in a manner consistent with the related
Trust Agreement, will continue such collection procedures as the Servicer
follows with respect to the particular type of Receivable in the particular pool
it services for itself and others. Consistent with its normal procedures, the
Servicer may, in its discretion and on a case-by-case basis, arrange with the
Obligor on a Receivable to extend or modify the payment schedule. Some of such
arrangements (including, without limitation any extension of the payment
schedule beyond the final scheduled Payment Date for the related Securities) may
result in the Servicer acquiring such Receivable if such Contract becomes a
Defaulted Contract. The Servicer may sell the Vehicle securing the respective
Defaulted Contract, if any, at a public or private sale, or take any other
action permitted by applicable law. See "Certain Legal Aspects of the
Receivables".
PAYMENTS ON RECEIVABLES
With respect to each series of Securities, unless otherwise specified
in the related Prospectus Supplement, the Servicer will deposit into the
Collection Account all payments on the related Receivables (from whatever
source) and all proceeds of such Receivables collected within three (3) business
days of receipt thereof in the related collection facility, such as a lock-box
account or collection account. Moneys deposited in such collection facility for
Trust Property may be commingled with funds from other sources.
SERVICING COMPENSATION
As may be described in the related Prospectus Supplement with respect
to any series of securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee for each Collection Period (the "Servicing Fee") in an
amount equal to a specified percentage per annum (as set forth in the related
Prospectus Supplement, the "Servicing Fee Rate") of the value of the assets of
the Trust Property, generally as of the first day of such Collection Period.
Each Prospectus Supplement and Servicing Agreement will specify the priority of
distributions with respect to the Servicing Fee (together with any portion of
the Servicing Fee that remains unpaid from prior Payment Dates). Generally, the
Servicing Fee will be paid prior to any distribution to the related
Securityholders.
The Servicer will also collect and retain any late fees, late charges
with respect to interest paid on past due amounts and other administrative fees
or similar charges allowed by applicable law with respect to the Receivables,
and will be entitled to reimbursement from each Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments and
late fees and other charges in accordance with the Servicer's normal practices
and procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of similar types of receivables as an agent
for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the related Receivables, investigating
delinquencies, sending billing statements to Obligors, reporting tax information
to Obligors, paying costs of collection and disposition of defaults, and
policing the collateral. The Servicing Fee also will compensate the Servicer for
administering the related Receivables, accounting for collections and furnishing
statements to the applicable Trustee and the applicable Indenture Trustee, if
any, with respect to distributions. The Servicing Fee also will reimburse the
Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Receivables.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Indenture
Trustee
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to the holders of Notes (the "Noteholders") and by the applicable Trustee to the
holders of Certificates (the "Certificateholders") of such series. The timing,
calculation, allocation, order, source, priorities of and requirements for each
class of Noteholders and all distributions to each class of Certificateholders
of such series will be set forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a Class of Securities of a given series
will be subordinate to distributions in respect of interest on such Class, and
distributions in respect of the Certificates of such series may be subordinate
to payments in respect of the Notes of such series.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of Credit Enhancement arrangements, if any, and
the provider thereof, if applicable, with respect to each class of Securities of
a given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same series, and Credit Enhancement for a series of Securities may cover one or
more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or
series of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
series of Securities, Securityholders of any such series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Prior to each Payment Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such series described under "Description
of the Securities--Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
Servicer during the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Closing Date) with certain standards
relating to the servicing of the Receivables.
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Each Trust Agreement will also provide for delivery to the related
Trust and/or the applicable Indenture Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under such Trust Agreement in all material respects throughout the
preceding 12 months (or, in the case of the first such certificate, the period
from the applicable Closing Date) or, if there has been a default in the
fulfillment of any such obligation in any material respect, describing each such
default. The Servicer also will agree to give each Indenture Trustee and each
Trustee notice of certain Servicer Defaults (as hereinafter defined) under the
related Trust Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICERS
Each Trust Agreement will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon determination
that the performance by the Servicer of such duties is no longer permissible
under applicable law. No such resignation will become effective until the
related Trustee or a successor servicer has assumed the Servicer's servicing
obligations and duties under the Trust Agreement.
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will further provide that neither the Servicer nor any of its
respective directors, officers, employees, or agents shall be under any
liability to the related Issuer or the related Securityholders for taking any
action or for refraining from taking any action pursuant to such Trust
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, such Trust Agreement will
provide that the Servicer is under no obligation to appear in, prosecute, or
defend any legal action that is not incidental to its servicing responsibilities
under such Trust Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in any such Trust Agreement, any
entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer or, with respect to its
obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the successor
to the Servicer under such Trust Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under a Trust Agreement will include (i) any failure by the
Servicer to deliver to the applicable Trustee for deposit in any of the related
Trust Accounts any required payment or to direct such Trustee to make any
required distributions therefrom, which failure continues unremedied for more
than three (3) Business Days after written notice from such Trustee is received
by the Servicer or after discovery by the Servicer; (ii) any failure by the
Servicer duly to observe or perform in any material respect any other covenant
or agreement in such Trust Agreement, which failure materially and adversely
affects the rights of the related Securityholders and which continues unremedied
for more than thirty (30) days after the giving of written notice of such
failure (1) to the Servicer by the applicable Trustee or (2) to the Servicer,
and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 50% of the voting rights of such
outstanding Securities; (iii) any Insolvency Event; and (iv) any claim being
made on a Policy issued as Credit Enhancement. An "Insolvency Event" shall mean
financial insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Servicer and certain
actions by the Servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations.
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RIGHTS UPON SERVICER DEFAULT
As more fully described in the related Prospectus Supplement, as long
as a Servicer Default under a Trust Agreement remains unremedied, the applicable
Trustee, Credit Enhancer or holders of Securities of the related series
evidencing not less than 50% of the voting rights of such then outstanding
Securities may terminate all the rights and obligations of the Servicer, if any,
under such Trust Agreement, whereupon a successor servicer appointed by such
Trustee or such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Trust Agreement and will be entitled to
similar compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such bankruptcy trustee or official may have the
power to prevent the applicable Trustee or such Securityholders from effecting a
transfer of servicing. In the event that the Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer in the performance of its
obligations under the related Trust Agreement and its consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts in accordance with such Trust Agreement. No such waiver shall impair
the Securityholders' rights with respect to subsequent defaults.
AMENDMENT
As more fully described in the related Prospectus Supplement, each of
the Trust Agreements may be amended by the parties thereto, without the consent
of the related Securityholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreements or of modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and subject to the approval of any Credit Enhancer. As may
be described in the related Prospectus Supplement, the Trust Agreements may also
be amended by the Company, the Servicer, and the applicable Trustee with the
consent of the holders of Securities evidencing at least a majority of the
voting rights of such then outstanding Securities for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Trust Agreements or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount or priority of, or accelerate or delay the
timing of, collections of payments on the related Receivables or distributions
that are required to be made for the benefit of such Securityholders or (ii)
reduce the aforesaid percentage of the Securities of such series which are
required to consent to any such amendment, without the consent of the
Securityholders of such series.
INSOLVENCY EVENT
As described in the related Prospectus Supplement, if an Insolvency
Event occurs with respect to a Debtor relating to the applicable Trust Property,
the related Trust will terminate, and the Receivables of the related Trust
Property will be liquidated and each such Trust will be terminated 90 days after
the date of such Insolvency Event, unless, before the end of such 90-day period,
the Trustee of such Trust shall have received written instructions from each of
the related Securityholders (other than the Company) and/or Credit Enhancer to
the effect that such party disapproves of the liquidation of such Receivables.
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Promptly after the occurrence of any Insolvency Event with respect to an
Obligor, notice thereof is required to be given to such Securityholders and/or
Credit Enhancer; provided, however, that any failure to give such required
notice will not prevent or delay termination of any Trust. Upon termination of
any Trust, the applicable Trustee shall direct that the assets of such Trust be
promptly sold (other than the related Trust Accounts) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from any
such sale, disposition or liquidation of such Receivables will be treated as
collections on such Receivables and deposited in the related Collection Account.
If the proceeds from the liquidation of such Receivables and any amounts on
deposit in the Reserve Account, if any, and the related Distribution Account are
not sufficient to pay the Securities of the related series in full, and no
additional Credit Enhancement is available, the amount of principal returned to
Securityholders will be reduced and some or all of such Securityholders will
incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
any related Trust without the unanimous prior approval of all Certificateholders
(including the Company, if applicable) of such Trust and the delivery to such
Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the
Company and the applicable Trustee pursuant to the related Trust Agreement will
terminate upon the earlier to occur of (i) the maturity or other liquidation of
the last related Receivable and the disposition of any amounts received upon
liquidation of any such remaining Receivables and (ii) the payment to
Securityholders of the related series of all amounts required to be paid to them
pursuant to such Trust Agreement. As more fully described in the related
Prospectus Supplement, in order to avoid excessive administrative expense, the
Servicer will be permitted in respect of the applicable Trust Property, unless
otherwise specified in the related Prospectus Supplement, at its option to
purchase from such Trust Property, as of the end of any Collection Period
immediately preceding a Payment Date, if the Pool Balance of the related
Contracts is less than a specified percentage (set forth in the related
Prospectus Supplement) of the initial Pool Balance in respect of such Trust
Property, all such remaining Receivables at a price equal to the aggregate of
the loan balances thereof as of the end of such Collection Period. The related
Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to the Trust Property, the applicable Trustee will, within ten days
following a Payment Date as of which the Pool Balance is equal to or less than
the percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Trust
Property will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of Receivables by the Company or its Finance Subsidiary to
the Trust pursuant to the related Trust Agreement, the perfection of the
security interests in the Receivables and the enforcement of rights to realize
on the Vehicles as collateral for the Receivables are subject to a number of
federal and
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state laws, including the UCC as in effect in various states. As specified in
each Prospectus Supplement, the Servicer will take such action as is required to
perfect the rights of the Trustee in the Receivables. If, through inadvertence
or otherwise, a third party were to purchase (including the taking of a security
interest in) a Receivable for new value in the ordinary course of its business,
without actual knowledge of the Trust's interest, and take possession of a
Receivable, the purchaser would acquire an interest in such Receivable superior
to the interest of the Trust. As further specified in each Prospectus
Supplement, no action will be taken to perfect the rights of the Trustee in
proceeds of any insurance policies covering individual Vehicles or Obligors.
Therefore, the rights of a third party with an interest in such proceeds could
prevail against the rights of the Trust prior to the time such proceeds are
deposited by the Servicer into a Trust Account.
SECURITY INTERESTS IN THE FINANCED VEHICLES
General
Retail installment sale contracts such as the Receivables evidence the
credit sale of automobiles and light duty trucks by dealers to consumers. The
contracts also constitute personal property security agreements and include
grants of security interests in the related automobiles and light duty trucks
under the UCC. Perfection of security interests in automobiles and light duty
trucks is generally governed by the vehicle registration or titling laws of the
state in which each vehicle is registered or titled. In most states a security
interest in a vehicle is perfected by notation of the secured party's lien on
the vehicle's certificate of title.
Perfection
Pursuant to the Trust Agreement, the Company will sell and assign the
Receivables it has originated or acquired and its security interests in the
Vehicles to the Trustee. Alternatively, the Company may sell and assign the
Receivables and its interest in the Vehicles to a Finance Subsidiary which will,
in turn, sell and assign such Receivables and related security interests to the
Trustee. Each of the related Prospectus Supplements will specify whether,
because of the administrative burden and expense, the Company, the Servicer or
the Trustee will amend any certificate of title to identify the Trustee as the
new secured party on the certificates of title relating to the Vehicles. Each of
the related Prospectus Supplements will specify the UCC financing statements to
be filed in order to perfect the transfer to the Finance Subsidiary of
Receivables and the transfer by the Finance Subsidiary to the Trustee of the
Receivables. Further, although the Trustee will not rely on possession of the
Receivables as the legal basis for the perfection of its interest therein or in
the security interests in the Vehicles, the Servicer, as specified in the
related Prospectus Supplement, will continue to hold the Receivables and any
certificates of title relating to the Vehicles in its possession as custodian
for the Trustee pursuant to the related Trust Agreement which, as a practical
matter, should preclude any other party from claiming a competing security
interest in the Receivables on the basis that the security interest is perfected
by possession.
A security interest in a motor vehicle registered in most states may be
perfected against creditors and subsequent purchasers without notice for
valuable consideration only by one or more of the following: depositing with the
related Department of Motor Vehicles or analogous state office a properly
endorsed certificate of title for the vehicle showing the secured party as legal
owner or lienholder thereon, or filing a sworn notice of lien with the related
Department of Motor Vehicles or analogous state office and noting such lien on
the certificate of title, or, if the vehicle has not been previously registered,
filing an application in usual form for an original registration together with
an application for registration of the secured party as legal owner or
lienholder, as the case may be. However, under the laws of most states, a
transferee of a security interest in a motor vehicle is not required to reapply
to the related Department of Motor Vehicles or analogous state office for a
transfer of registration when the security interest is sold or when the interest
of the transferee arises from the transfer of a security interest by the
lienholder to secure payment or performance of an obligation. Accordingly, under
the laws of such states, the assignment by the Company of its interest in the
Receivables to the Trustee under the related Trust Agreement is an effective
conveyance of the security interest of the Company in the Receivables, and
specifically, the
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Vehicles, without such re-registration and without amendment of any lien noted
on the related certificate of title, and (subject to the immediately succeeding
paragraphs) the Trustee will succeed to the Company's rights as secured party.
Although re-registration of a Vehicle is not necessary to convey a
perfected security interest in the Vehicles to the Trustee, the Trustee's
security interest could be defeated through fraud, negligence, forgery or
administrative error since it may not be listed as legal owner or lienholder on
the certificates of title to the Vehicles. However, in the absence of fraud,
negligence, forgery or administrative error, the notation of the Company's or
the unaffiliated originator's lien on the certificates of title will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Vehicle or subsequent creditors who take a security interest in a Vehicle. In
the related Trust Agreement, the Company or its Finance Subsidiary will
represent and warrant that it has, or has taken all action necessary to obtain,
a perfected security interest in each Vehicle. If there are any Vehicles as to
which the Company failed to obtain a first priority perfected security interest,
the Company's security interest would be subordinate to, among others,
subsequent purchasers of such Vehicles and holders of first priority perfected
security interests therein. Such a failure, however, would constitute a breach
of the Company's or the Finance Subsidiary's representations and warranties
under the related Trust Agreement. Accordingly, pursuant to the related Trust
Agreement, the Company or Finance Subsidiary would be required to repurchase the
related Receivables from the Trustee unless the breach were cured.
Continuity of Perfection
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the vehicle is moved to a new state from
the one in which it is initially registered and thereafter until the owner
re-registers such motor vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle. In those
states that require a secured party to hold possession of the certificate of
title to maintain perfection of the security interest, the secured party would
learn of the re-registration through the request from the Obligor under the
related installment sale contract to surrender possession of the certificate of
title to assist in such re-registration. In the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
requiring possession by the secured party, the secured party would receive
notice of surrender from the state of re-registration if the security interest
is noted on the certificate of title. Thus, the secured party would have the
opportunity to reperfect its security interest in the vehicle in the state of
relocation. However, these procedural safeguards will not protect the secured
party if, through fraud, forgery or administrative error, the debtor somehow
procures a new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require surrender of a certificate of title
for re-registration of a vehicle, re-registration could defeat perfection. In
each of the Trust Agreements, the Servicer will be required to take steps to
effect re-perfection upon receipt of notice of re-registration or information
from the Obligor as to relocation. Similarly, when an Obligor sells a Vehicle,
the Servicer will have an opportunity to require satisfaction of the related
Receivable before release of the lien, either because the Servicer will be
required to surrender possession of the certificate of title in connection with
the sale, or because the Servicer will receive notice as a result of its lien
noted thereon. Pursuant to the related Trust Agreement, the related Servicer
will hold the certificates of title for the related Vehicles as custodian for
the Trustee. Under the related Trust Agreement, the Servicer will be obligated
to take appropriate steps, at its own expense, to maintain perfected security
interests in the Vehicles.
Priority of Certain Liens Arising by Operation of Law
Under the laws of most states, certain statutory liens such as
mechanics', repairmen's and garagemen's liens for repairs performed on a motor
vehicle, motor vehicle accident liens, towing and storage liens, liens arising
under various state and federal criminal statutes and liens for unpaid taxes
take priority over even a first priority perfected security interest in such
vehicle by operation of law. The UCC also grants priority to certain federal tax
liens over the lien of a secured party. The laws of most states and federal law
permit the confiscation of motor vehicles by governmental authorities under
certain circumstances if used in or acquired with the proceeds of unlawful
activities, which may result in the loss
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of a secured party's perfected security interest in a confiscated vehicle. The
Company will represent and warrant to the Trustee in the related Trust Agreement
that, as of the related Closing Date, each security interest in a Vehicle shall
be a valid, subsisting and enforceable first priority security interest in such
Vehicle. However, liens for repairs or taxes superior to the security interest
of the Trustee in any such Vehicle, or the confiscation of such Vehicle, could
arise at any time during the term of a Receivable. No notice will be given to
the Trustee or any Securityholder in the event such a lien or confiscation
arises and any such lien or confiscation arising after the related Closing Date
would not give rise to the Company's repurchase obligation under the related
Trust Agreement.
REPOSSESSION
In the event of default by an Obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is accomplished simply by taking possession
of the related financed vehicle. In cases where the Obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order is obtained from the appropriate state court, and the vehicle must
then be recovered in accordance with that order. In some jurisdictions, the
secured party is required to notify the debtor of the default and the intent to
repossess the collateral and give the debtor a time period within which to cure
the default prior to repossession. Generally, this right of cure may only be
exercised on a limited number of occasions during the term of the related
contract. Other jurisdictions permit repossession without prior notice if it can
be accomplished without a breach of the peace (although in some states, a course
of conduct in which the creditor has accepted late payments has been held to
create a right by the Obligor to receive prior notice).
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require a secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale of
repossessed vehicles in certain circumstances and/or various substantive timing
and content requirements on such notices. In some states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the Vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. Under the UCC and laws applicable in
some states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a motor
vehicle securing such debtor's loan; however, in some states, a creditor may not
seek a deficiency judgment from a debtor whose financed vehicle had an initial
cash sales price less than a specified amount, usually $3,000. Some states,
impose prohibitions or limitations or notice requirements on actions for
deficiency judgments. In addition to the notice requirement described above, the
UCC requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable". Generally,
courts have held that when a sale is not "commercially reasonable", the secured
party loses its right to a deficiency judgment. In addition, the UCC permits the
debtor or other interested party to recover for any loss caused
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by noncompliance with the provisions of the UCC. Also, prior to a sale, the UCC
permits the debtor or other interested person to obtain an order mandating that
the secured party refrain from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC. However, the deficiency judgment would be a personal
judgment against the Obligor for the shortfall, and a defaulting Obligor can be
expected to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a subordinate lien with respect
to the vehicle or if no such lienholder exists or if there are remaining funds,
the UCC requires the creditor to remit the surplus to the Obligor under the
contract.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon creditors and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and Z, state adaptations
of the Uniform Consumer Credit Code, state motor vehicle retail installment sale
acts, state "lemon" laws and other similar laws. In addition, the laws of
certain states impose finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, this
liability could affect the ability of an assignee such as the Trustee to enforce
consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting any assignee of the
seller in a consumer credit transaction (and certain related creditors and their
assignees) to all claims and defenses which the Obligor in the transaction could
assert against the seller. Liability under the FTC Rule is limited to the
amounts paid by the Obligor under the contract, and the holder of the contract
may also be unable to collect any balance remaining due thereunder from the
Obligor. The FTC Rule is generally duplicated by the Uniform Consumer Credit
Code, other state statutes or the common law in certain states. To the extent
that the Receivables will be subject to the requirements of the FTC Rule, the
Trustee, as holder of the Receivables, will be subject to any claims or defenses
that the purchaser of the related Vehicle may assert against the seller of such
Vehicle. Such claims will be limited to a maximum liability equal to the amounts
paid by the Obligor under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles
and light duty trucks are required to be licensed to sell vehicles at retail
sale. In addition, with respect to used vehicles, the Federal Trade Commission's
Rule on Sale of Used Vehicles requires that all sellers of used vehicles
prepare, complete and display a "Buyer's Guide" which explains the warranty
coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Vehicle, the Obligor may be able to assert a defense against the
seller of the Vehicle. If an Obligor on a Receivable were successful in
asserting any such claim or defense, the Servicer would pursue on behalf of the
Trust any reasonable remedies against the seller or manufacturer of the vehicle,
subject to certain limitations as to the expense of any such action to be
specified in the related Trust Agreement.
Any such loss, to the extent not covered by credit support (as
specified in the Related Prospectus Supplement), could result in losses to the
Securityholders. As specified in the related Prospectus
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Supplement, if an Obligor were successful in asserting any such claim or defense
as described in this paragraph or the two immediately preceding paragraphs, such
claim or defense may constitute a breach of a representation and warranty under
the related Trust Agreement and may create an obligation of the Company to
repurchase such Receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
As specified in the related Prospectus Supplement, the Company (or its
Finance Subsidiary, if any) will represent and warrant under the related Trust
Agreement that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against the Trustee
for violation of any law and such claim materially and adversely affects the
Trustee's interest in a Receivable, such violation would constitute a breach of
representation and warranty under the related Trust Agreement and would create
an obligation of the Company (or its Finance Subsidiary, if any) to repurchase
such Receivable unless the breach were cured.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), an Obligor who enters military service after the
origination of such Obligor's Receivable (including an Obligor who was in
reserve status and is called to active duty after origination of the
Receivable), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such Obligor's active duty status, unless
a court orders otherwise upon application of the lender. The Relief Act applies
to Obligors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Obligors
who enter military service (including reservists who are called to active duty)
after origination of the related Receivable, no information can be provided as
to the number of loans that may be effected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
Receivables. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Receivables, would result in a reduction of
the amounts distributable to the holders of the related Securities, and would
not be covered by advances, any form of Credit Enhancement provided in
connection with the related series of Securities. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected Receivable during the Mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that the Relief Act or similar legislation or
regulations applies to any Receivable which goes into default, there may be
delays in payment and losses on the related Securities in connection therewith.
Any other interest shortfalls, deferrals or forgiveness of payments on the
Receivables resulting from similar legislation or regulations may result in
delays in payments or losses to Securityholders of the related series.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the
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market value of the motor vehicle at the time of bankruptcy (as determined by
the court), leaving the party providing financing as a general unsecured
creditor for the remainder of the indebtedness. A bankruptcy court may also
reduce the monthly payments due under a contract or change the rate of interest
and time of repayment of the indebtedness. Any such shortfall, to the extent not
covered by credit support (as specified in each Prospectus Supplement), could
result in losses to the Securityholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. Dewey Ballantine, special federal tax counsel for the Company
("Federal Tax Counsel"), is of the opinion that the discussion hereunder fully
and fairly discloses all material federal tax risks associated with the
purchase, ownership and disposition of the Notes and Certificates. The summary
does not purport to deal with federal income tax consequences or special rules
that are applicable to certain categories of holders. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on all of the issues discussed
below. As a result, the IRS may disagree with all or a part of the discussion
below. Prospective investors are urged to consult their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences to
them of the purchase, ownership and disposition of the Notes and the
Certificates.
Federal Tax Counsel will, in addition to delivering its opinion with
respect to the discussion set forth herein, deliver separate opinions in
connection with each issuance of Securities. Such opinions will be delivered at
pricing, and will be filed on a Current Report within two business days of
pricing (and in any event prior to the issuance of the related Securities).
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The opinion of Federal Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any of
the issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless otherwise
specified herein, to each Trust and the Notes, Certificates and related terms,
parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust will be treated as a partnership under the Code,
whether the Trust will be treated as a grantor trust, or whether it is intended
that the Trust serve as a security device for the issuance of Certificates that
are to be treated as indebtedness for federal income tax purposes. The
Prospectus Supplement for each series of Certificates will specify whether the
Trust will be treated as a partnership, a grantor trust, or is intended to serve
as a security device as just described. In addition, if the related Prospectus
Supplement so provides, the Transaction Documents for a Trust may provide that
an election will be made on or after September 1, 1997 to qualify such Trust as
a Financial Asset Securitization Investment Trust pursuant to new provisions of
the Code which will be effective as of such date.
TRUSTS TREATED AS PARTNERSHIPS
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion that a Trust which is
intended to be a partnership, as specified in the related Prospectus Supplement,
will not be an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. This opinion will be based on the
assumption that the terms of the Trust Agreement and related documents will be
complied with, and on counsel's conclusions that (1) the Trust will not have
certain characteristics necessary for a business trust to be
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classified as an association taxable as a corporation and (2) the nature of the
income of the Trust will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
Treatment of the Notes as Indebtedness. The Transferor will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Federal Tax Counsel will, except as
otherwise provided in the related Prospectus Supplement, advise the Trust that
in its opinion the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
Treatment of Original Issue Discount ("OID"). The discussion below
assumes that all payments on the Notes are denominated in U.S. dollars, and that
the Notes are not Indexed Securities or Strip Notes. Moreover, the discussion
assumes that the interest formula for the Notes meets the requirements for
"qualified stated interest" under Treasury regulations (the "OID regulations")
relating to original issue discount ("OID"), and that any OID on the Notes
(i.e., any excess of the principal amount of the Notes over their issue price)
does not exceed a de minimis amount (i.e., generally 1/4% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations. If these conditions are not satisfied
with respect to any given series of Notes, additional tax considerations with
respect to such Notes will be disclosed in the applicable Prospectus Supplement.
OID as Interest Income. Based on the above assumptions the Notes
generally will not be considered issued with OID. The stated interest thereon
will be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under the
OID regulations, a holder of a Note issued with a de minimis amount of OID
generally must include such OID in income, on a pro rata basis, as principal
payments are made on the Note. However, a holder may elect to accrue de minimis
OID under a constant yield method in connection with an election to accrue all
interest, discount, and premium on the Note using the constant yield method. See
"Trusts Treated as Grantor Trusts--Taxation of Holders if Stripped Bond Rules Do
Not Apply--Election to Treat All Interest as OID" for a discussion of such
election. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
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OID Treatment Upon Sale or Other Disposition. If a Noteholder sells a
Note, the holder will recognize gain or loss in an amount equal to the
difference between the amount realized on the sale and the holder's adjusted tax
basis in the Note. The adjusted tax basis of a Note to a particular Noteholder
will equal the holder's cost for the Note, increased by any market discount,
acquisition discount, OID, if any, and gain previously included by such
Noteholder in income with respect to the Note and decreased by the amount of
bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note. Any
such gain or loss generally will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally may
be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a Foreign Investor, as defined below, generally will be considered
"portfolio interest," and generally will not be subject to United States federal
income tax and withholding tax, if the interest is not effectively connected
with the conduct of a trade or business within the United States by the Foreign
Investor and the Foreign Investor (i) is not actually or constructively a "10
percent shareholder" of the Trust or the Transferor (including a holder of 10%
of the outstanding Certificates) or a "controlled foreign corporation" with
respect to which the Trust or the Transferor is a "related person" within the
meaning of the Code and (ii) provides the Owner Trustee or other person who is
otherwise required to withhold U.S. tax with respect to the Notes with an
appropriate statement (on Form W-8 or a similar form), signed under penalties of
perjury, certifying that the beneficial owner of the Note is a Foreign Investor
and providing the Foreign Investor's name and address. If a Note is held through
a securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the Foreign Investor
that owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable tax treaty.
Any gain realized on the sale, redemption, retirement or other taxable
disposition of a Note by a foreign person will be exempt from United States
federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor, (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year, and (iii) in the case of gain representing accrued
interest or OID, the conditions described in the immediately preceding paragraph
are satisfied.
If the interest, gain or income on a Note held by a Foreign Investor is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor (although exempt from the withholding tax
previously discussed if the holder provides an appropriate and timely statement
on Form 4224), the holder generally will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
In addition, if the Foreign Investor is a foreign corporation, it may be subject
to a branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty (as modified by the branch profits tax rules).
Proposed Treasury regulations which would be effective for payments
made after December 31, 1997 if adopted in their current form would provide
alternative certification requirements and means by which a Foreign Investor
could claim the exemptions from federal income and withholding taxes.
For purposes of this tax discussion, a Foreign Person or Foreign
Investor is any person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof,
(iii) an estate whose income is includible in gross income for United States
federal income taxation regardless of source, or (iv) a trust other than a
"Foreign Trust," as such term is defined in Section 7701(a)(31) of the Code.
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Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing, among other
things, the holder's name, address, correct federal taxpayer identification
number and a statement that the holder is not subject to backup withholding.
Should a nonexempt Noteholder fail to provide the required certification, the
Trust will be required to withhold 31 percent of the amount otherwise payable to
the holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for federal income tax purposes, the Notes
might be treated as equity interests in the Trust. If so treated, the Trust
might be taxable as a corporation with the adverse consequences described above
(and the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, the Trust might be treated as a publicly traded partnership that
would not be taxable as a corporation if it met certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to Foreign Investors generally would be subject to U.S. tax and
U.S. tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their share
of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment of the Trust as a Partnership. The Transferor and the Company
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of the
arrangement involving the Trust, the Certificates, the Notes, the Transferor and
the Company is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
For example, because the Certificates may have certain features
characteristic of debt, the Certificates might be considered debt of the
Transferor or the Trust. Generally, provided such Certificates are issued at or
close to face value, any characterization would not result in materially adverse
tax consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. If
Certificates are issued at a substantial discount, a discussion of the relevant
tax consequences will be set forth in the related Prospectus Supplement. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" and "Tax Consequences to Foreign
Certificateholders" below. The Trust's income will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Receivables.
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The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although. Federal Tax Counsel is unable
to opine that the IRS would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
allocation, Certificateholders may be allocated income equal to the entire
Pass-Through Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis and Certificateholders may become
liable for taxes on Trust income even if they have not received cash from the
Trust to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of some of the taxable income allocated to a Certificateholder that
is a pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such market
discount income or premium deduction will be allocated to Certificateholders if
the related Trust Agreement so provides. Any such allocation will be disclosed
in the related Prospectus Supplement.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or
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exchanged within a 12-month period. If such a termination occurs, the Trust will
be considered to distribute its assets to the partners, who would then be
treated as recontributing those assets to the Trust, as a new partnership.
Proposed regulations would provide that if a termination occurs the partnership
will be considered to transfer its assets and liabilities to a new partnership
in exchange for interests in that new partnership which it would then be treated
as transferring to its partners. The Trust will not comply with certain
technical requirements that might apply when such a constructive termination
occurs. As a result, the Trust may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Affiliated
Purchaser is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on
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an accrual basis and the fiscal year of the Trust will be the calendar year. The
Owner Trustee will file a partnership information return (IRS Form 1065) with
the IRS for each taxable year of the Trust and will report each
Certificateholder's allocable share of items of Trust income and expense to
holders and the IRS on Schedule K-l. The Trust will provide the Schedule K-l
information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust or be subject to penalties unless the holder notifies the IRS of all
such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Transferor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS with respect to partnership
items. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. As discussed below, an
investment in a Certificate is not suitable for any Foreign Person, as defined
above, which is not eligible for a complete exemption from U.S. withholding tax
on interest under a tax treaty with the United States. Accordingly, no interest
in a Certificate should be acquired by or on behalf of any such Foreign Person.
No regulations, published rulings or judicial decisions exist that
would discuss the characterization for Federal withholding tax purposes with
respect to a Foreign Person of a partnership with activities substantially the
same as the Trust. Depending upon the particular terms of the related Trust
Agreement and Sale and Servicing Agreement, a trust may be considered to be
engaged in a trade or business in the United States for purposes of Federal
withholding taxes with respect to non-U.S. persons. If the Trust is considered
to be engaged in a trade or business in the United States for such purposes, the
income of the Trust distributable to a non-U.S. person would be subject to
Federal withholding tax at a rate of 35% for persons taxable as a corporation
and 39.6% for all other Foreign Persons. Also, in such cases, a Foreign Person
that is a corporation may be subject to the branch profits tax. If the Trust is
notified that a Certificateholder is a Foreign Person, the Trust may withhold as
if it were engaged in a trade or business in the United States in order to
protect the Trust from possible adverse consequences of a failure to withhold.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
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If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a United States federal individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to
withheld taxes, taking the position that no taxes were due because the Trust was
not engaged in a United States trade or business. However, interest payments
made to (or accrued by) a Certificateholder who is a Foreign Person may be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust and for that reason or because of the
nature of the Receivables, the interest will likely not be considered "portfolio
interest." See "--Tax Consequences to Holders of the Notes Issued by a
Partnership-Foreign Holders" for a discussion of portfolio interests. As a
result, even if the Trust is not considered to be engaged in a U.S. trade or
business, Certificateholders would be subject to United States Federal income
tax which must be withheld at a rate of 30% on their share of the Trust's income
(without reduction for interest expense), unless reduced or eliminated pursuant
to an applicable income tax treaty. If the Trust is notified that a
Certificateholder is a Foreign Person, the Trust may be required to withhold and
pay over such tax, which can exceed the amounts otherwise available for
distribution to such a Certificateholder. A Foreign Person would generally be
entitled to file with the IRS a refund claim for such withheld taxes, taking the
position that the interest was portfolio interest and therefore not subject to
U.S. tax. However, the IRS may disagree and no assurance can be given as to the
appropriate amount of tax liability. As a result, each potential foreign
Certificateholder should consult its tax advisor as to whether the tax
consequences of holding an interest in a Certificate make it an unsuitable
investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
As specified in the related Prospectus Supplement, if a partnership
election is not made and the Certificates are not treated as debt for federal
income tax purposes as discussed below, Federal Tax Counsel will deliver its
opinion that the Trust will not be classified as an association taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. In this case, owners of
Certificates (referred to herein as "Grantor Trust Certificateholders") will be
treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders
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that are individuals, estates or trusts will be entitled to deduct their share
of expenses only to the extent such expenses plus such holder's other
miscellaneous itemized deductions exceed two percent of such holder's adjusted
gross income. Such deductions may also be limited by Code Section 68 for an
individual whose adjusted gross income exceeds certain limits. A Grantor Trust
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions as
they become due or are paid to the Servicer, whichever is earlier. If the
servicing fees or other amounts paid to the Servicer exceed reasonable servicing
compensation, the amount of such excess would be considered as an ownership
interest retained by the Servicer (or any person to whom the Servicer assigned
all or a portion of the servicing fees) in a portion of the interest payments on
the Receivables. The Receivables would then be subject to the stripped bond
rules of the Code discussed below.
TAXATION OF HOLDERS IF STRIPPED BOND RULES APPLY
In the absence of comprehensive regulations, Federal Tax Counsel is
unable to opine as to the tax treatment of stripped bonds. The preamble to
certain stripped bond regulations suggests that each purchaser of a Grantor
Trust Certificate will be treated with respect to each Receivable as the
purchaser of a single stripped bond consisting of all of the stripped portions
of the applicable Receivable (such portions with respect to a Receivable are
referred to herein as a "Stripped Bond") which generally should be treated as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Generally, under Treasury regulations
relating to Stripped Bonds (the "Section 1286 Treasury Regulations"), if the
discount on a Stripped Bond is larger than a de minimis amount (as calculated
for purposes of the OID rules of the Code) such Stripped Bond will be considered
to have been issued with OID. See "--Original Issue Discount" herein. Based on
the preamble to the Section 1286 Treasury regulations, although the matter is
not entirely clear, the interest income on the Certificates at the sum of the
Pass-Through Rate and the portion of the Servicing Fee Rate that does not
constitute excess servicing should be treated as "qualified stated interest"
within the meaning of the Section 1286 Treasury regulations, assuming all other
requirements for treatment as qualified stated interest are satisfied, and such
income will be so treated in the Trustee's tax information reporting.
Original Issue Discount. When Stripped Bonds have more than a de
minimis amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires an interest in a Stripped Bond issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Stripped Bond for each day on which it owns
a Certificate, including the date of purchase but excluding the date of
disposition. Although the proper method is not entirely clear, the Trust intends
to calculate the daily portions of OID with respect to a Stripped Bond generally
as follows. A calculation will be made of the portion of OID that accrues on the
Stripped Bond during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Stripped Bond
under the prepayment assumption, if any, used in respect of the Stripped Bonds
and (ii) any payments received during such accrual period, and subtracting from
that total the "adjusted issue price" of the Stripped Bond at the beginning of
such accrual period. No representation is made that the Stripped Bonds will
prepay at any prepayment assumption. The "adjusted issue price" of a Stripped
Bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the "adjusted issue
price" of a Stripped Bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment (other than "qualified stated interest") made at the
end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under either an
exact or approximate method set forth in the OID Regulations, or some other
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reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the Receivables.
With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
TAXATION OF HOLDERS IF STRIPPED BOND RULES DO NOT APPLY
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Receivable based
on each Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is unclear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for Receivables that are construed to
be acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption or it prepays faster than the prepayment assumption, the
holder of a Grantor Trust Certificate acquired at a premium should recognize a
loss if a Receivable prepays in full, equal to the difference between the
portion of the prepaid principal amount of such Receivable that is allocable to
the Grantor Trust Certificate and the portion of the adjusted basis of the
Grantor Trust Certificate that is allocable to such Receivable.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Receivable allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Receivable will be considered to be zero if the amount allocable to the
Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be reduced
by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Because the regulations described above have not been issued, Federal Tax
Counsel is unable to opine as to what effect those regulations might have on the
tax treatment of a Grantor Trust Certificate purchased at a discount.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or
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continued to purchase or carry such Grantor Trust Certificate purchased with
market discount. For these purposes, the de minimis rule referred to above
applies. Any such deferred interest expense would not exceed the market discount
that accrues during such taxable year and is, in general, allowed as a deduction
not later than the year in which such market discount is includible in income.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
TAXATION OF HOLDERS REGARDLESS OF WHETHER STRIPPED BOND RULES APPLY
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Subject to the discussion
of market discount above, such gain or loss generally will be capital gain or
loss to an owner for which a Grantor Trust Certificate is a "capital asset"
within the meaning of Section 1221, and will be long-term or short-term
depending on whether the Grantor Trust Certificate has been owned for the
long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. To the extent that a Grantor Trust Certificate
evidences ownership in underlying Receivables that were issued on or before July
18, 1984, interest or OID paid by the person required to withhold tax under
Section 1441 or 1442 to (i) an owner that is a Foreign Person or (ii) a Grantor
Trust Certificateholder holding on behalf of an owner that is a Foreign Person
will be subject to federal income tax, collected by withholding, at a rate of
30% or such lower rate as may be provided for interest by an applicable tax
treaty. Accrued OID recognized by the owner on the sale or exchange of such a
Grantor Trust Certificate also will be subject to federal income tax at the same
rate. Generally, such payments would be considered portfolio interest and would
not be subject to withholding to the extent that a Grantor Trust Certificate
evidences ownership in Receivables issued after July 18, 1984, if such Grantor
Trust Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is the beneficial owner, is not a U.S. Person and providing
the name and address of such Grantor Trust Certificateholder). Additional
restrictions apply to Receivables where the Obligor is not a natural person in
order to qualify for the exemption from withholding. See "--Tax Consequences to
Holders of the Notes Issued by a Partnership--Foreign Holders" for a discussion
of when interest will constitute portfolio interest.
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Information Reporting and Backup Withholding. The Servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that based upon its analysis of the factors discussed below and certain
assumptions and qualifications the Certificates will be treated as indebtedness
for federal income tax purposes. However, opinions of counsel are not binding on
the IRS and there can be no assurance that the IRS could not successfully
challenge this conclusion. Such Certificates that are intended to be treated as
indebtedness are herein referred to as "Debt Certificates" and holders of such
Certificates are herein referred to as "Debt Certificateholders."
The Transferor will express in the Trust Documents its intent that for
federal, state and local income and franchise tax purposes, the Debt
Certificates will be indebtedness secured by the Receivables. The Transferor
agrees and each Debt Certificateholder, by acquiring an interest in a Debt
Certificate, agrees or will be deemed to agree to treat the Debt Certificates as
indebtedness for federal state and local income or franchise tax purposes.
However, because different criteria are used to determine the non-tax accounting
characterization of the transactions contemplated by the Trust Documents, the
Transferor expects to treat such transactions, for regulatory and financial
accounting purposes, as a sale of ownership interests in the Receivables and not
as debt obligations.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction. The form of a transaction, while a
relevant factor, is not conclusive evidence of its economic substance. In
appropriate circumstances, the courts have allowed taxpayers, as well as the IRS
to treat a transaction in accordance with its economic substance, as determined
under federal income tax laws, notwithstanding that the participants
characterize the transaction differently for non-tax purposes. In some
instances, however, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Federal Tax Counsel will
advise that the rationale of those cases will not apply to the transactions
evidenced by a series of Debt Certificates.
While the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "--Possible
Characterization of the Transaction as a Partnership or as an Association
Taxable as a Corporation."
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TAXATION OF INCOME OF DEBT CERTIFICATEHOLDERS
As set forth above, it is expected that Federal Tax Counsel will advise
the Transferor that the Debt Certificates will constitute indebtedness for
Federal income tax purposes, and accordingly, holders of Debt Certificates
generally will be taxed in the manner described above in "Trusts Treated as
Partnerships--Tax Consequences to Holders of Notes Issued by a Partnership."
If the Debt Certificates are issued with OID that is more than a de
minimis amount as defined in the Code and Treasury regulations (see "Trusts
Treated as Partnerships--Tax Consequences to Holders of Notes Issued by a
Partnership") a United States holder of a Debt Certificate (including a cash
basis holder) generally would be required to accrue the OID on its interest in a
Certificate in income for federal income tax purposes on a constant yield basis,
resulting in the inclusion of OID in income in advance of the receipt of cash
attributable to that income. Under section 1272(a)(6) of the Code, special
provisions apply to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments. However, no
regulations have been issued interpreting those provisions, and the manner in
which those provisions would apply to the Debt Certificates is unclear.
Additionally, the IRS could take the position based on Treasury regulations that
none of the interest payable on a Debt Certificate is "unconditionally payable"
and hence that all of such interest should be included in the Debt Certificate's
stated redemption price at maturity. Accordingly, Federal Tax Counsel is unable
to opine as to whether interest payable on a Debt Certificate constitutes
"qualified stated interest" that is not included in a Certificate's stated
redemption price at maturity. Consequently, prospective investors in Debt
Certificates should consult their own tax advisors concerning the impact to them
in their particular circumstances. The Prospectus Supplement will indicate
whether the Trust intends to treat the interest on the Certificates as
"qualified stated interest".
TAX CHARACTERIZATION OF TRUST
Consistent with the treatment of the Debt Certificates as indebtedness,
the Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions and qualifications set forth therein, under then
current law, the issuance of the Debt Certificates of such series will not cause
the applicable Trust to be characterized for Federal income tax purposes as an
association (or publicly traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Federal Tax Counsel with respect to Debt Certificates
will not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the Transferor and some or all of the Debt Certificateholders resulting
from the transactions is that of a partnership (including a publicly traded
partnership), a publicly traded partnership taxable as a corporation, or an
association taxable as a corporation. The Transferor currently does not intend
to comply with the federal income tax reporting requirements that would apply if
any Classes of Debt Certificates were treated as interests in a partnership or
corporation.
If a transaction were treated as creating a partnership between the
Transferor and the Debt Certificateholders, the partnership itself would not be
subject to federal income tax (unless it were characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such partnership,
including the Debt Certificateholders, would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deductions
of a Debt Certificate could differ if the Debt Certificates were held to
constitute partnership interests, rather than indebtedness. Moreover, unless the
partnership were treated as engaged in a trade or business, an individual's
share of expenses of the partnership would be
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miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent they exceed two percent of the individual's
adjusted gross income, and would be subject to reduction under Section 68 of the
Code if the individual's adjusted gross income exceeded certain limits. As a
result, the individual might be taxed on a greater amount of income than the
stated rate on the Debt Certificates. Finally, all or a portion of any taxable
income allocated to a Debt Certificateholder that is a pension, profit-sharing
or employee benefit plan or other tax-exempt entity (including an individual
retirement account) may, under certain circumstances, constitute "unrelated
business taxable income" which generally would be taxable to the holder under
the Code.
If it were determined that a transaction created an entity classified
as an association or as a publicly traded partnership taxable as a corporation,
the Trust would be subject to federal income tax at corporate income tax rates
on the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Debt Certificateholders. Such classification
may also have adverse state and local tax consequences that would reduce amounts
available for distribution to Debt Certificateholders. Moreover, distributions
on Debt Certificates that are recharacterized as equity in an entity taxable as
a corporation would not be deductible in computing the entity's taxable income,
and cash distributions on such Debt Certificates generally would be treated as
dividends for tax purposes to the extent of such deemed corporation's earnings
and profits.
FOREIGN INVESTORS
If the IRS were to contend successfully that the Debt Certificates are
interest in a partnership and if such partnership were considered to be engaged
in a trade or business in the United States, the partnership would be subject to
a withholding tax on income of the Trust that is allocable to a Foreign Investor
and such Foreign Investor would be credited for his or her share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular income tax
rates, and possibly a branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Debt Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the Foreign Investor, the Foreign Investor would be subject to
United States income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the holder's distributive share of the partnership's
interest income. See "Trusts Treated as Partnerships--Tax Consequences to
Holders of the Certificates Issued by the Partnership--Tax Consequences to
Foreign Certificateholders" for a more detailed discussion of the consequences
of an equity investment by a Foreign Investor in an entity characterized as a
partnership.
If the Trust were taxable as a corporation, distribution to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30% unless such rate were reduced or eliminated by an
applicable income tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates, the Notes or the holders of Certificates or Notes of any series
under state and local tax laws. Prospective investors are urged to consult their
own tax advisors regarding state and local tax treatment of the Trust, the
Certificates, the Notes and the consequences of purchase, ownership or
disposition of the Certificates and Notes under any state or local tax law.
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ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Company from such
sale.
The Company intends that Securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of Securities may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
2. By placements by the Company with institutional investors
through dealers;
3. By direct placements by the Company with institutional
investors; and
4. By competitive bid.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The Securities will be set forth
on the cover of the Prospectus Supplement relating to such series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Company and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Company.
It is anticipated that the underwriting agreement pertaining to the
sale of any series of Securities will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof. The
Commission is of the opinion that indemnification for securities law violations
is contrary to the public policy expressed in the federal securities laws, and,
consequently, that such indemnification provisions are unenforceable.
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The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Company and
purchasers of Securities of such series.
Purchasers of Securities, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act in connection with reoffers and sales by them
of Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dewey Ballantine, New York, New York, or other
counsel specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
Certain specified Trust Property will secure each series of Securities,
no Trust will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Securities, except
for serial issuances by a Master Trust. Accordingly, no financial statements
with respect to any Trust Property will be included in this Prospectus or in the
related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each
series of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
Relevant Depository which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
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Trading between DTC, Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depository, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depository to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depository for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depository, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist to
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). In the event that the CEDEL Participant or Euroclear Participant have
a line of credit with its respective clearing system and elect to be in debt in
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anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
66
<PAGE> 69
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996, the IRS proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations are
proposed to be effective for payments made after December 31, 1997 but provide
that certificates issued on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
Proposed regulations, however, are subject to change prior to their adoption in
final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and at least one United States
fiduciary has the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
67
<PAGE> 70
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
<S> <C>
ACC ...............................................................26
Accrual Securities ................................................ 7
Additional Receivables ............................................10
Adjustable Rate Receivables .......................................11
APR ...............................................................21
Balloon Payments ..................................................10
caps ..............................................................11
Cede ..............................................................11
CEDEL Participants ................................................32
Certificateholders ................................................39
Certificates ....................................................1, 5
Class ..............................................................1
Closing Date ..................................................34, 36
Collection Account ................................................36
Commission .........................................................3
Commodity Indexed Securities.......................................30
Company.............................................................5
Company Investment Contracts.......................................37
Contracts........................................................1, 5
Cooperative........................................................32
Credit Enhancement.................................................18
Credit Enhancer....................................................18
Currency Indexed Securities........................................30
Dealers.............................................................5
Debt Securities....................................................12
Definitive Securities..............................................33
Depositaries.......................................................31
Direct Participants................................................18
Distribution Account...............................................36
DTC................................................................11
Eligible Deposit Account...........................................37
Eligible Institution...............................................37
Eligible Investments...............................................36
ERISA..............................................................13
Euroclear Operator.............................................32, 33
Euroclear Participants.............................................32
Event of Default...................................................33
Exchange Act....................................................3, 13
Face Amount........................................................30
FASIT..............................................................12
Finance Subsidiary.................................................16
Fixed Income Securities.............................................7
floors.............................................................11
Forward Purchase Agreement.........................................34
FTC Rule...........................................................46
Funding Period.....................................................35
Global Securities..................................................64
Grantor Trust Securities...........................................12
Holder-in-Due-Course Rule..........................................46
Indenture...........................................................6
</TABLE>
68
<PAGE> 71
<TABLE>
<CAPTION>
<S> <C>
Indenture Trustee...................................................6
Index..............................................................30
Indexed Commodity..................................................30
Indexed Currency...................................................30
Indexed Principal Amount...........................................30
Indexed Securities.................................................30
Indirect Participants..........................................18, 31
Insolvency Event...................................................40
Insolvency Laws....................................................16
Interest Rate....................................................3, 7
Investment Company Act..............................................9
Investment Earnings................................................37
Issuer.......................................................1, 5, 20
Market discount....................................................57
Master Trust........................................................9
Master Trust Agreement..............................................9
Master Trust New Issuance..........................................29
MSO................................................................23
Negative arbitrage.................................................37
Negative carry.....................................................37
Non-U.S. Person....................................................67
Noteholders........................................................39
Notes............................................................1, 5
Participants.......................................................31
Partnership Interests..............................................12
Pass-Through Rate ..................................................3
Pay for Performance Program........................................11
Payment Date........................................................8
Policy...........................................................1, 6
Pool Balance.......................................................26
Pool Factor........................................................26
Pooling Agreement...................................................6
Pre-Funding Account............................................10, 35
Pre-Funding Period.................................................10
Prepayment.........................................................19
Principal statistical characteristics..............................35
Prospectus Supplement...............................................1
Rating Agencies....................................................13
Ratings Effect.................................................18, 30
Receivables......................................................1, 6
Record Date.........................................................8
Registration Statement..............................................3
Relief Act.....................................................19, 47
Remittance Period...................................................8
Residual Interest...................................................9
Rule of 78s........................................................21
Rule of 78s Contracts..............................................21
Rules..............................................................32
Section 1286 Treasury Regulations..................................56
Securities..........................................................1
Securities Act......................................................3
Securityholder.....................................................32
Securityholders.....................................................8
Senior Securities...................................................7
Servicer.........................................................1, 5
</TABLE>
69
<PAGE> 72
<TABLE>
<CAPTION>
<S> <C>
Servicer Default...................................................40
Servicing Agreement.................................................6
Servicing Fee......................................................38
Servicing Fee Rate.................................................38
Short-Term Note....................................................49
Simple Interest Contracts..........................................21
Stock Index........................................................30
Stock Indexed Securities...........................................30
Strip Securities....................................................7
Stripped Bond......................................................56
Subordinate Securities..............................................7
Terms and Conditions...............................................33
Transferor..........................................................5
Trust............................................................1, 5
Trust Accounts.....................................................36
Trust Agreement.................................................6, 36
Trust Property...................................................1, 5
Trustee.............................................................6
U.S. Person........................................................67
Vehicles.........................................................1, 6
Vendors.............................................................5
</TABLE>
70
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance and distribution of the Offered Certificates.
<TABLE>
<CAPTION>
<S> <C> <C>
SEC Filing Fee................................... $ 303.03
Trustee's Fees and Expenses...................... 15,000
Legal Fees and Expenses.......................... 200,000
Accounting Fees and Expenses..................... 30,000
Printing and Engraving Expenses.................. 35,000
Blue Sky Qualification and Legal
Investment Fees and Expenses................... 10,000
Rating Agency Fees............................... 40,000
Security Insurer's Fee........................... 40,000
Miscellaneous.................................... 200,000
-----------
TOTAL ...................................... $570,303.03
===========
</TABLE>
- ----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification. Under the laws which govern the organization
of the registrant, the registrant has the power and in some instances may be
required to provide an agent, including an officer or director, who was or is a
party or is threatened to be made a party to certain proceedings, with
indemnification against certain expenses, judgments, fines, settlements and
other amounts under certain circumstances.
Section [8] of the Certificate of Incorporation of ACC
Consumer Finance Corporation provides that all officers and directors of the
corporation shall be indemnified by the corporation from and against all
expenses, liabilities or other matters arising out of their status as an officer
or director for their acts, omissions or services rendered in such capacities.
ACC Consumer Finance Corporation, maintains certain policies of liability
insurance coverage for its officers and directors of ACC Consumer Finance
Corporation.
The forms of the Underwriting Agreement, filed as Exhibits 1.1
and 1.2 to this Registration Statement, provide that ACC Consumer Finance
Corporation will indemnify and reimburse the underwriter(s) and each controlling
person of the underwriter(s) with respect to certain expenses and liabilities,
including liabilities under the 1933 Act or other federal or state regulations
or under the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreements provide that the underwriter(s) will similarly indemnify
and reimburse ACC Consumer Finance Corporation with respect to certain material
misstatements or omissions in the Registration Statement which are based on
certain written information furnished by the underwriter(s) for use in
connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the
organization of the registrant, the registrant's By-laws permit the board of
directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not such registrant would have the power to indemnify them against
such liability under applicable law.
II-1
<PAGE> 74
ITEM 16. EXHIBITS (TO BE FILED BY AMENDMENT).
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement - Notes.
1.2 -- Form of Underwriting Agreement - Certificates.
3.1 -- Certificate of Incorporation of ACC Consumer Finance Corporation.
3.2 -- By-Laws of ACC Consumer Finance Corporation.
4.1 -- Form of Indenture between the Trust and the Indenture Trustee.
4.2 -- Form of Indenture between the Sponsor and the Indenture Trustee.
4.3 -- Form of Pooling and Servicing Agreement.
4.4 -- Form of Trust Agreement.
5.1 -- Opinion of Dewey Ballantine with respect to validity.
8.1 -- Opinion of Dewey Ballantine with respect to tax matters.
10.1 -- Form of Receivables Acquisition Agreement.
23.1 -- Consents of Dewey Ballantine are included in its opinions filed
as Exhibits 5.1 and 8.1 hereto.
99.1 -- Form of Prospectus Supplement - Certificates and Notes.
99.2* -- Form of Prospectus Supplement - Notes.
99.3 -- Form of Prospectus Supplement - Certificates.
99.4 -- Form of Prospectus Supplement - Master Trust.
*Filed herewith
</TABLE>
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described above in Item 15, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by them is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the Registration
Statement; provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is contained
in periodic reports filed by the Issuer pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
II-2
<PAGE> 75
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in Reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) With respect to Securities styled as Notes, the Registrant
hereby undertakes to file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of section 310 of the
Trust Indenture Act ("Act") in accordance with the rules and regulations
prescribed by the Commission under section 305(b)(2) of the Act."
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of San Diego, State of California, on June 24,
1997.
ACC CONSUMER FINANCE CORPORATION
By /s/ Rocco J. Fabiano
------------------------------------------
Rocco J. Fabiano, Chairman of the Board
and Chief Executive Officer
By /s/ Rellen M. Stewart
------------------------------------------
Rellen M. Stewart, Chief Operating Officer,
Chief Financial Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rocco J. Fabiano, Gary S. Burdick and Rellen M.
Stewart, and each or any one of them, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto and other
documents in connection therewith) to this Registration Statement and any
subsequent registration statement filed by the registrant pursuant to Rule
462(b) of the Securities Act of 1933, as amended, which relates to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Rocco J. Fabiano Chairman of the Board and Chief June 24, 1997
- ------------------------------------- Executive Officer
Rocco J. Fabiano
/s/ Gary S. Burdick President June 24, 1997
- -------------------------------------
Gary S. Burdick
/s/ Rellen M. Stewart Chief Operating Officer, Chief June 24, 1997
- ------------------------------------- Financial Officer and Treasurer
Rellen M. Stewart
/s/ Shaemus A. Garland Vice President--Controller
- -------------------------------------
Shaemus A. Garland June 24, 1997
/s/ Ethan J. Falk Director June 24, 1997
- -------------------------------------
Ethan J. Falk
/s/ Jeffrey S. Lambert Director June 24, 1997
- -------------------------------------
Jeffrey S. Lambert
/s/ Jeffrey E. Susskind Director June 24, 1997
- -------------------------------------
Jeffrey E. Susskind
</TABLE>
II-4
<PAGE> 77
EXHIBIT INDEX
(to be filed by amendment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Exhibit Description of Documents
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement - Notes.
- ------------------------------------------------------------------------------------------------------------------
1.2 Form of Underwriting Agreement - Certificates.
- ------------------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of ACC Consumer Finance Corporation.
- ------------------------------------------------------------------------------------------------------------------
3.2 By-Laws of ACC Consumer Finance Corporation.
- ------------------------------------------------------------------------------------------------------------------
4.1 Form of Indenture between the Trust and the Indenture Trustee.
- ------------------------------------------------------------------------------------------------------------------
4.2 Form of Indenture between the Sponsor and the Indenture Trustee.
- ------------------------------------------------------------------------------------------------------------------
4.3 Form of Pooling and Servicing Agreement.
- ------------------------------------------------------------------------------------------------------------------
4.4 Form of Trust Agreement.
- ------------------------------------------------------------------------------------------------------------------
5.1 Opinion of Dewey Ballantine with respect to validity.
- ------------------------------------------------------------------------------------------------------------------
8.1 Opinion of Dewey Ballantine with respect to tax matters.
- ------------------------------------------------------------------------------------------------------------------
10.1 Form of Receivables Acquisition Agreement.
- ------------------------------------------------------------------------------------------------------------------
23.1 Consents of Dewey Ballantine are included in its opinions filed as Exhibits 5.1 and 8.1
hereto.
- ------------------------------------------------------------------------------------------------------------------
99.1 Form of Prospectus Supplement - Certificates and Notes.
- ------------------------------------------------------------------------------------------------------------------
99.2* Form of Prospectus Supplement - Notes.
- ------------------------------------------------------------------------------------------------------------------
99.3 Form of Prospectus Supplement - Certificates.
- ------------------------------------------------------------------------------------------------------------------
99.4 Form of Prospectus Supplement - Master Trust.
==================================================================================================================
*Filed herewith.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 99.2
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________)
ACC AUTOMOBILE RECEIVABLES TRUST ____-__
$_________ ____% Asset Backed Notes, Class A
ACC Automobile Receivables Trust ____-__, ACC Consumer Finance Corporation,
as Issuer as Seller and Servicer
The Asset Backed Notes (the "Notes") will be issued pursuant to an
Indenture dated as of __________, between ACC Auto Receivables Trust ____-__
(the "Issuer") and Norwest Bank Minnesota, National Association ("Norwest
Bank"), as trustee (the "Indenture Trustee") and as collateral agent (the
"Collateral Agent"). The Notes will be issued in two classes, a senior class
(the "Class A Notes") and a subordinate class (the "Class B Notes" and together
with the Class A Notes, the "Notes"). The Class B Notes are not being offered
hereby.
The assets of the Issuer which will be pledged to the Collateral Agent
for the benefit of Noteholders will initially include a pool of non-prime retail
installment sales contracts (the "Receivables") secured by new and used
automobiles and light trucks, all monies paid or payable thereunder after the
Cutoff Date, security interests in the vehicles financed thereby, certain bank
accounts and the proceeds thereof, and the right to receive certain insurance
proceeds and certain other property. The Receivables were purchased by ACC
Consumer Finance Corporation ("ACC" or the "Servicer") from motor vehicle
dealers and may have been sold by ACC pursuant to warehouse financing
arrangements and repurchased. In connection with the issuance of the Notes by
the Issuer, the Issuer will purchase the Receivables from ACC. The aggregate
principal balance of the pool of Receivables to be transferred on the Closing
Date (the "Initial Receivables") is expected to be $____________.
Additional non-prime retail installment sale contracts are intended to
be purchased by the Issuer from ACC from time to time on or before _________,
from funds on deposit in a pre-funding account to be established with the
Indenture Trustee (the "Pre-Funding Account"). Approximately $___________ of
such additional contracts may be acquired by the Issuer.
Principal and interest will be distributed to the holders of the Notes
(the "Noteholders") on the 17th day of each month (or, if such day is a
Saturday, Sunday, legal holiday or other day on which commercial banks or trust
companies in the States of New York, California or Minnesota or any other
location of any successor Servicer, successor Indenture Trustee or successor
Collateral Agent are authorized or obligated by law, executive order or
governmental decree to be closed, on the next succeeding day (such day, a
"Business Day")), beginning ____________. The "Final Scheduled Distribution
Date" is ____________.
Full and complete payment of the Scheduled Payments (as defined herein)
on the Class A Notes only on each Distribution Date is unconditionally and
irrevocably guaranteed pursuant to a financial guaranty insurance policy (the
"Policy") to be issued by
[--------]
SEE "RISK FACTORS" AT PAGE S-__ HEREIN AND AT PAGE __ IN THE ACCOMPANYING
PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN THE NOTES OFFERED HEREBY.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN THE SELLER,
THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
SECURITIES NOR THE UNDERLYING RECEIVABLES ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY.
<PAGE> 2
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO PUBLIC(1) UNDERWRITING DISCOUNT PROCEEDS TO THE TRUST(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Note.................. ________% ____% ________%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Total............................. $_________ $_______ $_________
==================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate, from _________.
The Notes are offered subject to receipt and acceptance by the Underwriter, to
prior sale and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice.
It is expected that the Notes will be offered globally and delivered in
book-entry form on or about March 31, 1997 through the facilities of The
Depository Trust Company ("DTC"), CEDEL S.A. ("Cedel") and the Euroclear System
("Euroclear") against payment in immediately available funds.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION............................................................. 1
REPORTS TO THE NOTEHOLDERS........................................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................... 2
SUMMARY ......................................................................... 3
RISK FACTORS...................................................................... 13
YIELD CONSIDERATIONS.............................................................. 24
DELINQUENCY AND LOAN LOSS INFORMATION............................................. 24
THE CLASS A NOTE INSURER.......................................................... 30
THE POLICY........................................................................ 31
DESCRIPTION OF THE TRUST DOCUMENTS................................................ 33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................... 40
STATE AND LOCAL TAX CONSIDERATIONS................................................ 41
ERISA CONSIDERATIONS.............................................................. 41
UNDERWRITING...................................................................... 43
LEGAL OPINIONS.................................................................... 44
GLOSSARY ......................................................................... 45
Appendix A........................................................................ 1
</TABLE>
i
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT AFFECT THE PRICE OF THE NOTES. SUCH TRANSACTIONS MAY INCLUDE
THE PURCHASE OF NOTES TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF
THESE TRANSACTIONS, SEE "UNDERWRITING."
---------------------------
The information in this Prospectus Supplement is qualified in its
entirety by the more detailed information appearing or incorporated by reference
in the accompanying Prospectus. Prior to making an investment decision with
respect to the Notes offered hereby, prospective investors should carefully
consider the information contained in this Prospectus Supplement and the
Prospectus.
There currently is no secondary market for the Notes. The Underwriter
intends to make a market in the Notes but has no obligation to do so. There is
no assurance that one will develop or, if one does develop, that it will
continue until the Notes are paid in full.
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company has filed a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with the Securities and
Exchange Commission (the "Commission") on behalf of the Trust with respect to
the Notes offered pursuant to the Prospectus dated March 21, 1997 and this
Prospectus Supplement. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, 13th Floor, New York, New York 10048; and at The
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains a site on the World Wide Web containing
reports, proxy materials, information statements and other items. The address is
http://www.sec.gov. Copies of the Registration Statement and amendments thereof
and exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
REPORTS TO THE NOTEHOLDERS
So long as the Notes are in book-entry form, monthly and
annual reports concerning the Notes and the Trust will be sent by the Indenture
Trustee to Cede & Co., as the nominee of DTC and as registered holder of the
Notes pursuant to the Sale and Servicing Agreement. DTC will supply such reports
to Beneficial Owners in accordance with its procedures. See "Risk Factors,"
"Description of the Securities -- Book-Entry Registration" and " -- Reports to
Securityholders" in the Prospectus. To the extent required by the Securities
Exchange Act of 1934, as amended, the Trust will provide financial information
to the registered holder which has been examined and reported upon, with an
opinion expressed by an independent public accountant; to the extent not so
required, such financial information will be unaudited. The Seller has
determined that the financial statements of no entity other than the Insurer are
material to the offering made hereby. The Trust will be formed to own the
Receivables, and to issue the Securities. The Trust will have no assets or
obligations prior to issuance of the Securities and will engage in no activities
other than those described herein. Accordingly, no financial statements with
respect to the Trust are included in this Prospectus Supplement.
Until 90 days from the date of this Prospectus Supplement,
dealers effecting transactions in the Notes whether or not participating in this
distribution, may be required to deliver a prospectus and a prospectus
supplement. This is in addition to the obligation of dealers to deliver a
prospectus and a
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prospectus supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of ____________ and Subsidiaries included in, or as exhibits to, the
Annual Report on Form 10-K for the year ended __________ which have been filed
with the Commission by ___________, are hereby incorporated by reference in the
Registration Statement (as defined in the Prospectus) of which this Prospectus
and Prospectus Supplement form a part.
The Seller on behalf of the Trust hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended, each
filing of the Trust's annual report pursuant to section 13(a) or section 15(d)
of the Exchange Act and each filing of the financial statements of the Insurer
included in or as an exhibit to the annual report of _________ filed pursuant to
section 13(a) or section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the Notes offered hereby, and the offering of such Notes
at that time shall be deemed to be the initial bona fide offering thereof.
The Company will provide, without charge, to any person to whom this
Prospectus Supplement is delivered, upon oral or written request of such person,
a copy of any or all of the foregoing financial statements incorporated by
reference. Requests for such copies should be sent to ACC Consumer Finance
Corporation, attention: _______________. All financial statements of the Insurer
included in documents filed by __________ pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used are defined elsewhere in the Prospectus
Supplement or in the Prospectus. Reference is made to the Index of Defined Terms
herein and the Index of Terms in the Prospectus for the definitions of certain
capitalized terms.
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ISSUER.....................................ACC Automobile Receivables Trust ____, a Delaware business
trust (the "Issuer") wholly owned by ACC Funding Corp.
("ACC Funding") (which will own a ___% interest in the
Issuer) and ACC Receivables Corp. ("ACC Receivables")
(which will own a ___% interest in the Issuer). Each of ACC
Receivables and ACC Funding is a special purpose,
bankruptcy-remote subsidiary of ACC.
OWNER TRUSTEE..............................Wilmington Trust Company, a Delaware banking corporation,
not in its individual capacity but solely as trustee under
the Trust Agreement, dated as of ________, with ACC, ACC Funding
and ACC Receivables (the "Owner Trustee").
SELLER AND SERVICER .......................ACC Consumer Finance Corporation, a Delaware corporation,
("ACC," and, under the Sale, Servicing and Collateral
Management Agreement in its capacity as Servicer, the
"Servicer" and in its capacity as Seller, the "Seller"). The
Servicer will be obligated, pursuant to the Sale, Servicing and
Collateral Management Agreement, subject to the limitations
set forth therein, to service the Receivables and to
repurchase certain of the Receivables if it breaches certain of
its servicing obligations under the Sale, Servicing and
Collateral Management Agreement or certain other covenants
with respect to the Servicer, in each case only in a manner
that materially and adversely affects such Receivables, the
interests of the Issuer, the Noteholders or the Class A Note
Insurer. See "The Seller and Servicer in the Prospectus."
The Seller will be obligated, pursuant to the Sale, Servicing
and Collateral Management Agreement, dated as of
__________, among the Seller, the Issuer, the Servicer, the
Backup Servicer and the Trust Collateral Agent (the "Sale,
Servicing and Collateral Management Agreement"), subject to
the limitations set forth therein, to purchase certain of the
Receivables under certain circumstances if any
representations and warranties made therein by the Seller
with respect to the Receivables are incorrect in a manner that
materially and adversely affects such Receivables, the
interests of the Issuer, the Noteholders or the Class A Note
Insurer.
INITIAL CUTOFF DATE .......................The close of business on __________ or with respect to each
Initial Receivable originated after such date, the date of
origination of such Receivable.
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CLOSING DATE .............................._________.
INDENTURE TRUSTEE, BACKUP SERVICER
AND TRUST COLLATERAL AGENT ................Norwest Bank Minnesota, National Association (in its
capacity as Indenture Trustee under the Indenture, the
"Indenture Trustee", in its capacity as Collateral Agent
under the Sale, Servicing and Collateral Management Agreement,
the "Trust Collateral Agent", and in its capacity as Backup
Servicer under the Servicing and Collateral Management
Agreement, the "Backup Servicer").
DESCRIPTION OF THE
NOTES .....................................The Notes will be issued pursuant to an Indenture, dated as of
_________, between the Issuer, the Indenture Trustee and
the Trust Collateral Agent (the "Indenture"). The Notes will
be issued in fully registered form in minimum denominations
of $1,000 and integral multiples of $1,000 in excess thereof.
The Notes will be issued in two classes, a senior class (the
"Class A Notes") and a subordinate class (the "Class B
Notes").
The Original Principal Balance of each class will be as
follows:
Class A Notes: $_________
Class B Notes: $_________
The Class A Notes will be represented by global securities
registered in the name of Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC"). Class A
Noteholders will not be entitled to receive definitive securities
representing such holders' interest except in certain
circumstances described in the Sale, Servicing and Collateral
Management Agreement. Transfers within DTC will be in
accordance with the usual rules and operating procedures of
the relevant system. The rights of the owners of the
beneficial interests in the Class A Notes may only be
exercised through DTC and its participating organizations,
except as otherwise specified herein. See "Description of the
Notes--Book-Entry Registration."
The Class B Notes are not being offered hereby.
DESCRIPTION OF THE
INDENTURE ................................. The payment priorities set forth in the Indenture require (i)
except to the extent of funds available in the Class B Reserve
Fund (as defined below), that no payments of interest will be
paid to the Class B Noteholders on any Distribution Date
unless the full amount of interest and principal then due to the
Class A Noteholders has been paid, as well as certain
reimbursements due to the Class A Note Insurer, and (ii)
except to the extent of funds available in the Class B Reserve
Fund (as defined below), that no payments of principal will be
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paid to the Class B Noteholders on any Distribution Date unless
the full amount of interest and principal then due to the Class A
Noteholders, the full amount of interest then due to the Class B
Noteholders, as well as certain reimbursements due to the Class A
Note Insurer, and funding of certain reserve accounts established
for the benefit of the Class A Note Insurer, have been paid in
full. Consequently, the Class B Noteholders will receive no
distributions of principal from sources other than the Class B
Reserve Fund until these provisions have been satisfied (during
which period some of or all the distributions of principal to
which the Class B Noteholders would otherwise be entitled will be
deposited to such reserve accounts) and may thereafter experience
temporary suspensions of payments of principal.
CLASS A NOTE INTEREST
RATE....................................The Class A Notes will bear interest at a rate of ____% per
annum, calculated on the basis of a 360-day year consisting of
twelve 30-day months, using the applicable Note Interest Rate
(the "Class A Note Interest Rate"), as set forth on the cover
page hereof.
TRUST PROPERTY.............................The property of the Issuer initially pledged to secure payment of
the Notes (such property, the "Trust Estate") will include
certain non-prime retail installment sale contracts (the "Initial
Receivables") secured by new or used automobiles, light duty
trucks, vans and mini-vans (the "Initial Financed Vehicles"), all
monies paid or payable thereunder after the Initial Cutoff Date,
security interests in the Initial Financed Vehicles securing the
Initial Receivables, certain bank accounts and the proceeds
thereof, any proceeds from claims on certain insurance policies,
certain rights under the Sale, Servicing and Collateral
Management Agreement and all proceeds of the foregoing.
On or before _________, the Issuer may acquire from time to
time (each such date a "Subsequent Transfer Date") from
ACC, using the money on deposit in a pre-funding account to
be established with the Indenture Trustee (the "Pre-Funding
Account"), approximately $_________ (the "Original Pre-
Funded Amount") of additional non-prime retail installment
sale contracts (the "Subsequent Receivables" and together
with the Initial Receivables, the "Receivables") secured by
new or used automobiles, light duty trucks, vans and mini-
vans (the "Subsequent Financed Vehicles" and together with
the Initial Financed Vehicles, the "Financed Vehicles"),
together with all monies paid or payable under such
Subsequent Receivables after the related subsequent cutoff
date (each a "Subsequent Cutoff Date" and together with the
Initial Cutoff Date, each a "Cutoff Date") established pursuant
to the related subsequent transfer agreement (each a
"Subsequent Transfer Agreement") to be entered into at the
time of such subsequent transfer of Receivables to the Issuer
among the Seller, the Servicer, the Trust Collateral Agent and
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<TABLE>
<CAPTION>
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the Indenture Trustee, security interests in the Financed
Vehicles securing the Receivables and all proceeds of the
foregoing. ACC has previously originated and identified
Receivables having an aggregate principal balance of
approximately $_________ that it expects to transfer to the
Issuer on one or more Subsequent Transfer Dates.
RECEIVABLES................................The Receivables consist of non-prime retail automobile install-
ment sales contracts which were sold and purchased in the
manner described above and pursuant to ACC's finance
programs. ACC's finance programs target automobile
purchasers with below average credit profiles who are
generally unable to obtain credit from traditional lending
sources. The Receivables had, as of the Initial Cutoff Date,
a weighted average annual percentage rate ("APR") of
approximately ____%, a weighted average original term of
____ months and a weighted average remaining term of ____
months. The Receivables had an Aggregate Principal
Balance of $_________ as of the Initial Cutoff Date (the
"Original Pool Balance"). See "The Trust Property."
Certain contracts included in the pool as of the Initial Cutoff
Date may prepay in full, or may be determined not to meet
the eligibility requirements for the final pool, and may not be
included in the final pool. As a result of the foregoing, the
statistical distribution of characteristics as of the Closing Date
for the final Receivables pool may vary somewhat from the
statistical distribution of such characteristics as of the Initial
Cutoff Date as presented in this Private Placement
Memorandum, although such variance will not be material.
The Seller has represented and warranted that no Initial
Receivable is more than 30 days delinquent as of the Initial
Cutoff Date, and that no more than 0.07% of the Initial
Receivables have been extended by the Servicer.
Approximately $19,800,000.00 of the Subsequent Receivables
have already been originated and identified for transfer to the
Issuer by the Seller. See "The Trust Property."
Following the Closing Date and subject to the prior written
consent of the Class A Note Insurer and satisfaction of
certain conditions set forth in the Sale, Servicing and
Collateral Management Agreement, the Issuer will be
obligated to purchase the Subsequent Receivables from the
Seller as described below under "Pre-Funding Account." The
Seller will make certain representations as of the related
Subsequent Cutoff Date with respect to the Receivables,
including any Subsequent Receivables. See "The Trust
Property."
PRE-FUNDING ACCOUNT........................During the period from and including the Closing Date until the
earliest of (i) the date on which the Pre-Funded Amount (after
giving effect to any transfer of Subsequent Receivables to the
Issuer on such date) is less than $100,000, (ii) the date on
</TABLE>
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which an Event of Default occurs under the Indenture or which a
Servicer Termination Event occurs under the Sale, Servicing and
Collateral Management Agreement or (iii) the Distribution Date in
_________ (the "Funding Period"), the Pre-Funding Account will be
maintained with the Indenture Trustee and is designed solely to
hold funds to be applied by the Indenture Trustee to pay the
Seller the purchase price for Subsequent Receivables. Monies on
deposit in the Pre-Funding Account will not be available to cover
losses on or in respect of the Receivables. On the Closing Date,
the Pre-Funding Account will be funded with the Original
Pre-Funded Amount from the sale proceeds of the Notes.
The Seller expects that the Pre-Funded Amount will be
reduced to less than $100,000 by _________, although no
assurances can be given in this regard. If any portion of the
Pre-Funded Amount remains at the end of the Funding
Period, such amount will be distributed as a partial
prepayment to the Noteholders as described below under
"Mandatory Prepayment".
INTEREST RESERVE ACCOUNT...................During the Funding Period, funds will be held in an Interest
Reserve Account to cover any shortfalls due to investment
earnings on funds in the Pre-Funding Account being less than
the interest due on the Notes. See "Description of the Trust
Documents -- The Accounts."
DISTRIBUTION DATE..........................The 17th day of each month (or if such 17th day is not a
Business Day, the immediately following Business Day),
commencing _________.
INTEREST...................................Interest on the outstanding principal amount of the Notes of each
Class will accrue at the applicable Note Interest Rate from
_________, in the case of the first Distribution Date or from the
most recent Distribution Date on which interest has been paid to
but excluding the following Distribution Date. Interest on the
Notes for any Distribution Date due but not paid on such
Distribution Date will be due on the next Distribution Date
together with interest on such amount at the applicable Note
Interest Rate. The amount of interest distributable on the Notes
on each Distribution Date will equal 30 days' interest (or, in
the case of the first Distribution Date, interest accrued from
and including the Closing Date to but excluding such Distribution
Date). See "Description of the Notes - Payments of Interest"
herein. Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
The "Note Principal Balance" of each class of Notes will
equal, initially, the original principal amount of Notes of such
class issued by Issuer on the Closing Date and thereafter will
equal the original Note Principal Balance of such class
reduced by all principal distributed to the Noteholders of the
Notes of such class.
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PRINCIPAL..................................Class A Notes. Principal on the Class A Notes will be payable
on each Distribution Date in an amount equal to the Class A
Noteholders' Principal Distributable Amount (as defined
below). The Class A Noteholders' Principal Distributable
Amount for any Distribution Date will equal the Class A
Noteholders' Percentage of an amount equal to the sum of
the following amounts (such sum with respect to any
Distribution Date, the ("Principal Distributable Amount")) with
respect to the related Monthly Period, computed in
accordance with the simple interest method with respect to
Simple Interest Receivables (as defined herein) or in
accordance with the actuarial method with respect to Rule of
78s Receivables (as defined herein): (i) that portion of all
collections on Receivables (other than Liquidated Receivables
and Purchased Receivables) allocable to principal, including
full and partial principal prepayments, received during such
Monthly Period, (ii) the principal balance of each Receivable
that became a Liquidated Receivable during such Monthly
Period (other than Purchased Receivables), (iii) the principal
balance of each Receivable that was repurchased by the
Servicer or the Seller as of the last day of such Monthly
Period, (iv) the aggregate amount of any Cram Down Loss
(as defined below), and (v) any unpaid portion of the amounts
included in clauses (i), (ii), (iii) and (iv) above with respect to
a prior Distribution Date. The Class A Noteholders' Principal
Distributable Amount will also include, at the option of the
Class A Note Insurer, the Class A Noteholders' Percentage
of the principal balance of each Receivable that was required
to be, but was not, so repurchased. See "Description of the
Notes" and "Description of the Trust Documents" herein.
Class B Notes. Principal on the Class B Notes will be payable
on each Distribution Date in an amount equal to the Class B
Noteholders' Principal Distributable Amount. The Class B
Noteholders' Principal Distributable Amount will equal the
Class B Noteholders' Percentage of the Principal Distributable
Amount. The Class B Noteholders' Percentage is ____%
initially (until the Class A Notes have been paid in full at
which time it will equal 100% or until the Class B Notes have
been paid in full at which time it will equal 0%).
The outstanding principal amount of the Notes, if any, will be
payable on _________ (the "Final Scheduled Distribution Date").
"Cram Down Loss" means, with respect to a Receivable, if a court
of appropriate jurisdiction in an insolvency proceeding has
issued an order reducing the amount owed on a Receivable or
otherwise modifying or restructuring the scheduled payments to be
made on a Receivable, an amount equal to the excess of the
principal balance of such Receivable immediately prior to such
order over the principal balance of such Receivable as so reduced
or the net present value (using as the discount rate the higher
of the contract
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rate or the rate of interest, if any, specified by the court in
such order) of the scheduled payments as so modified or
restructured. A Cram Down Loss will be deemed to have occurred on
the date of issuance of such order.
"Liquidated Receivable" means, with respect to any Monthly
Period, a Receivable as to which (i) 60 days have elapsed since
the Servicer repossessed the Financed Vehicle, (ii) the Servicer
has determined in good faith that all amounts it expects to
recover have been received, (iii) ninety percent or more of a
scheduled payment shall have become 120 or more days delinquent,
or in the case of an Obligor who is subject to bankruptcy
proceedings, 210 or more days delinquent or (iv) the Financed
Vehicle has been sold and the proceeds received. Any Receivable
that becomes a Purchased Receivable on or before the related
Business Day immediately preceding the related Determination Date
shall not be a Liquidated Receivable.
A "Monthly Period" with respect to a Distribution Date will be
the calendar month preceding the month in which such Distribution
Date occurs.
PAYMENT PRIORITY...........................On each Distribution Date the Available Funds (together with
certain other monies) will be applied in the following order of
priority:
first, to the Servicer, the Servicing Fee then due;
second, to any Lockbox Bank or other relevant local bank, the
Indenture Trustee, Custodian, Backup Servicer, Trust
Collateral Agent, and the Owner Trustee (including the
Indenture Trustee if acting in any such additional capacity),
their fees then due (in each case, to the extent such fees
have not been previously paid by the Servicer);
third, to the Class A Noteholders, the interest then due with
respect to each Class of Class A Notes;
fourth, to the Class A Noteholders, the Class A Noteholders'
Principal Distributable Amount;
fifth, to the Class A Note Insurer, the premium owing to it in
connection with the Policy (the "Premium Amount") then due
it and any amounts owing under the Insurance Agreement;
sixth, to the Class B Noteholders, the interest then due with
respect to the Class B Notes;
seventh, to certain reserve accounts maintained for the
benefit of the Class A Note Insurer, until such reserve
accounts are fully funded at their required level;
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eighth, to the Class B Noteholders, the Class B Noteholders'
Principal Distributable Amount;
ninth, all remaining funds to the Class B Noteholders to
reduce the principal balance of the Class B Notes until the
principal balance of the Class B Notes is reduced to zero; and
tenth, to the Issuer, any remainder.
MANDATORY PREPAYMENT.......................The Notes of each Class will be prepaid in part on the
Distribution Date on or immediately following the end of the
Funding Period in the event that any portion of the Pre-Funded
Amount remains after giving effect to the purchase of all
Subsequent Receivables during the Funding Period. The aggregate
principal amount of each Class of Notes subject to prepayment
will be an amount equal to such Class's pro rata share (based on
the respective current principal amount of each Class of Notes)
of the Pre-Funded Amount at the end of the Funding Period.
NOTE INSURER...............................Financial Security Assurance Inc. (the "Class A Note Insurer")
is a financial guaranty insurance company incorporated under
the laws of the State of New York. See "The Policy" and
"The Class A Note Insurer."
THE POLICY.................................On the Closing Date, the Class A Note Insurer will issue the
Policy to the Indenture Trustee for the benefit of the Class A
Noteholders pursuant to which the Class A Note Insurer will
unconditionally and irrevocably guarantee to the Class A
Noteholders payment of the Scheduled Payments for each
Distribution Date. See "The Policy".
REPURCHASE AND PURCHASE
OBLIGATIONS..............................The Seller (pursuant to the Sale, Servicing and Collateral
Management Agreement) will be obligated to repurchase a
Receivable if such Receivables or the interest of the Class A
Noteholders or the Class A Note Insurer are materially adversely
affected by a breach of any representation or warranty made by
the Seller with respect to such Receivable, if the breach has not
been cured by the last day of the first full calendar month
following the discovery by or notice to the Issuer of the breach.
The Servicer (pursuant to the Sale, Servicing and Collateral
Management Agreement) will be obligated to repurchase a
Receivable if such Receivable is materially adversely affected
by a breach of certain of its servicing obligations under the
Sale, Servicing and Collateral Management Agreement
(including, but not limited to, its obligation to ensure that the
perfected security interest of Accent Financial Services, OFL-
A or ACC in the related Financed Vehicles is maintained) or
certain other covenants with respect to the Servicer, if the
breach has not been cured by the last day of the first full
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calendar month following the discovery or notice to the Servicer
of the breach.
SERVICER FEE...............................Each month the Servicer will receive a fee for servicing the
Receivables (the "Servicer Fee") equal to (a) the product of
one-twelfth of 3.00% (the "Servicing Fee Rate") and the Pool
Balance outstanding at the beginning of the calendar month
immediately preceding such Distribution Date (the "Servicing
Fee") plus (b) a supplemental servicing fee (the
"Supplemental Servicing Fee") equal to (i) any late fees,
prepayment fees, liquidation fees and other administrative
fees and expenses collected during such month, plus (ii) the
net realized earnings on all investments of funds deposited in
the Collection Account during such month. See "Provisions
of the Trust Documents -- Servicing Compensation and
Indenture Trustees' Fees."
OPTIONAL REDEMPTION........................The Notes will be redeemed in whole, but not in part, on any
Distribution Date on which the Issuer or the Servicer
exercises its option to purchase the Receivables (with the
consent of the Class A Note Insurer, if a claim has previously
been made under the Policy or, if such purchase would result
in a claim under the Policy or if such purchase would result
in any amount owing to the Class A Note Insurer remaining
unpaid), which, subject to certain provisions in the Sale,
Servicing and Collateral Management Agreement, can occur
after the Pool Balance is equal to or less than 10% of the
Original Pool Balance, at a redemption price which is not less
than the Note Principal Balance plus accrued and unpaid
interest thereon. See "Description of the Notes - Optional
Redemption" herein.
MANDATORY
REDEMPTION.................................The Notes may be accelerated and subject to immediate
payment at par upon the occurrence of an Event of Default
under the Indenture. So long as no Class A Note Insurer
Default shall have occurred and be continuing, an Event of
Default under the Indenture will occur only upon delivery by
the Class A Note Insurer to the Issuer of notice of the
occurrence of certain events of default under the Insurance
and Indemnity Agreement, dated as of May 1, 1997 (the
"Insurance Agreement"), among the Class A Note Insurer, the
Issuer, the Seller, the Servicer, ACC Receivables and ACC
Funding. The Policy does not guarantee payment of any
amounts that became due on an accelerated basis, unless
the Class A Note Insurer elects, in its sole discretion, to pay
such amounts in whole or in part. See "Description of the
Notes - Mandatory Redemption - Events of Default;" herein.
TAX STATUS.................................In the opinion of Dewey Ballantine, special counsel to the
Seller, for federal income tax purposes, the Issuer will not be
treated as an association (or publicly traded partnership)
taxable as a corporation and the Class A Notes will be
characterized as debt. Each Noteholder, by the acceptance
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of a Note, will agree to treat the Notes as debt. See "Certain
Federal Income Tax Consequences" herein.
ERISA CONSIDERATIONS.......................As described herein, the Class A Notes may be purchased by
Benefit Plans (as hereinafter defined) that are subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") or
entities using assets of such Benefit Plans. Any Benefit Plan
should consult its tax and/or legal advisors in determining
whether all required conditions have been satisfied.
The Class B Notes are not eligible for purchase by a Benefit
Plan.
RATING.....................................As a condition to the issuance of the Notes, the Class A Notes
will be rated at least "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
("S&P") and "Aaa" by Moody's Investors Service, Inc.
("Moody's") on the basis of the issuance of the Policy by the
Class A Note Insurer. There is no assurance that a rating will
not be lowered or withdrawn by a rating agency based on a
change in circumstances deemed by such rating agency to
adversely affect the Class A Notes. A rating is not a
recommendation to purchase, hold or sell the Class A Notes,
in as much as such rating does not comment as to market
price or suitability for a particular investor. See "Risk Factors
- Ratings of the Notes."
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RISK FACTORS
ACC'S UNDERWRITING PROCESS AND SUBJECTIVE CREDIT STANDARDS
The underwriting standards applied by ACC may not be as stringent as
those of the finance companies of motor vehicle manufacturers or other financial
institutions since ACC purchases retail automobile installment contracts which
may not meet the credit standards of traditional primary lenders. The ACC
finance program focuses on the non-prime market including obligors with below
average credit profiles who may not be able to receive financing from more
traditional sources. The ACC finance program sets specific limits for the credit
amount extended. ACC's credit decisions are judgmental. See "The Seller and
Servicer -- Application Processing and Purchasing Criteria."
LIMITED ASSETS
The Issuer will not have, nor is it permitted or expected to have, any
significant assets or sources of funds available for the payment of the Class A
Notes other than the Receivables, the Pre-Funding Account, the Capitalized
Interest Account. Noteholders must rely for repayment upon payments on the
Receivables and, if and to the extent available, amounts on deposit in the
Pre-Funding Account, the Capitalized Interest Account and, with respect to the
Class A Notes only, payments of claims made under the Policy. The Pre-Funded
Amount on deposit in the Pre-Funding Account will be used solely to purchase
Subsequent Receivables and is not available to cover losses on the Receivables.
The Capitalized Interest Account is designed to cover obligations of the Issuer
relating to that portion of its assets not invested in Receivables and is not
designed to provide protection against losses on the Receivables. Similarly,
although the Policy will be available on each Distribution Date to cover
shortfalls in distributions of the Scheduled Payments with respect to the Class
A Notes on such Distribution Date, if the Class A Note Insurer defaults in its
obligations under the Policy, the Issuer will depend on current distributions on
the Receivables and, with respect to the Class A Notes only, amounts, if any,
available therefor in certain collateral accounts maintained for the benefit of
the Class A Note Insurer to make payments on the Notes. See "The Class A Note
Insurer" and "The Policy" herein.
GEOGRAPHIC CONCENTRATION OF RECEIVABLES
As of the Initial Cutoff Date (based on principal balance and mailing
address of the Obligors), Obligors with respect to approximately ____% and ____%
of the Receivables were located in California, Texas and Florida, respectively
and substantially all of the rest of the Receivables were located in those
states identified in the table on page __. See "The Trust Property".
Accordingly, adverse economic conditions or other factors particularly affecting
any of these states could adversely affect the delinquency or loan loss
experience of the Issuer with respect to the Receivables.
PREPAYMENT FROM THE PRE-FUNDING ACCOUNT; ABILITY TO ORIGINATE SUBSEQUENT
RECEIVABLES
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Issuer by the end of the Funding
Period, the Noteholders will receive a prepayment of principal on the Mandatory
Redemption Date in an amount equal to their pro rata share (based on the current
principal balance of each Class and the Note Principal Balance) of the
Pre-Funded Amount (exclusive of investment earnings) remaining in the
Pre-Funding Account at the end of the Funding Period; provided that, if the
total amount of such Pre-Funded Amount at the end of the Pre-Funding Period is
$100,000 or less, such amount shall be applied exclusively to the Class of Class
A Notes then entitled to receive distribution. Any reinvestment risk from the
prepayment of the Notes from the Pre-Funded Amount at the end of the Funding
Period will be borne by the Noteholders. See "Maturity and Prepayment
Considerations" and "Yield Considerations" herein.
The conveyance of Subsequent Receivables to the Issuer during the
Funding Period is subject to the conditions described herein under "The Trust
Property -- Eligibility Criteria." The ability of the
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<PAGE> 17
Issuer to invest in Subsequent Receivables is dependent upon the ability of ACC
to originate through Dealers a sufficient amount of motor vehicle retail
installment sales contracts that meet such eligibility criteria. The ability of
the Seller to originate sufficient Subsequent Receivables may be affected by a
variety of social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. The Seller has no basis to predict whether or the extent
to which economic or social factors will affect the availability of Subsequent
Receivables. Approximately $_________ of the Subsequent Receivables have already
been originated and identified for transfer to the Issuer by the Seller. There
can be no assurance that the Class A Note Insurer will consent to the transfer
of Subsequent Receivables during the Pre-Funding Period. See "The Trust
Property" herein.
MATURITY AND PREPAYMENT ASSUMPTIONS
All of the Receivables are prepayable at any time. The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
sell or transfer the related Financed Vehicle securing a Receivable without the
consent of ACC. (For this purpose the term "prepayments" includes prepayments in
full, certain partial prepayments related to refunds of extended service
contract costs and unearned insurance premiums, liquidations due to default,
Cram Down Losses, as well as receipts of proceeds from physical damage,
repossession loss, credit life and credit accident and health insurance policies
and certain other Receivables repurchased for administrative reasons.) The rate
of prepayment on the Receivables may also be influenced by the structure of the
loan, the nature of the Obligors and the Financed Vehicles and servicing
decisions as discussed above. In addition, under certain circumstances, the
Seller and the Servicer are obligated to purchase Receivables pursuant to the
Sale, Servicing Agreement and Collateral Management Agreement as a result of
breaches of certain covenants. The Servicer also has the right, subject to
certain conditions, to purchase the Receivables when the Pool Balance is 10% or
less of the Original Pool Balance. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Receivables will be borne entirely
by the Noteholders. See "Yield Considerations".
NONPRIME LENDING
The Company's underwriting guidelines relate to a category of lending
commonly known as "nonprime", in which loans may be made to applicants who have
experienced certain adverse credit events but who meet certain other
creditworthiness tests. Such "nonprime" loans may experience higher rates of
delinquencies, repossessions and losses, especially under adverse economic
conditions, as compared with loans originated pursuant to a traditional lending
program. See "Risk Factors" -- in the Prospectus.
BOOK-ENTRY REGISTRATION
Issuance of the Notes in book-entry form may reduce the liquidity of
such Securities in the secondary trading market since investors may be unwilling
to purchase Notes for which they cannot obtain definitive physical securities
representing such Noteholders' interests, except in certain circumstances
described herein.
Noteholders may experience some delay in their receipt of distributions
of interest on and principal of the Notes since distributions may be required to
be forwarded by the Trustee to DTC, CEDEL or Euroclear and, in such case, DTC,
CEDEL or Euroclear, as the case may be, will be required to credit such
distributions to the accounts of its participating organization which thereafter
will be required to credit them to the accounts of the Noteholders either
directly or indirectly through indirect participants. See "The Certificates --
Book-Entry Registration." See "Risk Factors" in the Prospectus.
RATINGS OF THE NOTES
As a condition to the issuance of the Notes, the Class A Notes will be
rated at least "AAA" by S&P and "Aaa" by Moody's on the basis of the issuance of
the Policy by the Class A Note Insurer.
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<PAGE> 18
There is no assurance that a rating will not be lowered or withdrawn by a rating
agency based on a change in circumstances deemed by such rating agency to
adversely affect the related Class of Class A Notes. A rating is not a
recommendation to purchase, hold or sell the Notes, in as much as such rating
does not comment as to market price or suitability for a particular investor.
See "Ratings of the Notes."
EVENTS OF DEFAULT UNDER THE INDENTURE
So long as no Class A Note Insurer Default shall have occurred and be
continuing, neither the Indenture Trustee nor the Noteholders may declare an
Event of Default under the Indenture. So long as an Class A Note Insurer Default
shall not have occurred and be continuing, an Event of Default will occur only
upon delivery by the Class A Note Insurer to the Indenture Trustee of notice of
the occurrence of certain events of default under the Insurance Agreement. Upon
the occurrence of an Event of Default under the Indenture (so long as an Class A
Note Insurer Default shall not have occurred and be continuing), the Class A
Note Insurer will have the right, but not the obligation, to cause the
liquidation, in whole or in part, of the Trust Property, which will result in
redemption, in whole or in part, of the Notes. Following the occurrence of an
Event of Default, the Indenture Trustee will continue to submit claims under the
Policy as necessary to enable the Issuer to continue to make payments of the
Scheduled Payments with respect to the Class A Notes.
INSOLVENCY CONSIDERATIONS
The Trust Agreement provides that, in the event that ACC Funding
becomes insolvent, or is terminated or dissolved (a "Dissolution Event") and the
Owner Trustee is unable to obtain an opinion of counsel satisfactory to the
Class A Note Insurer to the effect that the Issuer will not thereafter be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes, the Issuer will effect redemption of the Notes and
the Certificateholder will terminate the Issuer and cause the winding-up of the
affairs of the Issuer, unless within such 90 days the holders of a majority of
the Certificate Percentage Interest (as defined in the Trust Agreement) agree in
writing to continue the business of the Issuer and the Owner Trustee is able to
obtain the opinion of counsel described above.
CERTAIN LEGAL ASPECTS
In connection with the sale and assignment of the Receivables to the
Issuer, security interests in the Financed Vehicles which have been assigned by
the Seller to the Issuer will be assigned by the Issuer to the Indenture
Trustee. In most states, such an assignment is an effective conveyance of a
security interest without amendment of any security interest noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. However, a security interest in a motor
vehicle registered in the states in which a majority of Financed Vehicles
purchased under ACC's finance programs are currently registered, may be
perfected only by causing such vehicle's certificate of title to be amended to
note the security interest of the secured party. Such notation of a secured
party's security interest is generally effected in such states by depositing
with the applicable state highway department, motor vehicle registrar or similar
state authority, the vehicle's certificate of title, an application containing
the name and address of the secured party, and the necessary registration fees.
Because of the administrative burden and expense that would be entailed
in doing so, the certificates of title for the Financed Vehicles will not
identify the Indenture Trustee or the Owner Trustee as the secured party, and
will not be deposited with the state highway department, motor vehicle registrar
or other state authorities in any state. In the absence of such action, the
Indenture Trustee and the Owner Trustee may not have a perfected security
interest in the Financed Vehicles and, in the event that another person obtains
a perfected security interest in a Financed Vehicle subsequent to the transfer
of the Receivables to the Issuer, such person might acquire rights in such
Financed Vehicle prior to the rights of the Issuer. The Seller will covenant in
the Sale, Servicing and Collateral Management Agreement to repurchase any
Receivable if, on the Closing Date a valid, subsisting and
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<PAGE> 19
enforceable first priority security interest has not been perfected (or is not
in the process of perfection) in favor of Accent Financial Services, OFL-A or
the Seller, which will have been validly assigned to the Issuer and the
Indenture Trustee, in the related Financed Vehicle. The Seller, as Servicer,
will covenant in the Sale, Servicing and Collateral Management Agreement to
repurchase any Receivable if, after the Closing Date, a valid, subsisting and
enforceable first priority security interest in the name of Accent Financial
Services, OFL-A or the Seller is not maintained on behalf of the Indenture
Trustee in the related Financed Vehicle.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by the Seller under the United States Bankruptcy Code or
similar applicable state laws ("Insolvency Laws") will result in the
consolidation of the assets and liabilities of the Issuer with those of the
Seller. These steps include the creation of the Issuer as a separate,
limited-purpose entity pursuant to its trust certificate (the "Trust
Certificate"), the creation of separate limited purpose entities to hold the
ownership interest in the Issuer pursuant to the Articles of Incorporation of
each of ACC Receivables and ACC Funding which contain certain limitations
(including restrictions on the nature of the business of each of ACC Receivables
and ACC Funding) and a restriction on either's ability to commence a voluntary
case or proceeding under any Insolvency Law without the unanimous affirmative
vote of all of the members of its board of directors. The Certificates of
Incorporation of each of ACC Receivables and ACC Funding also include a
provision that requires each of ACC Receivables and ACC Funding to have at least
two directors who qualify under the Articles of Incorporation as "independent
directors."
The Seller has received the advice of counsel, concluding on the basis
of a reasoned analysis of analogous case law (although there is no precedent
based on directly similar facts) to the effect that, subject to certain facts,
assumptions and qualifications specified therein, a court would conclude that
the assets and liabilities of the Seller would not be consolidated with the
assets and liabilities of the Issuer, ACC Receivables or ACC Funding in the
event of the application of the federal bankruptcy laws to the Seller. If a
court concluded otherwise, or a filing were to be made under any Insolvency Law
by or against the Seller, or if an attempt were to be made to litigate any of
the foregoing issues, delays in the distributions on the Notes (and possible
reductions in the amount of such distributions) could occur. The Issuer is not
expected to have any significant assets or sources of funds. In a case decided
in 1993 by the United States Court of Appeals for the Tenth Circuit, such
Circuit Court found that accounts sold prior to a bankruptcy should be treated
as part of the bankruptcy estate of the seller of such accounts. If the Seller
were to become a debtor in a bankruptcy proceeding and a court applied the
reasoning of the Circuit Court reflected in the case described above to chattel
paper, delays in payments to Noteholders could occur or reductions in the
amounts of such payments could result.
The Seller intends that any transfer of Receivables to the Issuer will
constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of the Seller. However, if the Seller were to become a debtor under
any Insolvency Laws, a creditor or trustee in bankruptcy of the Seller, as
debtor-in-possession, might argue that such sale of Receivables by the Seller
was a pledge of Receivables rather than a sale, and if such position -- that the
transfer of Receivables was a pledge rather than a sale or otherwise should be
treated as part of the bankruptcy estate of the Seller -- were presented to or
accepted by a court, then delays in payments to Noteholders could occur or
reductions in the amounts of such payments could result. In addition, if the
transfer of any Receivable is recharacterized as a pledge, then a tax lien,
other governmental lien, or other lien created by operation of law on the
property of the Seller may have priority over the Issuer's interest in such
Receivable.
USE OF PROCEEDS
The net proceeds to be received by the Issuer from the sale of the
Notes will be used to pay the Seller, the purchase price for the Receivables, to
make the deposits of the Pre-Funded Amount into the Pre-Funding Account and to
make the initial deposit into the Capitalized Interest Account.
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<PAGE> 20
THE ISSUER
GENERAL
The Issuer, ACC Automobile Receivables Trust ____, is a business trust
formed, prior to its purchase of the Receivables and the issuance of the Notes,
under the laws of the State of Delaware pursuant to the Trust Agreement for the
purpose of engaging in the transactions described in this Private Placement
Memorandum. After its formation, the Issuer will not engage in any activity
other than (i) acquiring, holding and managing the Receivables and the other
assets of the Issuer and proceeds therefrom, (ii) issuing the Notes, (iii)
making payments on the Notes and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Issuer's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company as Owner Trustee, at the address listed below under
"--The Owner Trustee."
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement, is a Delaware banking corporation and its principal offices are
located at Rodney Square North, 1100 North Market Street, Wilmington Trust
Company, Wilmington, Delaware 19890-0001. The Owner Trustee will perform limited
administrative functions under the Trust Agreement. The Owner Trustee's
liability in connection with the issuance and sale of the Notes is limited
solely to the express obligations of the Owner Trustee set forth in the Trust
Agreement and the Sale, Servicing and Collateral Management Agreement.
THE INDENTURE TRUSTEE
Norwest Bank Minnesota, National Association is the Indenture Trustee
under the Indenture. Norwest Bank Minnesota, National Association is a national
banking association, the principal offices of which are located at the Corporate
Trust Office, Sixth Street and Marquette, Minneapolis, Minnesota 55479-0070.
THE TRUST PROPERTY
GENERAL
The Trust Property will include, among other things, the following: (a)
motor vehicle retail installment sale contracts secured by new and used
vehicles, light trucks and vans; (b) all monies paid or payable thereunder after
the Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be; (c)
such amounts as from time to time may be held in the Lockbox Account, the
Collection Account, the Pre-Funding Account, the Capitalized Interest Account
and the Class B Reserve Fund; (d) an assignment of the interest of the Seller in
the security interests in the Financed Vehicles granted by the Obligors pursuant
to the Receivables and any accessions thereto; (e) an assignment of the rights
of the Seller against Dealers under agreements between the Seller and such
Dealers (the "Dealer Agreements"); (f) an assignment of the right to receive
proceeds from claims on certain physical damage, credit life and disability
insurance policies covering the Financed Vehicles or the Obligors; (g) an
assignment of the rights of the Seller under the Purchase Agreement and any
Subsequent Purchase Agreements (as defined herein); (h) the Receivables Files;
(i) certain other rights under the Trust Documents and (j) all proceeds of the
foregoing.
Most of the Initial Receivables were, and most of the Subsequent
Receivables were or will be, originated by Dealers in accordance with ACC's
requirements under agreements with Dealers for assignment to the Seller, have
been or will be so assigned, and evidence or will evidence the indirect
financing made available to the Obligors by the Seller. The remaining
Receivables were originated directly by the Seller or by Accent Financial
Services, a wholly owned subsidiary of ACC. Dealer
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<PAGE> 21
Agreements may provide for repurchase or recourse against the Dealer in the
event of a breach of a representation or warranty by the Dealer under a Dealer
Agreement.
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Monthly Period (plus the
amount, if any, then on deposit in the Pre-Funding Account on such date), after
giving effect to all payments received from Obligors and any Purchase Amounts to
be remitted by the Seller, for such Monthly Period and all losses, including
Cram Down Losses, realized on Receivables liquidated during such Monthly Period.
In connection with its formation, the Issuer will issue one
transferrable and one non-transferrable Certificate (each a "Certificate") each
of which will represent a fractional undivided interest in the Trust Property
but subject to the lien of the Trust Collateral Agent in the Trust Property
created by the Indenture. The transferrable Certificate will initially be held
by ACC Receivables and may thereafter be pledged or otherwise transferred (under
certain conditions) and the non-transferrable Certificate will be held by ACC
Funding in each case pursuant to the Trust Agreement. Pursuant to the Indenture,
the Issuer will grant a security interest in the Trust Property (other than the
Certificate Distribution Account) in favor of the Trust Collateral Agent for the
benefit of the Indenture Trustee on behalf of the Noteholders and for the
benefit of the Class A Note Insurer in support of the obligations owing to it
under the Insurance Agreement. Any proceeds of such security interest in the
Trust Property would be distributed according to the Indenture, as described
below under "Description of the Trust Documents -- Distributions." The Class A
Note Insurer would be entitled to such distributions only after payment of
amounts owing to holders of the Class A Notes.
All of the Receivables not already owned by the Seller will be sold to
the Seller pursuant to a Purchase Agreement (the "Purchase Agreement" and, in
the case of Subsequent Receivables, a "Subsequent Purchase Agreement") and by
the Seller to the Issuer pursuant to the Sale, Servicing and Collateral
Management Agreement. One hundred percent (100%) of the Receivables (as a
percentage of the aggregate principal balance) comprising the property of the
Issuer consist of non-prime retail automobile installment sales contracts. The
Receivables originally were, or, with respect to the Subsequent Receivables,
were or will have been originated in the ordinary course of its business
pursuant to ACC's finance programs and underwriting standards. Approximately
$_________ by aggregate principal balance of non-prime retail automobile
installment sales contracts that will become Subsequent Receivables have already
been so originated by ACC.
ELIGIBILITY CRITERIA
The Receivables (including some Receivables that will become Subsequent
Receivables) were, or, with respect to the remaining Subsequent Receivables,
will have been, selected according to several criteria, including the following:
each Receivable (i) was originated in the United States, (ii) has a contractual
APR that equals or exceeds ___%, (iii) provides for level monthly payments which
provide interest at the APR and fully amortize the amount financed over an
original term no greater than 72 months, (iv) is not more than 30 days past due
as of the Initial Cutoff Date or Subsequent Cutoff Date, as the case may be, (v)
is attributable to the purchase of a new or used automobile, light duty truck,
van or mini-van and (vi) as of the Initial Cutoff Date or the Subsequent Cutoff
Date, as the case may be, has a remaining term of not more than 72 months. No
selection procedures adverse to the Noteholders or the Class A Note Insurer were
utilized in selecting the Receivables to be conveyed to the Issuer.
The obligation of the Issuer to purchase Subsequent Receivables on a
Subsequent Transfer Date is subject to the condition that the Receivables owned
by the Issuer, including the Subsequent Receivables to be conveyed to the Issuer
on such Subsequent Transfer Date, meet the following criteria: (i) the Class A
Note Insurer (so long as no Class A Note Insurer Default shall have occurred and
be continuing), in its sole and absolute discretion shall have approved in
writing the transfer of such Subsequent Receivables to the Issuer; (ii) not more
than ___% of the principal balances of the Receivables owned by the Issuer
relate to Financed Vehicles that are used automobiles, light duty trucks, vans
or mini-vans; (iii) the weighted average APR of the Receivables owned by the
Issuer is not less than ___%; (iv) the weighted average remaining term to
maturity of the Receivables on such
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<PAGE> 22
Subsequent Cutoff Date is not greater than 60 months; and (v) not more than
____% of the Receivables have Obligors whose mailing addresses are in Florida,
not more than ____% of the Receivables have Obligors whose mailing address is in
California, not more than ____% of the Receivables have obligors whose mailing
address is in Texas, and not more than ____% of the Receivables have Obligors
whose mailing address is in any one other state. As to clauses (ii), (iii) and
(iv) in the immediately preceding sentence, such criteria will be based on the
characteristics of the Initial Receivables on the Initial Cutoff Date and the
Receivables, including the Subsequent Receivables, on the related Subsequent
Cutoff Date, and as to clause (v) in the immediately preceding sentence, such
criteria will be based on the mailing addresses of the Obligors of the Initial
Receivables on the Initial Cutoff Date and the Subsequent Receivables on the
related Subsequent Cutoff Date.
Except for the criteria described in the preceding paragraphs, there
are no required characteristics for the Subsequent Receivables. Therefore,
following the transfer of Subsequent Receivables to the Issuer, the aggregate
characteristics of the entire pool of Receivables owned by the Issuer, including
the composition of the Receivables, the distribution by APR, the geographic
distribution and the distribution by remaining term to maturity described in the
following tables, may vary from those of the Initial Receivables.
COMPOSITION OF THE INITIAL RECEIVABLES
<TABLE>
<CAPTION>
Total Pool of Initial Receivables
---------------------------------
<S> <C>
Original Pool Balance
Number of Initial Receivables
Average Principal Balance(1)
Range of Principal Balances
Average Original Amount Financed(2)
Range of Original Amounts Financed
Weighted Average APR(3)
Range of APRs
Weighted Average Original Term(3)
Range of Original Terms
Weighted Average Remaining Term(3)
Range of Remaining Terms
Weighted Average Months of Seasoning(3)
Range of Months of Seasoning
</TABLE>
- -------------------------
(1) Sum of Principal Balance divided by total number of loans.
(2) Sum of aggregate Amount Financed divided by total number of loans.
(3) Weighted by Principal Balance as of the Cutoff Date.
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<PAGE> 23
DISTRIBUTION BY APR OF THE INITIAL RECEIVABLES
(as of the Cutoff Date)
<TABLE>
<CAPTION>
Percentage Number
Aggregate by of Percentage
Principal Principal Initial by
APR Range Balance Balance Receivables Number
--------- ------- ------- ----------- ------
<S> <C> <C> <C> <C> <C>
Total:
</TABLE>
- -------------------------
(1) Due to rounding, may not add up to 100.00%.
DISTRIBUTION BY INTEREST ACCRUAL METHOD
(as of the Cutoff Date)
<TABLE>
<CAPTION>
Aggregate Percentage of Number of
Interest Principal Aggregate Initial Percentage
Accrual Method Balance Principal Balance Receivables by Number
-------------- ------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Rule of 78s
Total:
</TABLE>
- -------------------------
(1) Due to rounding, may not add up to 100.00%.
20
<PAGE> 24
STATE DISTRIBUTION BY MAILING ADDRESS OF OBLIGOR
(as of the Cutoff Date)
<TABLE>
<CAPTION>
Percentage
Aggregate by Number Percentage
Principal Principal of by
Location Balance Balance Receivables Number
-------- ------- ------- ----------- ------
<S> <C> <C> <C> <C>
Alabama
Arizona
Arkansas
California
Colorado
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maryland
Michigan
Mississippi
Missouri
Montana
Nebraska
Nevada
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Virginia
Washington
Washington DC
West Virginia
Total:
</TABLE>
- -------------------------
(1) Due to rounding, may not add up to 100.00%.
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<PAGE> 25
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES
(as of the Cutoff Date)
<TABLE>
<CAPTION>
Percentage
Aggregate by Number Percentage
Remaining Term Principal Principal of by
Range Balance Balance Initial Receivables Number
----- ------- ------- ------------------- ------
<S> <C> <C> <C> <C>
21 to 23
24 to 29
30 to 35
36 to 41
42 to 47
48 to 53
54 to 59
60 to 65
66 to 71
72 to 72
Total:
</TABLE>
- -------------------------
(1) Due to rounding, may not add up to 100.00%.
As of the Initial Cutoff Date, approximately ____% of the total number
of the Initial Receivables owned by the Issuer, and approximately ____% by
principal balance of the Initial Receivables owned by the Issuer, relate to new
automobiles, light-duty trucks, vans and mini-vans. As of the Initial Cutoff
Date, approximately ____% of the total number of the Initial Receivables
included in the Trust Property, and approximately ____% by principal balance of
the Initial Receivables owned by the Issuer, relate to used automobiles and
light-duty trucks.
PAYMENTS ON THE RECEIVABLES
Each Receivable provides for the allocation of payments according to
(i) the simple interest method ("Simple Interest Receivables") or (ii) the "sum
of periodic balances" or "sum of monthly payments" method ("Actuarial
Receivables"). Except as otherwise described, the scheduled payment on each
Receivable is a fixed level monthly payment which will amortize the full amount
of the Receivable over its term assuming, in the case of each Simple Interest
Receivable, that the Obligor does not pay any installment after its due date.
Payments on Simple Interest Receivables will be applied first to
interest accrued through the date immediately preceding the date of payment and
then to unpaid principal. Accordingly, if an Obligor pays an installment before
its due date, the portion of the payment allocable to interest for the payment
period will be less than if the payment had been made on the due date, the
portion of the payment applied to reduce the principal balance will be
correspondingly greater, and the principal balance will be amortized more
rapidly than scheduled. Conversely, if an Obligor pays an installment after its
due date, the portion
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<PAGE> 26
of the payment allocable to interest for the payment period will be greater than
if the payment had been made on the due date, the portion of the payment applied
to reduce the principal balance will be correspondingly less, and the principal
balance will be amortized more slowly than scheduled, in which case a larger
portion of the principal balance may be due on the final scheduled payment date.
An Actuarial Receivable provides for the payment by the Obligor of a
specified total amount of payments, payable in monthly installments on the
related due date, which total represents the principal amount financed and
finance charges in an amount calculated on the basis of a stated APR for the
term of such Receivable. The amount of each scheduled payment is calculated in
accordance with the Rule of 78s. Notwithstanding the foregoing, the rate at
which such amount of finance charges is earned and, correspondingly, the amount
of each scheduled payment allocated to reduction of the outstanding principal
balance of an Actuarial Receivable is calculated in accordance with the
actuarial method and all payments (other than partial prepayments) received by
the Servicer on or in respect of the Actuarial Receivables will be allocated
pursuant to the Sale, Servicing and Collateral Management Agreement on an
actuarial basis. Collections on an Actuarial Receivable made during a Collection
Period will be applied first, to the scheduled payment on such Actuarial
Receivable, and second, to any late fees accrued with respect to such Actuarial
Receivable. Any collections remaining shall be applied to reduce the principal
balance of the Actuarial Receivable.
REPURCHASE OBLIGATIONS
In connection with the sale of the Receivables, the security interests
in the Financed Vehicles securing the Receivables have been assigned by ACC to
the Issuer and by the Issuer to the Indenture Trustee. ACC, as Seller will be
obligated to repurchase any Receivable sold to the Issuer as to which a breach
has occurred as to the representation and warranty that a security interest in
the Financed Vehicle securing such Receivable has not been perfected (or was
not, at the time such representation and warranty was made, in the process of
perfection) in favor of Accent Financial Services, OFL-A or ACC, if such breach
will materially adversely affect such Receivable or the interests of the
Noteholders or the Class A Note Insurer and, if such failure or breach is not
cured by the last day of the first full calendar month following the discovery
by or notice to the breaching party of the breach.
The Sale, Servicing and Collateral Management Agreement provides that
if the Seller breaches certain representations and warranties relating to the
Receivables and the Financed Vehicles in a manner that materially and adversely
affects any Receivable or the interests of the Noteholders or the Class A Note
Insurer or the interests of the Issuer, the Seller shall, unless such breach
shall have been cured in all material respects, purchase such Receivable from
the Issuer. The Seller shall be obligated to repurchase such Receivable if its
breach under the Sale, Servicing and Collateral Management Agreement is not
cured by the last day of the first full calendar month following the discovery
by or notice to the Seller of the breach.
The Sale, Servicing and Collateral Management Agreement also provides
that if the Servicer breaches certain of its servicing obligations under the
Sale, Servicing and Collateral Management Agreement (including, but not limited
to its obligation to ensure that the perfected security interest of Accent
Financial Services, OFL-A or ACC in the related Financed Vehicles is maintained)
or certain other covenants with regard to the Servicer, in each case only in a
manner that materially and adversely affects the interests of any Receivable or
the interests of the Noteholders or the Class A Note Insurer or the interests of
the Issuer, the Servicer shall, unless such breach shall have been cured in all
material respects, purchase such Receivable from the Issuer. The Servicer shall
be obligated to repurchase such Receivable if a Servicer breach under the Sale,
Servicing and Collateral Management Agreement is not cured by the last day of
the first full calendar month following the discovery by or notice to the
Servicer of the breach.
23
<PAGE> 27
MATURITY AND PREPAYMENT ASSUMPTIONS
All the Receivables are prepayable at any time, provided that an
Actuarial Receivable must be prepaid in full. If prepayments are received on the
Receivables, the actual weighted average life of the Receivables may be shorter
than the scheduled weighted average life (i.e., the weighted average life
assuming that payments will be made as scheduled and that no prepayments will be
made). (For this purpose, the term "prepayments" also includes liquidations due
to default, as well as receipt of proceeds from credit life, credit disability,
and casualty insurance policies.) Weighted average life means the average amount
of time during which each dollar of principal on a Receivable is outstanding.
The rate of prepayments on the Receivables may be influenced by a
variety of factors, including the fact that an Obligor may not transfer its
equity in a Financed Vehicle without the consent of ACC. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne by the Noteholders. See also "Further Provisions of the Principal
Transaction Documents -- Termination" regarding the Servicer's option to
purchase all of the Receivables as of the last day of any month in which the
Pool Balance at the close of business on the Record Date is less than 10% of the
original balance of the Notes. See also "Description of the Notes - Mandatory
Prepayment" regarding mandatory partial prepayment of the Notes in the event
that any portion of the Pre-Funded Amount remains after giving effect to the
purchase of all Subsequent Receivables during the Funding Period.
YIELD CONSIDERATIONS
Interest on the Receivables will be paid to the Noteholders on each
Distribution Date in an amount equal to one-twelfth of the applicable Note
Interest Rate applied to the principal balance of the related Class of Notes on
the last day of the preceding Collection Period. In the event of prepayments on
Receivables, Noteholders will nonetheless be entitled to receive interest for
the full month on the Notes. The Receivables have different APRs, as set forth
above. In all cases, however, the APR exceeds the sum of (i) the Servicing Fee
Rate and (ii) the applicable Note Interest Rate.
DELINQUENCY AND LOAN LOSS INFORMATION
Set forth below is certain information concerning ACC's delinquency and
loss experience with respect to its gross servicing portfolio of retail
installment sale contracts for new and used automobiles, light duty trucks, vans
and mini-vans acquired pursuant to its finance programs. Delinquency is
recognized on a contractual basis only. Installment payments must equal or
exceed 90% of the scheduled payment due for a contract to be considered current.
24
<PAGE> 28
ACC CONSUMER FINANCE CORPORATION
HISTORICAL DELINQUENCY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
3/31/97 12/31/96 9/30/96 6/30/96
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount Outstanding (1) $303,986 100% $251,751 100% $209,761 100% $172,562 100%
Delinquencies (2)
31-60 Days 7,794 2.56% 7,870 3.13% 5,959 2.84% 4,609 2.67%
61-90 Days 2,631 0.87% 2,341 0.93% 1,656 0.79% 1,255 0.73%
Over 90 Days 766 0.25% 813 0.32% 451 0.22% 387 0.22%
Subtotal: 11,191 3.68% 11,024 4.38% 8,066 3.85% $ 6,251 3.62%
Skips 55 0.02% 394 0.16% 257 0.12% 60 0.03%
Bankruptcies 1,372 0.45% 1,266 0.50% 832 0.40% 525 0.30%
Repossessions on hand (3) 2,454 0.81% 2,216 0.88% 1,685 0.80% 1,369 0.99%
----- ----- ----- ----- ----- ----- ----- -----
Total Delinquencies and
Repossessions on hand $ 15,072 4.96% $14,900 5.92% $10,840 5.17% $8,205 4.75%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
3/31/96 12/31/95
Dollars Percent Dollars Percent
<S> <C> <C> <C> <C>
Amount Outstanding (1) 139,969 100% 117,539 100%
Delinquencies (2)
31-60 Days 2,069 1.48% 3,064 2.61%
61-90 Days 798 0.57% 1,014 0.86%
Over 90 Days 193 0.14% 275 0.23%
Subtotal: 3,060 2.19% 4,353 3.70%
Skips 157 0.11% 180 0.15%
Bankruptcies 610 0.43% 463 0.39%
Repossessions on hand (3) 1,130 0.81% 861 0.73%
----- ----- --- -----
Total Delinquencies and
Repossessions on hand $4,957 3.54% $5,857 4.98%
</TABLE>
- -------------------------------
(1) Amount outstanding is the net remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Amounts shown represent the remaining balance of installment loans which
have been repossessed, but not yet liquidated.
25
<PAGE> 29
ACC CONSUMER FINANCE CORPORATION
HISTORICAL NET LOSS EXPERIENCE
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter Quarter Quarter
Ended Ended Ended Ended Ended Ended
3/31/97 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95
<S> <C> <C> <C> <C> <C> <C>
Principal amount outstanding (1) ........................ $303,986 $251,751 $209,761 $172,562 $139,969 $117,539
Average principal amount outstanding (2) ................ $274,507 $232,617 $191,162 $156,266 $128,754 $108,784
Number of loans outstanding ............................. 27,880 23,145 19,410 16,034 13,049 10,935
Average number of loans outstanding (2) ................. 25,236 21,278 17,722 14,542 11,992 10,083
Number of repossessions (3) ............................. 597 526 434 291 279 184
Principal amount of repossessions (3) (4) ............... $ 6,703 $ 5,773 $ 4,729 $ 3,156 $ 2,984 $ 1,983
Number of repossessions as a percent of average number
of loans outstanding (5) ............................ 9.46% 9.89% 9.80% 8.00% 9.31% 7.30%
Principal amount of repossessions as a percent of average
principal amount outstanding (5) .................... 9.77% 9.93% 9.90% 8.08% 9.27% 7.29%
Net losses excluding benefits of VSI Policy (6) ......... $ 4,109 $ 3,215 $ 2,442 $ 1,548 $ 1,636 $ 1,500
Net losses as a percent of average principal amount
outstanding (5) ..................................... 5.99% 5.53% 5.11% 3.96% 5.08% 5.52%
Net losses including benefits of VSI Policy (6) ......... $ 3,543 $ 2,945 $ 2,227 $ 1,329 $ 1,417 $ 1,233
Net losses as a percent of average principal amount
outstanding (5)(6) .................................. 5.16% 5.06% 4.66% 3.40% 4.40% 4.53%
</TABLE>
- -------------------------
(1) Principal Amount Outstanding is the net remaining principal balance.
(2) For the three-month period ended December 31, 1996, average principle
outstanding as of the beginning and the end of each month during the
period. For prior periods, average of principle outstanding as of the
beginning and the end of the period presented.
(3) For the quarters ended after December 31, 1995, the numbers and amounts of
repossessions are net of reinstatements.
(4) Remaining principal balance at time of repossession.
(5) Annualized.
(6) Net Losses are net of recoveries and include remaining principal balance
at time of charge-off. In the case of repossession, net losses include the
remaining balance at the time of repossession less liquidation proceeds
(for disposed vehicles) or the NADA wholesale value (for vehicles
repossessed but not sold). Net losses do not include repossessions that
are less than 120 days delinquent and are not charged off.
The data presented in the above tables are for illustrative purposes
only. There is no assurance that ACC's delinquency, credit loss and repossession
experience with respect to automobile, light duty truck, van and mini-van
installment sale contracts in the future, or the experience of the Issuer with
respect to the Receivables, will be similar to that set forth above. Losses and
delinquencies are affected by, among other things, general and regional economic
conditions and the supply of and demand for automobiles, light duty trucks, vans
and mini-vans.
INSURANCE
In addition to the physical damage insurance policies maintained by the
borrowers naming Accent Financial Services or OFL-A as the loss payee, ACC
maintains VSI Insurance on all automobile loans. This policy was put in place
effective January 1, 1995 and covers the entire portfolio. This protects ACC's
interest in the collateral against uninsured physical damage, filing errors and
omissions.
ACC maintains fidelity bond coverage insuring against losses through
wrongdoing of its officers, employees and agents.
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<PAGE> 30
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement. The
following summary describes certain terms of the Notes and the Indenture. The
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the accompanying
Prospectus.
The Notes will be offered for purchase in denominations of $100,000 and
integral multiples of $1,000 in excess thereof, in book-entry form only. Persons
acquiring beneficial interests in the Notes will hold their interests through
DTC in the United States or Cedel or Euroclear in Europe. See "Description of
the Securities -- Book-Entry Registration" in the Prospectus and Annex I to the
Prospectus.
PAYMENTS OF INTEREST
Interest on the principal amount of the Notes will accrue at the
applicable Note Interest Rate and will be payable to the Noteholders monthly on
each Distribution Date, commencing _________. Interest will accrue from and
including the most recent Distribution Date on which interest has been paid (or,
in the case of the first Distribution Date, from and including the Closing Date)
to but excluding the following Distribution Date (each, an "Interest Period").
Interest on the Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest accrued as of any Distribution Date
but not paid on such Distribution Date will be due on the next Distribution
Date, together with, to the extent permitted by law, interest on such amount at
the applicable Note Interest Rate. Interest payments on the Notes will be made
from the Note Distribution Amount (as defined herein) after payment of accrued
and unpaid trustees' fees and other administrative fees of the Issuer and
payment of the Servicing Fee. See "Description of the Trust Documents --
Distributions" herein.
PAYMENTS OF PRINCIPAL
The "Principal Distributable Amount", with respect to any Distribution
Date, will be an amount equal to the sum of the following amounts with respect
to the related Monthly Period, computed in accordance with the simple interest
method in the case of a Simple Interest Receivable and the actuarial method in
the case of an Actuarial Method Receivable: (i) that portion of all collections
on Receivables (other than Liquidated Receivables and Purchased Receivables)
allocable to principal, including full and partial principal prepayments,
received during such Monthly Period (ii) the principal balance of each
Receivable that became a Liquidated Receivable during the related Monthly Period
(other than Purchased Receivables), (iii) the principal balance of each
Receivable that was repurchased by the Issuer, the Servicer or the Seller as of
the last day of such Monthly Period, (iv) the aggregate amount of any Cram Down
Loss during such Monthly Period, and (v) any unpaid portion of the amounts
included in clauses (i), (ii), (iii) and (iv) above with respect to a prior
Distribution Date. Principal payments on the Class A Notes will be made from the
Distribution Amount after payment of accrued and unpaid trustees' fees and other
administrative fees of the Issuer, payment of the Servicing Fee and after
distribution of the Class A Noteholders' Interest Distributable Amount. See
"Description of the Sale, Servicing and Collateral Management Agreement and the
Trust Documents -- Distributions" herein.
Principal payments will be made to the Class A Noteholders on each
Distribution Date in an amount equal to the Class A Noteholders' Principal
Distributable Amount for the calendar month (the "Monthly Period") preceding
such Distribution Date. The Class A Noteholders' Principal Distributable Amount
will equal the Class A Noteholders' Percentage of the Principal Distributable
Amount. The Class A Noteholders' Principal Distributable Amount will also
include, at the option of the Class A Note Insurer, the Class A Noteholders'
Percentage of the principal balance of each Receivable that was required to be,
but was not repurchased by the Seller or the Issuer.
The Class A Noteholders' Percentage will be 94% for each Distribution
Date other than a Distribution Date after which the Class A Notes have been paid
in full, or zero for any Distribution Date after the Distribution Date on which
the Class A Notes are paid in full.
Principal payments will be made to the Class B Noteholders on each
Distribution Date in an amount equal to the Class B Noteholders' Principal
Distributable Amount together with any other remaining Available Funds for the
Monthly
27
<PAGE> 31
Period preceding such Distribution Date. The Class B Noteholders' Principal
Distributable Amount will equal the Class B Noteholders' Percentage of the
Principal Distributable Amount.
Principal payments on the Class B Notes will be made from (i) the
Distribution Amount after payment of accrued and unpaid trustee's fees and other
administrative fees of the Issuer, payment of the Servicing Fee, distribution of
the Noteholders' Interest Distributable Amount, payment of the Class A
Noteholders' Principal Distributable Amount, payment and reimbursement to the
Class A Note Insurer of certain amounts owing to it under the Insurance
Agreement and the funding of certain reserve funds established for the benefit
of the Class A Note Insurer and (ii) amounts available to be withdrawn from the
Class B Reserve Fund in excess of the Floor Amount. See "Description of the
Trust Documents -- Distributions" herein.
The Class B Noteholders' Percentage will be ___% for each Distribution
Date other than a Distribution Date after which the Class A Notes have been paid
in full or 100% for any Distribution Date after the Class A Notes are paid in
full; provided, however, that the Class B Noteholders' Percentage will be zero
percent when the principal balance of the Class B Notes has been reduced to
zero.
In addition, the outstanding principal amount of the Notes of any
Class, to the extent not previously paid, will be payable on the respective
Final Scheduled Distribution Date for such Class. The actual date on which the
aggregate outstanding principal amount of any Class of Notes is paid may be
earlier than the Final Scheduled Distribution Date for such Class, depending on
a variety of factors.
MANDATORY REDEMPTION
Each Class of Notes will be redeemed in part on the Mandatory
Redemption Date in the event that any portion of the Pre-Funded Amount remains
on deposit in the Pre-Funding Account at the end of the Funding Period. The
aggregate principal amount of each Class of Notes to be redeemed will be an
amount equal to such Class's pro rata share (based on the respective current
principal amount of each Class of Notes) of the remaining Pre-Funded Amount on
such date (such Class's "Note Prepayment Amount"). Approximately $_________
already been originated and identified for transfer to the Issuer by the Seller.
OPTIONAL REDEMPTION
The Class A Notes and the Class B Notes, to the extent still
outstanding, may be redeemed in whole, but not in part, on any Distribution Date
on which the Servicer exercises its option to purchase the Receivables (with the
consent of the Class A Note Insurer, if a claim has previously been made under
the Policy or if such purchase would result in a claim under the Policy or if
such purchase would result in any amount owing to the Class A Note Insurer
remaining unpaid). The Servicer may purchase the Receivables when the Pool
Balance has declined to 10% or less of the Original Pool Balance. Such
redemption will affect early retirement of the Notes of such Classes. The
redemption price will be equal to the unpaid principal amount of the Notes of
each such Class, plus accrued and unpaid interest thereon (the "Redemption
Price").
EVENTS OF DEFAULT
Unless an Class A Note Insurer Default shall have occurred and be
continuing, "Events of Default" under the Indenture will consist of those events
defined in the Insurance Agreement as Insurance Agreement Indenture Cross-
Defaults, and will constitute an Event of Default under the Indenture only if
the Class A Note Insurer shall have delivered to the Indenture Trustee, and not
rescinded, a written notice specifying that any such Insurance Agreement
Indenture Cross-Defaults constitutes an Event of Default under the Indenture.
"Insurance Agreement Indenture Cross-Defaults" consist of: (i) a demand for
payment being made under the Policy; (ii) certain events of bankruptcy,
insolvency, receivership or liquidation of the Issuer; (iii) the Issuer becoming
taxable as an association (or publicly traded partnership) taxable as a
corporation for federal or state income tax purposes; (iv) on any Distribution
Date, the sum of the Available Funds with respect to such Distribution Date plus
the amount (if any) available from certain collateral accounts maintained for
the benefit of the Class A Note Insurer being less than the sum of the amounts
described in clauses (a)-(e) under "Description of the Trust Documents --
Distributions" herein; and (v) any failure to observe or perform in any material
respect any other covenants or agreements in the Indenture, or any
representation or warranty of the Issuer made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect when made, and
such failure continuing or not being cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, for 30 days after
28
<PAGE> 32
the giving of written notice of such failure or incorrect representation or
warranty to the Issuer and the Indenture Trustee by the Class A Note Insurer.
Upon the occurrence of an Event of Default, so long as an Class A Note
Insurer Default shall not have occurred and be continuing, the Class A Note
Insurer will have the right, but not the obligation, to cause the Trust
Collateral Agent to liquidate the Trust Property in whole or in part, on any
date or dates following the acceleration of the Class A Notes due to such Event
of Default as the Class A Note Insurer, in its sole discretion, shall elect, and
to deliver the proceeds of such liquidation to the Indenture Trustee for
distribution in accordance with the terms of the Indenture. The Class A Note
Insurer may not, however, cause the Trust Collateral Agent to liquidate the
Trust Property in whole or in part if the proceeds of such liquidation would not
be sufficient to pay all outstanding principal of and accrued interest on the
Class A Notes, unless such Event of Default arose from a claim being made on the
Policy or from certain events of bankruptcy, insolvency, receivership or
liquidation of the Issuer. Following the occurrence of any Event of Default, the
Indenture Trustee and the Owner Trustee will continue to submit claims as
necessary under the Policy for any shortfalls in the Scheduled Payments on the
Class A Notes. Following any Event of Default under the Indenture, the Class A
Note Insurer in its sole discretion may elect to pay all or any portion of the
outstanding amount of the Class A Notes, plus accrued interest thereon. See "The
Policy" herein.
29
<PAGE> 33
THE CLASS A NOTE INSURER
The following information has been obtained from Financial Security
(the "Insurer") and has not been verified by the Seller, the Servicer or
___________. No representation or warranty is made by the Seller, the Servicer
or _________ with respect thereto.
GENERAL
the Insurer is a monoline insurance company incorporated in 1984 under
the laws of the State of New York. the Insurer is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of Columbia
and Puerto Rico.
the Insurer and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. In general, financial guaranty insurance consists
of the issuance of a guaranty of scheduled payments of an issuer's securities --
thereby enhancing the credit rating of those securities -- in consideration for
the payment of a premium to the insurer. the Insurer and its subsidiaries
principally insure asset-backed, collateralized and municipal securities.
Asset-backed securities are generally supported by residential mortgage loans,
consumer or trade receivables, securities or other assets having an
ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments. the
Insurer insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy the Insurer's
underwriting criteria.
the Insurer is a wholly owned subsidiary of the Insurer (the
"Insurer"), a New York Stock Exchange listed company. Major shareholders of
Holdings include Fund American Enterprises Holdings, Inc., U S WEST Capital
Corporation and The Tokio Marine and Fire Insurance Co., Ltd. No shareholder of
Holdings is obligated to pay any debt of the Insurer or any claim under any
insurance policy issued by the Insurer or to make any additional contribution to
the capital of the Insurer.
The principal executive offices of the Insurer are located at
_____________, and its telephone number at that location is __________.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by the Insurer or any
of its domestic operating insurance company subsidiaries are reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, the Insurer reinsures a portion of its liabilities
under certain of its financial guaranty insurance policies with other reinsurers
under various quota share treaties and on a transaction-by-transaction basis.
Such reinsurance is utilized by the Insurer as a risk management device and to
comply with certain statutory and rating agency requirements; it does not alter
or limit the Insurer's obligations under any financial guaranty insurance
policy.
RATING OF CLAIMS-PAYING ABILITY
the Insurer's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. and "AAA" by Standard & Poor's Ratings Services, Nippon Investors
Service Inc. and Standard & Poor's (Australia) Pty. Ltd. 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. See "Risk Factors -- Ratings of the Notes."
30
<PAGE> 34
CAPITALIZATION
The following table sets forth the capitalization of the Insurer and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of _________ (in thousands):
<TABLE>
<CAPTION>
March 31,
1997
(unaudited)
-----------
<S> <C>
Deferred Premium Revenue (net of
prepaid reinsurance premiums).................
Shareholder's Equity:
Common Stock................................
Additional Paid-In Capital..................
Unrealized Loss on Investments (net
of deferred income taxes).................
Accumulated Earnings........................
Total Shareholder's Equity....................
Total Deferred Premium Revenue and
Shareholder's Equity........................
</TABLE>
For further information concerning the Insurer, see the Consolidated
Financial Statements of the Insurer and Subsidiaries, and the notes thereto,
included as Appendix A of this Private Placement Memorandum. Copies of the
statutory quarterly and annual statements filed with the State of New York
Insurance Department by the Insurer are available upon request to the State of
New York Insurance Department.
INSURANCE REGULATION
the Insurer is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, the Insurer and its insurance subsidiaries are
subject to regulation by insurance laws of the various other jurisdictions in
which they are licensed to do business. As a financial guaranty insurance
corporation licensed to do business in the State of New York, the Insurer is
subject to Article 69 of the New York Insurance Law which, among other things,
limits the business of each such insurer to financial guaranty insurance and
related lines, requires that each such insurer maintain a minimum surplus to
policyholders, establishes contingency, loss and unearned premium reserve
requirements for each such insurer, and limits the size of individual
transactions ("single risks") and the volume of transactions ("aggregate risks")
that may be underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as the Insurer,
regulate, among other things, permitted investments, payment of dividends,
transactions with affiliates, mergers, consolidations, acquisitions or sales of
assets and incurrence of liability for borrowings.
THE POLICY
Simultaneously with the issuance of the Notes, the Class A Note Insurer
will deliver the Policy to the Trust Collateral Agent as agent for the Indenture
Trustee for the benefit of each Class A Noteholder. Under the Policy, the Class
A Note Insurer will unconditionally and irrevocably guarantee to the Trust
Collateral Agent for the benefit of each Class A Noteholder the full and
complete payment of (i) Scheduled Payments (as defined below) on the Class A
Notes and (ii) the amount of any Scheduled Payment which subsequently is avoided
in whole or in part as a preference payment under applicable law.
"Scheduled Payments" means payments which are scheduled to be made on
the Class A Notes during the term of the Policy in accordance with the original
terms of the Class A Notes when issued and without regard to any subsequent
amendment or modification of the Class A Notes that has not been consented to by
the Class A Note Insurer, which "Scheduled Payments" are (i) the Class A
Noteholders'
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<PAGE> 35
Interest Distributable Amount and (ii) the Class A Noteholders' Principal
Distributable Amount with respect to a Distribution Date; Scheduled Payments do
not include payments which become due on an accelerated basis as a result of (a)
a default by the Issuer, (b) an election by the Issuer to pay principal on an
accelerated basis, (c) the occurrence of an Event of Default under the Indenture
or (d) any other cause, unless the Class A Note Insurer elects, in its sole
discretion, to pay in whole or in part such principal due upon acceleration,
together with any accrued interest to the date of acceleration. In the event the
Class A Note Insurer does not so elect, the Policy will continue to guarantee
Scheduled Payments due on the Class A Notes in accordance with their original
terms. Scheduled Payments shall not include (x) any portion of a Class A
Noteholders' Interest Distributable Amount due to Class A Noteholders because
the appropriate notice and certificate for payment in proper form was not timely
Received (as defined below) by the Class A Note Insurer, (y) any portion of a
Class A Noteholders' Interest Distributable Amount due to Class A Noteholders
representing interest on any Class A Noteholders' Interest Carryover Shortfall,
or (z) any Class A Note Prepayment Amounts unless, in each case, the Class A
Note Insurer elects, in its sole discretion, to pay such amount in whole or in
part. Scheduled Payments shall not include, nor shall coverage be provided under
the Policy in respect of, any taxes, withholding or other charge imposed by any
governmental authority due in connection with the payment of any Scheduled
Payment to a Class A Noteholder.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the Class A Note Insurer following Receipt by the Class A Note
Insurer of the appropriate notice for payment on the later to occur of (i) 12:00
noon, New York City time, on the third Business Day (as defined below) following
Receipt of such notice for payment, and (ii) 12:00 noon, New York City time, on
the date on which such payment was due on the Class A Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Class A Note Insurer shall cause such payment to be made on the
later of (a) the date when due to be paid pursuant to the Order referred to
below or (b) the first to occur of (i) the fourth Business Day following Receipt
by the Class A Note Insurer from the Trust Collateral Agent of (A) a certified
copy of the order (the "Order") of the court or other governmental body which
exercised jurisdiction to the effect that the Class A Noteholder is required to
return principal or interest paid on the Class A Notes during the term of the
Policy because such payments were avoidable as preference payments under
applicable bankruptcy law, (B) a certificate of the Class A Noteholder that the
Order has been entered and is not subject to any stay and (C) an assignment duly
executed and delivered by the Class A Noteholder, in such form as is reasonably
required by the Class A Note Insurer and provided to the Class A Noteholder by
the Class A Note Insurer, irrevocably assigning to the Class A Note Insurer all
rights and claims of the Class A Noteholder relating to or arising under the
Class A Notes against the Issuer or otherwise with respect to such preference
payment, or (ii) the date of Receipt (as defined below) by the Class A Note
Insurer from the Trust Collateral Agent of the items referred to in clauses (A),
(B) and (C) above if, at least four Business Days prior to such date of Receipt,
the Class A Note Insurer shall have received written notice from the Trust
Collateral Agent that such items were to be delivered on such date and such date
was specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trust Collateral Agent or any Class A Noteholder directly (unless
a Class A Noteholder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which case such payment shall be disbursed to the Trust Collateral Agent for
distribution to such Class A Noteholder upon proof of such payment reasonably
satisfactory to the Class A Note Insurer). In connection with the foregoing, the
Class A Note Insurer shall have the rights provided in the Indenture.
The terms "Receipt" and "Received" with respect to the Policy shall
mean actual delivery to the Class A Note Insurer and to its fiscal agent, if
any, prior to 12:00 noon, New York City time, on a Business Day; delivery either
on a day that is not a Business Day or after 12:00 noon, New York City time,
shall be deemed to be Receipt on the next succeeding Business Day. If any notice
or certificate given under the Policy by the Trust Collateral Agent is not in
proper form or is not properly completed, executed or delivered, it shall be
deemed not to have been Received, and the Class A Note Insurer or its fiscal
agent shall promptly so advise the Trust Collateral Agent, and the Trust
Collateral Agent may submit an amended notice.
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Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in Wilmington,
Delaware, the City of New York or Minneapolis, Minnesota or any other location
of any successor Servicer, successor Owner Trustee or successor Trust Collateral
Agent are authorized or obligated by law, executive order or governmental decree
to be closed.
The Class A Note Insurer's obligations under the Policy in respect of
Scheduled Payments shall be discharged to the extent funds are transferred to
the Trust Collateral Agent as provided in the related Policy whether or not such
funds are properly applied by the Trust Collateral Agent.
The Class A Note Insurer shall be subrogated to the rights of each
Class A Noteholder to receive payments of principal and interest to the extent
of any payment by the Class A Note Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Class A Note Insurer ranking not less than pari passu with
other unsecured and unsubordinated indebtedness of the Class A Note Insurer for
borrowed money. Claims against the Class A Note Insurer under the Policy and
claims against the Class A Note Insurer under each other financial guaranty
insurance policy issued thereby constitute pari passu claims against the general
assets of the Class A Note Insurer. The terms of the Policy cannot be modified
or altered by any other agreement or instrument, or by the merger, consolidation
or dissolution of the Issuer. The Policy may not be canceled or revoked prior to
distribution in full of all Scheduled Payments with respect to the Class A
Notes. The Policy is not covered by the property/casualty insurance security
fund specified in Article 76 of the New York Insurance Law. The Policy is
governed by the laws of the State of New York.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreement
and any Subsequent Purchase Agreement (together, the "Purchase Agreements"), the
Sale and Servicing Agreement, any Subsequent Transfer Agreement, the Indenture
and the Trust Agreement (together, the "Trust Documents"). Forms of the Trust
Documents have been filed as exhibits to the Registration Statement. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Trust Documents. The following
summary supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Trust Documents set forth
in the Prospectus.
SALE AND ASSIGNMENT OF RECEIVABLES.
On or prior to the Closing Date, or, with respect to Subsequent
Receivables, the related Subsequent Transfer Date, the Seller will enter into a
Sale, Servicing and Collateral Management Agreement with the Issuer pursuant to
which the Seller will, on or prior to such Closing Date, or, with respect to
Subsequent Receivables, the related Subsequent Transfer Date, sell and assign to
the Issuer, without recourse, its entire interest in and to the related
Receivables, including its security interest in the Financed Vehicles securing
such Receivables and its rights to receive all payments on, or proceeds with
respect to, such Receivables to the extent paid or payable after the applicable
Cutoff Date. Pursuant to the Sale, Servicing and Collateral Management
Agreement, the Seller will agree that, upon the occurrence of a breach of a
representation or warranty under the Trust Documents with respect to any of the
Receivables, the Issuer and certain other parties will be entitled to require
the Seller to repurchase such Receivables from the Issuer. Such rights of the
Issuer under the Sale, Servicing and Collateral Management Agreement will
constitute part of the property of the Issuer and may be enforced directly by
the Owner Trustee and the Class A Note Insurer. In addition, the Issuer will
pledge such rights to the Indenture Trustee as collateral for the Notes, and
such rights may be enforced directly by the Indenture Trustee.
Each Receivable transferred by the Seller to the Issuer will be
identified in a schedule appearing as an exhibit to the Trust Documents (the
"Schedule of Receivables").
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ACCOUNTS
Each Obligor will be instructed to make payments with respect to the
Receivables after the Cutoff Date directly to one or more post office boxes or
other mailing locations (each, a "Lockbox") maintained by the Lockbox Bank, and
a segregated account will be established and maintained with a bank or banks
acceptable to the Class A Note Insurer, in the name of the Indenture Trustee for
the benefit of the Noteholders, into which all payments made from Obligors to a
Lockbox on or with respect to the Receivables must be deposited within one
business day of receipt (the "Lockbox Account"). The Issuer will also establish
and maintain with the Indenture Trustee one or more accounts (the "Collection
Account"), in the name of the Indenture Trustee on behalf of the Noteholders and
the Class A Note Insurer, into which all amounts previously deposited in the
Lockbox Account in respect of the Receivables will be transferred within two
business days of deposit in the Lockbox Account. The Collection Account will be
maintained with the Indenture Trustee so long as the Indenture Trustee's
deposits have a rating acceptable to the Class A Note Insurer and the Rating
Agencies. If the deposits of the Indenture Trustee or its corporate parent no
longer have such acceptable rating, the Servicer shall, with the Indenture
Trustee's assistance as necessary, cause such Accounts to be moved within 30
days to a bank whose deposits have such rating.
The Trust Collateral Agent will also establish and maintain an account,
in its own name for the benefit of the Indenture Trustee, on behalf of the Class
A Noteholders and the Class A Note Insurer in which amounts released from the
Collection Account for distribution to Class A Noteholders will be deposited and
from which all distributions to Class A Noteholders will be made (the "Class A
Note Distribution Account"). The Trust Collateral Agent will also establish and
maintain an account, in its own name for the benefit of the Indenture Trustee,
on behalf of the Class B Noteholders in which amounts released from the
Collection Account for distribution to Class B Noteholders will be deposited and
from which all distributions to Class B Noteholders will be made (the "Class B
Note Distribution Account"). The Trust Collateral Agent will also establish and
maintain an account, on behalf of the Certificateholders, in which amounts
released from the Collection Account for distribution to the Issuer will be
deposited and from which all distributions to Certificateholders will be made
(the "Certificate Distribution Account").
On the Closing Date, a cash amount funded from the proceeds of the sale
of the Notes equal to approximately $_________ (the "Initial Pre-Funded Amount")
will be deposited in an account (the "Pre-Funding Account") which will be
established with the Trust Collateral Agent and used solely to pay the Seller
the Purchase Price for Subsequent Receivables. The "Funding Period" is the
period from the Closing Date until the earliest of(i) the date on which the
amount on deposit in the Pre-Funding Account is less than $100,000, (ii) the
date on which an Event of Default under the Indenture or a Servicer Termination
Event occurs under the Sale, Servicing and Collateral Management Agreement, or
(iii) the Distribution Date in _________. The Initial Pre-Funded Amount, as
reduced from time to time during the Funding Period by the amount thereof used
to purchase Subsequent Receivables in accordance with the Sale, Servicing and
Collateral Management Agreement, is referred to herein as the "Pre-Funded
Amount." Monies on deposit in the Pre-Funding Account will not be available to
cover losses on or in respect of the Receivables.
The Seller expects that the Pre-Funded Amount will be reduced to less
than $100,000 on or before the end of the Funding Period, although no assurance
can be given in this regard. Approximately $_________ of the Subsequent
Receivables have already been originated and identified for transfer to the
Issuer by the Seller. There can be no assurance that the Class A Note Insurer
will consent to the transfer of Subsequent Receivables during the Pre-Funding
Period. Any Pre-Funded Amount remaining at the end of the Funding Period will be
payable to the Noteholders as described herein. The "Mandatory Redemption Date"
is the earlier of (i) the Distribution Date in _________ or (ii) if the last day
of the Funding Period occurs on or prior to the Determination Date (as defined
herein) occurring in _________, the Distribution Date relating to such
Determination Date.
On the Closing Date, a cash amount shall be deposited in an account
(the "Capitalized Interest Account") which will be established with the Trust
Collateral Agent. The amount, if any deposited in the Capitalized Interest
Account will be applied on the Distribution Dates occurring in _________ to fund
an amount (the "Monthly Capitalized Interest Amount") equal to the amount of
interest accrued for each such Distribution Date at the weighted average
Interest Rates on the portion of the Notes having a principal balance in excess
of the principal balances of the Receivables (which portion will equal the
Pre-Funded
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Amount). Any amounts remaining in the Capitalized Interest Account on the
Mandatory Redemption Date and not used for such purposes are required to be paid
directly to the Issuer on such date. See "Description of the Trust Documents --
Accounts."
All such Accounts shall be Eligible Deposit Accounts (as defined in the
Indenture) acceptable to the Class A Note Insurer (so long as no Class A Note
Insurer Default has occurred and is continuing).
SERVICING COMPENSATION AND INDENTURE TRUSTEES' FEES
Each month the Servicer will receive a fee for servicing the
Receivables (the "Servicer Fee") equal to (a) the product of one-twelfth of
3.00% (the "Servicing Fee Rate") and the Pool Balance outstanding at the
beginning of the calendar month immediately preceding such Distribution Date
(the "Servicing Fee") plus (b) a supplemental servicing fee (the "Supplemental
Servicing Fee") equal to (i) any late fees, prepayment fees, liquidation fees
and other administrative fees and expenses collected during such month, plus
(ii) the net realized earnings on all investments of funds deposited in the
Collection Account during such month. So long as ACC is the Servicer, a portion
of the Servicing Fee will be payable to the Backup Servicer for agreeing to
stand by as successor Servicer and for performing certain other functions.
Payments by or on behalf of Obligors will be allocated to scheduled payments,
late fees and other charges and principal and interest in accordance with the
Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of automotive receivables as an agent for
their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, reporting tax information to Obligors, paying costs related to
disposition of defaulted accounts, and policing the collateral. The Servicing
Fee also will compensate the Servicer for administering the Receivables,
including accounting for collections and furnishing monthly and annual
statements to the Issuer and the Class A Note Insurer with respect to
distributions and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Receivables and for payment of the fees of the Backup
Servicer.
On each Distribution Date, the Indenture Trustee is entitled to
receive a fee for its services as Indenture Trustee and Trust Collateral Agent
during the prior Monthly Period in an amount agreed upon by the Indenture
Trustee and the Servicer. On each Distribution Date, the Owner Trustee is
entitled to receive a fee for its services as Owner Trustee during the prior
Monthly Period in an amount agreed upon by the Owner Trustee and the Servicer.
CERTAIN ALLOCATIONS
On each Determination Date, the Servicer will be required to deliver
the Servicer's Certificate to the Indenture Trustee, the Owner Trustee and the
Class A Note Insurer specifying, among other things, the amount of aggregate
collections on the Receivables and the aggregate Purchase Amount of Receivables
to be purchased by the Seller, the Servicer, all with respect to the preceding
Monthly Period.
On each Determination Date the Indenture Trustee will (based solely on
the information contained in the Servicer's Certificate delivered on the related
Determination Date) deliver to the Trust Collateral Agent, the Class A Note
Insurer and the Servicer a Deficiency Notice specifying the Deficiency Claim
Amount, if any, for such Distribution Date. Such Deficiency Notice will direct
the Trust Collateral Agent to remit such Deficiency Claim Amount from amounts on
deposit in certain collateral accounts maintained for the benefit of the Class A
Note Insurer for deposit in the Collection Account.
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to make the following distributions in the following order of
priority:
1. From the Distribution Amount, to the Servicer, the Servicing
Fee for the related Monthly Period, any Supplemental Servicing
Fees for such month and certain other amounts relating to
mistaken deposits, postings or checks returned for
insufficient funds to the
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extent the Servicer has not reimbursed itself in respect of
such amount or to the extent not retained by the Servicer.
2. From the remaining Distribution Amount, to any Lockbox Bank or
other relevant local bank, the Indenture Trustee, Custodian,
Backup Servicer, Trust Collateral Agent and the Owner Trustee
(including the Indenture Trustee if acting in any such
additional capacity), any accrued and unpaid trustees' fees
and any accrued and unpaid fees (in each case, to the extent
such fees have not been previously paid by the Servicer).
3. From the remaining Distribution Amount plus the related
portion of any Policy Claim Amount, if any, to the Class A
Note Distribution Account, the Class A Noteholders' Interest
Distributable Amount.
4. From the remaining Distribution Amount plus the related
portion of any Policy Claim Amount, if any, to the Class A
Note Distribution Account, the Class A Noteholders' Principal
Distributable Amount, to be distributed as described under
"Description of the Notes -- Payments of Principal."
5. From the remaining Distribution Amount, to the Class A Note
Insurer, the Premium Amount then due it and any amounts owing
under the Insurance Agreement.
6. From the Available Funds plus amounts available to be
withdrawn from the Class B Reserve Fund, to the Class B Note
Distribution Account, the Class B Noteholders' Interest
Distributable Amount.
7. From Available Funds to the Trust Collateral Agent for deposit
in accordance with the terms of the Spread Account Agreement
to fund certain reserve accounts maintained for the benefit of
the Class A Note Insurer, until such reserve accounts are
funded at their required level.
8. From Available Funds, plus amounts available to be withdrawn
from the Class B Reserve Fund in excess of the Floor Amount,
to the Class B Note Distribution Account, the Class B
Noteholders' Principal Distributable Amount.
9. From Available Funds, together with any amounts released from
the Class B Reserve Fund or the Spread Account, all remaining
funds to the Class B Noteholders to reduce the principal
balance of the Class B Notes until the principal balance of
the Class B Notes is reduced to zero.
10. From Available Funds, to the Certificate Distribution Account,
or as otherwise specified in the Trust Documents, any
remaining funds.
11. From the Certificate Distribution Account to the
Certificateholders.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover the
distributions required pursuant to clauses (a) through (e) above on such
Distribution Date, the Indenture Trustee shall furnish to the Class A Note
Insurer no later than 12:00 noon New York City time on the related Draw Date a
completed notice of claim in the amount of the Policy Claim Amount. Amounts paid
by the Class A Note Insurer pursuant to any such notice of claim shall be
deposited by the Class A Note Insurer into the Class A Note Distribution Account
for payment to Class A Noteholders on the related Distribution Date.
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STATEMENTS TO NOTEHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders on such Distribution Date.
Such statements will be based on the information in the related Servicer's
Certificate setting forth certain information required under the Trust
Documents. Each such statement to be delivered to Noteholders will include the
following information as to the Notes with respect to such Distribution Date or
the period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or
with respect to each Class of the Notes:
(ii) the amount of the distribution allocable to principal
with respect to each Class of the Notes;
(iii) the amount of the distribution on the Class A Notes
payable pursuant to a claim on the Policy;
(iv) the aggregate outstanding principal amount for each Class
of Notes, in each case, after giving effect to all payments reported
under (ii) above on such date;
(v) the Class A Noteholders' Interest Carryover Shortfall, the
Class B Noteholders' Interest Carryover Shortfall, the Class A
Noteholders' Principal Carryover Shortfall, the Class B Noteholders'
Principal Carryover Shortfall, if any, and the change in such amounts
from the preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(vii) for each such date during the Funding Period, the
remaining Pre-Funded Amount, the amount in the Pre-Funding Account and
the amount remaining in the Capitalized Interest Account; and
(viii) for the final Subsequent Transfer Date, the amount of
any remaining Pre-Funded Amount that has not been used to fund the
purchase of Subsequent Receivables and is being passed through as
payments of principal of the Notes.
Each amount set forth pursuant to subclauses (i) through (vi) with
respect to Notes will be expressed as a dollar amount per $1,000 of the initial
principal amount of the Notes, as applicable.
Unless and until Definitive Notes or Definitive Notes are issued, such
reports will be sent on behalf of the Trust to Cede & Co., as registered holder
of the Notes and the nominee of DTC.
Within the required period of time after the end of each calendar year,
the Indenture Trustee will furnish to each person who at any time during such
calendar year was a Noteholder or Certificateholder, a statement as to the
aggregate amounts of interest and principal paid to such Noteholder or
Certificateholder, information regarding the amount of servicing compensation
received by the Servicer and such other information as ACC deems necessary to
enable such Noteholder or Certificateholder to prepare its tax returns.
SPREAD ACCOUNT
On the Closing Date, the Spread Account will be established with
Norwest Bank Minnesota, National Association, as Trust Collateral Agent for the
benefit of the Indenture Trustee on behalf of the Class A Noteholders, and the
Class A Note Insurer pursuant to a certain Spread Account Agreement Supplement
dated as of the Closing Date (the "Spread Account Agreement"). The Spread
Account will not be subject to the lien created by the Indenture. On each
Distribution Date, the Trust Collateral Agent will be required to deposit
additional amounts into the Spread Account from payments on the Receivables as
described under "Description of the Notes -Distributions" above. Amounts, if
any, on deposit in the Spread Account will be available to the extent provided
in the Spread Account Agreement to fund any
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Deficiency Claim Amount otherwise required to be made on a Distribution Date.
The aggregate amount required to be on deposit at any time in the Spread Account
(the "Specified Spread Account Requirement") will be determined in accordance
with the Insurance Agreement and the Spread Account Agreement. The Specified
Spread Account Requirement may increase or decrease over time as a result of
floors, caps and triggers set forth in the Insurance Agreement or the Spread
Account Agreement, even if no withdrawals are made from the Spread Account.
Amounts on deposit in the Spread Account on any Distribution Date (after giving
effect to all distributions made on such Distribution Date) in excess of the
Specified Spread Account Requirement for such Distribution Date will be
distributed as additional payments in reduction of the principal balance of the
Class B Notes and after such principal balance has been reduced to zero will be
released to the Issuer. Amounts on deposit or to be deposited in the Spread
Account may be distributed to persons other than the Class A Note Insurer or the
Noteholders without the consent of the Noteholders.
Amounts held from time to time in the Spread Account will continue to
be held for the benefit of holders of the Class A Notes and the Class A Note
Insurer. Funds in the Spread Account will be invested in Eligible Investments.
In addition, the Issuer, the Class A Note Insurer and the Trust
Collateral Agent may amend the Spread Account Agreement (and any provisions in
the Insurance Agreement relating to the Spread Account) in any respect
(including, without limitation, reducing or eliminating the Specified Spread
Account Requirement and/or reducing or eliminating the funding requirements of
the Spread Account or permitting such funds to be used for the benefit of
persons other than Noteholders) without the consent of, or notice to, the
Indenture Trustee, the Owner Trustee or the Noteholders. The Trust Collateral
Agent shall not withhold or delay its consent with respect to any amendment that
does not adversely affect the Trust Collateral Agent in its individual capacity.
Notwithstanding any reduction in or elimination of the funding requirements of
the Spread Account or the depletion thereof, the Class A Note Insurer will be
obligated on each Distribution Date to fund for the benefit of the Class A
Noteholders the full amount of each Scheduled Payment otherwise required to be
made on such Distribution Date in accordance with the terms of the Policy. If
the Class A Note Insurer breaches its obligations, any losses on the Receivables
will be borne by such Class A Noteholders.
The amount required to be on deposit in the Spread Account may increase
or decrease without Noteholder consent and there can be no assurance that the
amounts on deposit in the Spread Account will reach the Specified Spread Account
Requirement since the existence of the Spread Account and any other term or
provision in the Spread Account Agreement regarding the Spread Account may be
amended by the Class A Note Insurer without Noteholder consent. Consequently,
the Class A Noteholders should not rely on amounts on deposit in or to be
deposited to the Spread Account in evaluating the likelihood of receiving
repayment of the Notes. Since amounts will be deposited to the Spread Account
from Available Funds prior and releases of amounts from the Spread Account will
be distributed as principal in addition to distributions of Class B Noteholders'
Principal Distributable Amount, modifications of the Specified Spread Account
Requirement may cause unexpected interruption or acceleration of payments of
principal on the Class B Notes.
SERVICER TERMINATION EVENT
"Servicer Termination Event" under the Sale, Servicing and Collateral
Management Agreement will consist of the occurrence and continuance of any of
the following: (i) any failure by the Servicer to deliver to the Trust
Collateral Agent for distribution to the Noteholders any required payment, which
failure continues unremedied for two Business Days (one Business Day with
respect to payment of Purchase Amounts) after written notice is received by the
Servicer from the Indenture Trustee or (unless a Class A Note Insurer Default
shall be continuing) the Class A Note Insurer or after discovery of such failure
by a responsible officer of the Servicer, or any failure to deliver the
Servicer's Certificate (as defined in the Sale, Servicing and Collateral
Management Agreement) by the fifth Business Day prior to the Distribution Date,
and which shall comply with the requirements therefor; (ii) any failure by the
Servicer duly to observe or perform in any material respect certain of its
covenants and agreements under the Sale, Servicing and Collateral Management
Agreement; (iii) failure to satisfy certain other material covenants and
agreements set forth in the Sale, Servicing and Collateral Management Agreement
which failure continues unremedied for 30 days after the giving of written
notice of such failure (1) to the Servicer by the Class A Note Insurer, the
Trust Collateral Agent or the Issuer, or (2) if a Class A Note Insurer Default
has occurred and is
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continuing, to the Servicer by any holder of a Note or a Certificate; (iv)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Servicer or the Issuer
and certain actions by the Servicer, or, so long as ACC is Servicer, of its
affiliates, indicating its insolvency, reorganization pursuant to bankruptcy
proceedings, or inability to pay its obligations; (v) the material breach of
certain of the Servicer's representations or warranties and the Servicer's
failure to cure within 30 days after notice thereof; (vi) so long as a Class A
Note Insurer Default shall not have occurred and be continuing, the Class A Note
Insurer shall not have delivered an extension notice; (vii) so long as a Class A
Note Insurer Default shall not have occurred and be continuing, an Insurance
Agreement Event of Default or an event of default under any other Insurance and
Indemnity Agreement relating to any series of securities shall have occurred; or
(viii) a claim is made under the Policy.
"Class A Note Insurer Default" shall mean the occurrence and
continuance of any of the following events:
(a) the Class A Note Insurer shall have failed to make a
payment required under the Policy in accordance with its terms;
(b) the Class A Note Insurer shall have (i) filed a petition
or commenced any case or proceeding under any provision or chapter of
the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its
creditors, or (iii) had an order for relief entered against it under
the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department
of Insurance or other competent regulatory authority shall have entered
a final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for the Class A Note Insurer or
for all or any material portion of its property or (ii) authorizing the
taking of possession by a custodian, trustee, agent or receiver of the
Class A Note Insurer (or the taking of possession of all or any
material portion of the property of the Class A Note Insurer).
RIGHTS UPON SERVICER TERMINATION EVENT
As long as a Servicer Termination Event under the Sale, Servicing and
Collateral Management Agreement remains unremedied, (x) provided no Class A Note
Insurer Default shall have occurred and be continuing, the Class A Note Insurer
in its sole and absolute discretion or (y) if a Class A Note Insurer Default
shall have occurred and be continuing, then the Trust Collateral Agent or a
Security Majority, may terminate all the rights and obligations of the Servicer
under such Agreement, whereupon (i) if ACC is terminated under the Agreement,
the Backup Servicer, or such other successor servicer as shall have been
appointed by the Class A Note Insurer (so long as no Class A Note Insurer
Default shall have occurred and be continuing) will succeed to all the
responsibilities, duties, and liabilities of the Servicer under such Agreement
or (ii) if a Servicer other than ACC is terminated under the Agreement, a
successor servicer will be appointed by the Class A Note Insurer (or, if a Class
A Note Insurer Default shall have occurred and be continuing, by the Trust
Collateral Agent). Any such successor Servicer will succeed to all the
responsibilities, duties, and liabilities of the Servicer under the Sale,
Servicing and Collateral Management Agreement and will be entitled to similar
compensation arrangements. There is no assurance that the succession of a
successor servicer will not result in a material disruption in the performance
of the duties of the servicer.
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WAIVER OF PAST DEFAULTS
The Class A Note Insurer may, on behalf of the Issuer and all holders
of the Notes, waive any default by the Servicer in the performance of its
obligations under the Sale, Servicing and Collateral Management Agreement and
its consequences. No such waiver will impair the Noteholders' rights with
respect to subsequent defaults.
AMENDMENT
The Sale, Servicing and Collateral Management Agreement may be amended
by the Seller, the Servicer and the Owner Trustee with the consent of the
Indenture Trustee, (which consent may not be unreasonably withheld) and with the
prior written consent of the Class A Note Insurer (so long as no Class A Note
Insurer Default has occurred and is continuing), but without the consent of the
Noteholders, to cure any ambiguity, or to correct or supplement any provision
therein which may be inconsistent with any other provision therein; provided
that such action shall not adversely affect in any material respect the
interests of any Noteholder; provided, further, that if an Class A Note Insurer
Default has occurred and is continuing, such action shall not materially
adversely affect the interests of the Class A Note Insurer. The Seller, the
Servicer and the Owner Trustee may also amend the Sale, Servicing and Collateral
Management Agreement with the prior written consent of the Class A Note Insurer,
the consent of the Indenture Trustee, the consent of Noteholders holding a
majority of the principal amount of the Notes outstanding to add, change or
eliminate any other provisions with respect to matters or questions arising
under such Agreement or affecting the rights of the Noteholders; provided that
such action will not (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Receivables or
distributions that are required to be made for the benefit of the Noteholders or
(ii) reduce the aforesaid percentage of the Noteholders required to consent to
any such amendment, without, in either case, the consent of the holders of all
Notes outstanding; provided, further, that if an Class A Note Insurer Default
has occurred and is continuing, such action shall not materially adversely
affect the interest of the Class A Note Insurer. The Seller and Servicer must
deliver to the Owner Trustee, the Indenture Trustee and the Class A Note Insurer
upon the execution and delivery of the Sale, Servicing and Collateral Management
Agreement and any amendment thereto an opinion of counsel, satisfactory to the
Indenture Trustee and Class A Note Insurer, that all financing statements and
continuation statements have been filed that are necessary to fully protect and
preserve the Indenture Trustee's interest in the Receivables.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Insolvency Laws, may interfere
with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding under the federal
bankruptcy law, a court may prevent a lender from repossessing a motor vehicle,
and, as part of the rehabilitation plan, reduce the amount of the secured
indebtedness to the market value of the motor vehicle at the time of bankruptcy
(as determined by the court), leaving the party providing financing as a general
unsecured creditor for the remainder of the indebtedness. A bankruptcy court may
also reduce the monthly payments due under a contract or change the rate of
interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion, when read in conjunction
with the discussion of "Federal Income Tax Consequences" in the Prospectus,
describes certain federal income tax consequences to the original purchasers of
the Notes of the purchase, ownership and disposition of the Notes. It does not
purport to discuss all federal income tax consequences that may be applicable to
investment in the Notes or to particular categories of investors, some of which
may be subject to special rules.
The discussion that follows, and the opinions set forth below
of Dewey Ballantine, special tax counsel to the Issuer ("Tax Counsel"), are
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and Treasury regulations promulgated thereunder as in effect on the date
hereof and on existing judicial and administrative interpretations thereof.
These authorities are subject to change and to differing interpretations, which
could apply retroactively. The opinions of Tax Counsel are
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not binding on the courts or the Internal Revenue Service (the "IRS"). Potential
investors should consult their own tax advisors in determining the federal,
state, local, foreign and any other tax consequences to them of the purchase,
ownership and disposition of the Notes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS. In the opinion
of Tax Counsel, although no transaction closely comparable to that contemplated
herein has been the subject of any Treasury regulation, revenue ruling or
judicial decision, based on the application of existing law to the facts as set
forth in the applicable agreements, the proper treatment of the Notes is as
indebtedness for federal income tax purposes.
Except as described below, interest paid or accrued on a Note
will be treated as ordinary income to the Noteholders and principal payments on
a Note will be treated as a return of capital to the extent of the Noteholder's
basis in the Note allocable thereto. An accrual method taxpayer will be required
to include in income interest on the Notes when earned, even if not paid, unless
it is determined to be uncollectible. It is not anticipated that the Notes will
be issued with original issue discount. See "Federal Income Tax Consequences --
Treatment of the Notes as Indebtedness -- Interest Income on the Notes" in the
Prospectus.
ALTERNATIVE CHARACTERIZATIONS OF THE NOTES. Although it is the
opinion of Tax Counsel that the Notes are properly characterized as indebtedness
for federal income tax purposes, no assurance can be given that such
characterization of the Notes will prevail. If the Notes were treated as an
ownership interest in the Receivables, all income on such Receivables would be
income to the holders of the Notes, and related fees and expenses would
generally be deductible (subject to certain limitations on the deductibility of
miscellaneous itemized deductions by individuals) and certain market discount
and premium provisions of the Code might apply to a purchase of the Notes.
If, alternatively, the Notes were treated as an equity
interest in the Trust, the Trust would be treated as a partnership for federal
income tax purposes. As a partnership, the Trust will not be subject to federal
income tax unless treated as a publicly traded partnership taxable as a
corporation. Any such corporate income tax could materially reduce cash
available to make payments on the Notes. Tax Counsel is of the opinion that,
although no transaction closely comparable to that contemplated herein has been
the subject of any Treasury regulation, revenue ruling or judicial decision and,
therefore, is subject to interpretation, the Trust, if treated as a partnership,
will not be treated as a publicly traded partnership taxable as a corporation.
This opinion is based on Tax Counsel's conclusion that the nature of the income
of the Trust exempts it from the rules that certain publicly traded partnerships
are taxable as corporations.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential Noteholders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.
ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA and prohibits certain transactions between a plan and parties
in interest with respect to such plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Code for
such persons.
In addition to the matters described below, purchasers of Class A Notes
that are insurance companies should consult with their counsel with respect to
the United States Supreme Court case interpreting the fiduciary responsibility
rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
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Trust and Savings Bank, 114 S.Ct. 517 (1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers should determine whether the decision affects their ability to make
purchases of the Class A Notes.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be "plan assets" of an employee benefit plan subject to ERISA or the
Code, or an individual retirement account (an "IRA"), or any entity whose
underlying assets are deemed to be assets of an employee benefit plan or an IRA
by reason of such employee benefit plan's or such IRA's investment in such
entity (each a "Benefit Plan"). Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of the Issuer
would be treated as plan assets of a Benefit Plan for the purposes of ERISA and
the Code only if the Benefit Plan acquires an "equity interest" in the Issuer
and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Seller
believes that the Class A Notes should be treated as indebtedness without
substantial equity features for purposes of the Plan Assets Regulation. This
determination is based in part upon the traditional debt features of the Notes,
including the reasonable expectation of purchasers of Notes that the Notes will
be repaid when due, as well as the absence of conversion rights, warrants and
other typical equity features. The debt treatment of the Notes for ERISA
purposes could change if the Issuer incurred losses. However, without regard to
whether the Class A Notes are treated as an equity interest for such purposes,
the acquisition or holding of Class A Notes by or on behalf of a Benefit Plan
could be considered to give rise to a prohibited transaction if certain parties
to the transaction are or become, or any of their respective affiliates is or
becomes, a party in interest or a disqualified person with respect to such
Benefit Plan. In such case, certain exemptions from the prohibited transaction
rules could be applicable depending on the type and circumstances of the plan
fiduciary making the decision to acquire a Class A Note. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 96-23, regarding
transactions by in-house asset managers; and PTCE 84-14, regarding transactions
by "qualified professional asset managers." Each investor using the assets of a
Benefit Plan which acquires the Class A Notes, or to whom the Class A Notes are
transferred, will be required to represent that the acquisition and continued
holding of the Class A Notes will be covered by a Department of Labor class
exemption.
Employee plans that are government plans (as defined in Section 3(32)
of ERISA) and certain church plans (as defined in Section 3(53) of ERISA are not
subject to ERISA; however, such plans may be subject to comparable state law
restrictions.
Any Benefit Plan fiduciary considering the purchase of a Class A Note
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment. Moreover, each Benefit Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Class A Notes is appropriate
for the Benefit Plan, taking into account the overall investment policy of the
Benefit Plan and the composition of the Benefit Plan's investment portfolio.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the Seller has agreed to cause the Trust to sell the Notes to
_________ (the "Underwriter"), and the Underwriter has agreed to purchase the
Notes.
The Underwriting Agreement provides that the obligations of the
Underwriter is subject to certain conditions precedent and that the Underwriter
will be obligated to purchase all the Notes, if any are purchased.
Distribution of the Notes may be made by the Underwriter from time to
time in one or more negotiated transactions, or otherwise, at varying prices to
be determined at the time of sale. The Underwriter may effect such transactions
by selling the Notes to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter. In connection with the sale of the Notes, the Underwriter
may be deemed to have received compensation from the Seller in the form of
underwriting compensation. The Underwriter and any dealers that participate with
the Underwriter in the distribution of the Notes may be deemed to be
underwriters and any commissions received by them and any profit on the resale
of the Notes positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "Securities Act").
If the Underwriter creates a short position in the Notes in connection
with the offering, i.e., if the Underwriter sells more Notes than are set forth
on the cover page of this Prospectus Supplement, the Underwriter may reduce that
short position by purchasing Notes in the open market.
In general, purchases of a security to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Seller nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the Notes. In
addition, neither the Seller not the Underwriter makes any representation that
the Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Notes are a new issue of securities with no established trading
market. The Underwriter has advised the Seller that it intends to act as market
makers for the Notes. However, the Underwriter is not obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of any trading market for the Notes.
The Seller has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriter may be required to make in respect thereof.
The Commission is of the opinion that indemnification for any securities law
violation is contrary to the public policy expressed in the federal securities
laws, and consequently, that such indemnification provisions are unenforceable.
The Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the expiration of the period of six months from the
Closing Date, will not offer or sell any Notes to persons in the United Kingdom,
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulation 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Notes in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the Issue of the Notes to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995, or is a person to whom such document may otherwise
lawfully be issued or passed on.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Seller prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of a Note in Canada who receives a purchase confirmation
will be deemed to represent to the Seller and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Note without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent and (iii) such
purchaser has reviewed the text above under "Resale Restrictions".
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of a Note to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any Notes
acquired by such purchaser pursuant to this offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR #
88/5, a copy of which may be obtained from the Seller. Only one such report must
be filed in respect of the Notes acquired on the same date and under the same
prospectus exemption.
LEGAL OPINIONS
Certain legal matters relating to the Notes will be passed upon for
ACC, the Servicer and _________ by Dewey Ballantine, New York, New York. Certain
bankruptcy, federal income tax and other matters will be passed upon for ACC and
the Servicer by Dewey Ballantine. Certain legal matters under Minnesota law
relating to the Notes will be passed upon for the Issuer by Faegre & Benson.
Certain legal matters under Texas law relating to the Notes will be passed upon
for ACC and the Servicer by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. Certain
legal matters under Florida law relating to the Notes will be passed upon for
ACC and the Servicer by Foley & Lardner. Certain legal matters under California
law relating to the Notes will be passed upon for ACC and the Servicer by Dewey
Ballantine.
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GLOSSARY
For the purposes hereof, the following terms shall have the following
meanings:
"Aggregate Principal Balance" means, with respect to any
Determination Date, the sum of the Principal Balances for all Receivables (other
than (i) any Receivable that became a Liquidated Receivable prior to the end of
the related Monthly Period and (ii) any Receivable that became a Purchased
Receivable prior to the end of the related Monthly Period) as of the
Determination Date.
"Amount Financed" means, with respect to a Receivable, the
aggregate amount advanced under such Receivable toward the purchase price of the
Financed Vehicle and related costs, including amounts advanced in respect of
accessories, insurance premiums, service, car club and warranty contracts, other
items customarily financed as part of retail automobile installment sale
contracts or promissory notes, and related costs.
"Available Funds" means, with respect to any Determination
Date, the sum of (i) the Collected Funds for such Determination Date, plus (ii)
all Purchase Amounts deposited in the Collection Account during the related
Monthly Period, plus income on investments held in the Collection Account, plus
(iii) the Monthly Capitalized Interest Amount with respect to the related
Distribution Date.
"Class A Noteholders' Distributable Amount" means, with
respect to any Distribution Date, the sum of the Class A Noteholders' Principal
Distributable Amount and the Class A Noteholders' Interest Distributable Amount.
"Class A Noteholders' Interest Carryover Shortfall" means,
with respect to any Distribution Date and the Class A Notes, the excess of the
Class A Noteholders' Interest Distributable Amount for the preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Class A Note Distribution Account on such preceding
Distribution Date, plus interest on the amount of interest due but not paid to
Class A Noteholders on the preceding Distribution Date, to the extent permitted
by law, at the Interest Rate borne by the Class A Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"Class A Noteholders' Interest Distributable Amount" means,
with respect to any Distribution Date, the sum of the Class A Noteholders'
Monthly Interest Distributable Amount for the Class A Notes for such
Distribution Date and the Class A Noteholders' Interest Carryover Shortfall for
Class A Notes for such Distribution Date.
"Class A Noteholders' Monthly Interest Distributable Amount"
means, with respect to any Distribution Date and Class A Notes, interest accrued
during the applicable Interest Period at the Interest Rate borne by such Class
of Class A Notes on the outstanding principal amount of such Class immediately
prior to such Distribution Date, calculated on the basis of a 360-day year and
twelve 30-day months.
"Class A Noteholders' Monthly Principal Distributable Amount"
means, with respect to any Distribution Date, the Class A Noteholders'
Percentage of the Principal Distributable Amount.
"Class A Noteholders' Percentage" means (i) for each
Distribution Date other than a Distribution Date on which the Class A Notes are
paid in full, 94%, or (ii) for any Distribution Date after the Distribution Date
on which the Class A Notes are paid in full, zero.
"Class A Noteholders' Principal Carryover Shortfall" means, as
of the close of any Distribution Date, the excess of the Class A Noteholders'
Principal Distributable Amount for the preceding Distribution Date over the
amount in respect of principal that was actually deposited in the Class A Note
Distribution Account on such Distribution Date.
"Class A Noteholders' Principal Distributable Amount" means,
with respect to any Distribution Date (other than the Final Scheduled
Distribution Date), the sum of the Class A Noteholders' Monthly Principal
Distributable Amount for such Distribution Date and the Class A Noteholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date. The Class A Noteholders' Principal
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Distributable Amount on the Final Scheduled Distribution Date for the Class A
Notes will equal the outstanding principal amount, if any, of such Class A
Notes.
"Class A Note Insurer Optional Deposit" means, with respect to
any Distribution Date, an amount delivered by the Class A Note Insurer, at its
sole option, other than pursuant to the Policy for deposit into the Collection
Account for any of the following purposes: (i) to provide funds in respect of
the payment of fees or expenses of any provider of services to the Trust with
respect to such Distribution Date; or (ii) to include such amount as part of the
Distribution Amount for such Distribution Date to the extent that without such
amount a draw would be required to be made on the Policy.
"Class B Noteholders' Distributable Amount" means, with
respect to any Distribution Date, the sum of the Noteholders' Principal
Distributable Amount and the Class B Noteholders' Interest Distributable Amount.
"Class B Noteholders' Interest Carryover Shortfall" means,
with respect to any Distribution Date and the Class B Notes, the excess of the
Class B Noteholders' Interest Distributable Amount for the preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Class B Note Distribution Account on such preceding
Distribution Date, plus interest on the amount of interest due but not paid to
Class B Noteholders on the preceding Distribution Date, to the extent permitted
by law, at the Interest Rate borne by the Class B Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"Class B Noteholders' Interest Distributable Amount" means,
with respect to any Distribution Date, the sum of the Class B Noteholders'
Monthly Interest Distributable Amount for the Class B Notes for such
Distribution Date and the Class B Noteholders' Interest Carryover Shortfall for
Class B Notes for such Distribution Date.
"Class B Noteholders' Monthly Interest Distributable Amount"
means, with respect to any Distribution Date and Class B Notes, interest accrued
during the applicable Interest Period at the Interest Rate borne by such Class
of Class B Notes on the outstanding principal amount of such Class immediately
prior to such Distribution Date, calculated on the basis of a 360-day year and
twelve 30-day months.
"Class B Noteholders' Monthly Principal Distributable Amount"
means, with respect to any Distribution Date, the Class B Noteholders'
Percentage of the Principal Distributable Amount.
"Class B Noteholders' Percentage" means (i) for each
Distribution Date other than a Distribution Date on which the Class A Notes have
been paid in full, 6% or (ii) for any Distribution Date after the Class A Notes
are paid in full, 100 %; provided, however, that the Class B Noteholders'
Percentage will be zero percent when the principal balance of the Class B Notes
has been reduced to zero.
"Class B Noteholders' Principal Carryover Shortfall" means, as
of the close of any Distribution Date, the excess of the Class B Noteholders'
Principal Distributable Amount for the preceding Distribution Date over the
amount in respect of principal that was actually deposited in the Class B Note
Distribution Account on such Distribution Date.
"Class B Noteholders' Principal Distributable Amount" means,
with respect to any Distribution Date (other than the Final Scheduled
Distribution Date for any Class B Notes), the sum of the Class B Noteholders'
Monthly Principal Distributable Amount for such Distribution Date and the Class
B Noteholders' Principal Carryover Shortfall as of the close of the preceding
Distribution Date. The Class B Noteholders' Principal Distributable Amount on
the Final Scheduled Distribution Date for the Class B Notes will equal the
outstanding principal amount, if any, of such Class B Notes.
"Collected Funds" means, with respect to any Determination
Date, the amount of funds in the Collection Account representing collections on
the Receivables during the related Monthly Period, including all Net Liquidation
Proceeds collected during the related Monthly Period (but excluding any Purchase
Amounts).
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"Cram Down Loss" means, with respect to a Receivable if a
court of appropriate jurisdiction in an insolvency proceeding shall have issued
an order reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to (i) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so reduced
and/or (ii) if such court shall have issued an order reducing the effective rate
of interest on such Receivable, the net present value (using as the discount
rate the higher of the APR on such Receivable or the rate of interest, if any,
specified by the court in such order) of the scheduled payments as so modified
or restructured. A "Cram Down Loss" shall be deemed to have occurred on the date
of issuance of such order.
"Deficiency Claim Amount" means, with respect to any
Determination Date, the excess, if any, of the sum of the amounts payable on the
related Distribution Date pursuant to clauses (a) through (e) under "Description
of Notes - Distributions" over the amount of Available Funds.
"Deficiency Notice" means a written notice delivered by the
Indenture Trustee to the Class A Note Insurer, the fiscal agent, if necessary,
and the Servicer and any other person required under the Insurance Agreement,
specifying the Deficiency Claim Amount for such Distribution Date.
"Determination Date" means, with respect to any Collection
Period, the 5th Business Day prior to the related Distribution Date.
"Distribution Amount" means, with respect to any Distribution
Date the sum of (i) the Available Funds for the immediately preceding
Determination Date plus (ii) the Deficiency Claim Amount, if any, received by
the Indenture Trustee with respect to such Distribution Date.
"Floor Amount" means with respect to the Class B Reserve Fund
and any Distribution Date, an amount equal to the product of the Interest Rate
for the Class B Notes and the principal balance of the Class B Notes as of such
Distribution Date.
"Liquidated Receivable" means, with respect to any Monthly
Period, a Receivable as to which (i) 60 days have elapsed since the Servicer
repossessed the Financed Vehicle, (ii) the Servicer has determined in good faith
that all amounts it expects to recover have been received, (iii) ninety percent
or more of a scheduled payment shall have become 120 or more days delinquent, or
in the case of an Obligor who is subject to bankruptcy proceedings, 210 or more
days delinquent or (iv) the Financed Vehicle has been sold and the proceeds
received. Any Receivable that becomes a Purchased Receivable on or before the
related Business Day immediately preceding the related Determination Date shall
not be a Liquidated Receivable.
"Net Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all amounts realized with respect to such Receivable (other than
amounts withdrawn from certain collateral accounts and drawings under the
Policy) net of the Servicer's reasonable out-of-pocket costs, including
repossession and resale expenses not already deducted from such proceeds, and
any amounts that are required to be refunded to the Obligor on such Receivable;
provided, however, that Net Liquidation Proceeds with respect to any Receivables
shall in no event be less than zero.
"Policy Claim Amount" means, with respect to any Determination
Date on which the Indenture Trustee has delivered a Deficiency Notice, the
shortfall of (y) the Distribution Amount with respect to the related
Distribution Date (after giving effect to the amounts payable on such
Distribution Date pursuant to clauses (a) and (b) under "Distributions") over
(2) the amount necessary to pay the Scheduled Payments on the Class A Notes with
respect to such Distribution Date.
"Principal Balance" means, with respect to any Receivable, as
of any date, the Amount Financed minus (i) that portion of all amounts received
on or prior to such date and allocable to principal in accordance with the terms
of the Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
"Principal Distributable Amount" means, with respect to any
Distribution Date, an amount equal to the sum of the following amounts with
respect to the related Monthly Period, computed in accordance with the simple
interest method in the case of a Simple Interest Receivable and the actuarial
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method in the case of an Actuarial Method Receivable: (i) that portion of all
collections on Receivables (other than Liquidated Receivables and Purchased
Receivables) allocable to principal, including full and partial principal
prepayments, received during such Monthly Period (ii) the principal balance of
each Receivable that became a Liquidated Receivable during the related Monthly
Period (other than Purchased Receivables), (iii) the principal balance of each
Receivable that was repurchased by the Issuer, the Servicer or the Seller as of
the last day of such Monthly Period, (iv) the aggregate amount of any Cram Down
Loss during such Monthly Period, and (v) any unpaid portion of the amounts
included in clauses (i), (ii), (iii) and (iv) above with respect to a prior
Distribution Date. Principal payments on the Class A Notes will be made from the
Distribution Amount after payment of accrued and unpaid trustees' fees and other
administrative fees of the Issuer, payment of the Servicing Fee and after
distribution of the Class A Noteholders' Interest Distributable Amount. See
"Description of the Sale, Servicing and Collateral Management Agreement and the
Trust Documents -- Distributions" herein.
"Purchase Amount" means, with respect to a Receivable, the
principal balance and all accrued and unpaid interest on the Receivable as of
the date of purchase.
"Purchased Receivable" means, a Receivable purchased as of the
close of business on the last day of the related Monthly Period by the Servicer
or by the Seller pursuant to the repurchase obligations of the Sale, Servicing
and Collateral Management Agreement.
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Appendix A
CONSOLIDATED FINANCIAL STATEMENTS OF
THE INSURER
AND SUBSIDIARIES
