<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 21, 1996
FASCO AUTO TRUST 1996-1
$84,455,712.85 6.65% ASSET BACKED CERTIFICATES, CLASS A
FINANCIAL ASSET SECURITIES CORP., DEPOSITOR
CONSUMER PORTFOLIO SERVICES, INC., ORIGINATOR AND SERVICER
FASCO Auto Trust 1996-1 (the "Trust") will be formed pursuant to a Pooling
and Servicing Agreement dated as of June 17, 1996, among Financial Asset
Securities Corp., a Delaware corporation, as depositor (the "Depositor"),
Consumer Portfolio Services, Inc., a California corporation, as originator (in
such capacity, the "Originator") and servicer (in such capacity, the
"Servicer") of the Receivables, and Norwest Bank Minnesota, National
Association, a national banking association, as trustee (in such capacity, the
"Trustee") and standby servicer (in such capacity, the "Standby Servicer"),
and will issue $84,455,712.85 aggregate principal amount of 6.65% Asset Backed
Certificates, Class A (the "Class A Certificates") and $4,445,037.52 aggregate
principal amount of 10.00% Asset Backed Certificates, Class B (the "Class B
Certificates" and, together with the Class A Certificates, the
"Certificates"). Only the Class A Certificates are being offered hereby.
The assets of the Trust will include a pool of motor vehicle retail
installment sale contracts (the "Receivables") secured by the used and new
automobiles, vans and light duty trucks financed thereby, certain monies due
or received thereunder after June 17, 1996, and certain other property, as
described herein.
Full and complete payment of the Class A Distributable Amount on each
Distribution Date is unconditionally and irrevocably guaranteed pursuant to a
financial guaranty insurance policy issued by Financial Security Assurance
Inc.
[LOGO] FSA
(Continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 11 OF THE
ACCOMPANYING PROSPECTUS.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN FINANCIAL ASSET SECURITIES CORP.,
GREENWICH CAPITAL MARKETS, INC., CONSUMER PORTFOLIO SERVICES, INC. OR ANY
OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY FINANCIAL ASSET SECURITIES
CORP., GREENWICH CAPITAL MARKETS, INC., CONSUMER PORTFOLIO SERVICES,
INC. OR ANY OF THEIR RESPECTIVE AFFILIATES.
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.
The Class A Certificates are being offered by the Underwriter to the public
from time to time in negotiated transactions or otherwise at varying prices to
be determined, in each case, at the time of sale. Proceeds to the Depositor
are expected to be approximately $84,389,731.82, plus accrued interest from
June 17, 1996 to, but not including, the Closing Date, before deducting
issuance expenses payable by the Depositor.
The Class A Certificates are offered subject to prior sale and subject to
the Underwriter's right to reject orders in whole or in part. It is expected
that delivery of the Class A Certificates will be made through the Same Day
Funds System of the Depository Trust Company on or about June 28, 1996 (the
"Closing Date").
GREENWICH CAPITAL
MARKETS, INC.
------------------
The date of this Prospectus Supplement is June 27, 1996.
<PAGE>
The Class A Certificates will evidence in the aggregate an undivided
ownership interest in approximately 95% of the Trust, other than interest
received by the Trust in excess of the Class A Pass-Through Rate of 6.65% per
annum. The Class B Certificates will evidence in the aggregate an undivided
ownership interest in approximately 5% of the Trust, other than interest
received by the Trust in excess of the Class B Pass-Through Rate of 10.00% per
annum. Principal and interest at the applicable Pass-Through Rate will be
distributed to Certificateholders on the 15th day of each month (or the next
following business day), commencing July 15, 1996 (each a "Distribution
Date"). The rights of the Class B Certificateholders to receive distributions
are subordinated to the rights of the Class A Certificateholders and the
Certificate Insurer to the extent described herein. The Final Scheduled
Distribution Date for the Certificates will be the November 2001 Distribution
Date.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT
CONTAINS INFORMATION THAT IS SPECIFIC TO THE TRUST AND THE SECURITIES OFFERED
HEREBY AND, TO THAT EXTENT, SUPPLEMENTS THE MORE GENERAL INFORMATION PROVIDED
IN THE PROSPECTUS. INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT MAY
ALSO REFLECT LEGAL, ECONOMIC AND OTHER DEVELOPMENTS SINCE THE DATE OF THE
PROSPECTUS.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co.,
as nominee of The Depository Trust Company and registered holder of the
Certificates. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Statements to Securityholders" in the accompanying
Prospectus (the "Prospectus"). Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting
principles. The Depositor, as originator of the Trust, will file with the
Securities and Exchange Commission (the "Commission") such periodic reports as
are required under the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all documents filed by the
Depositor with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended ("Exchange Act"), on or
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class A Certificates.
In addition to the documents described above, the consolidated financial
statements of the Certificate Insurer and subsidiaries included in, or as
exhibits to, the following documents, which have been filed with the
Commission by Financial Security Assurance Holdings Ltd. ("Holdings"), are
hereby incorporated by reference in this Prospectus Supplement:
a. Annual Report on Form 10-K for the period ended December 31, 1995; and
b. Quarterly Report on Form 10-Q for the period ended March 31, 1996.
All financial statements of the Certificate Insurer and subsidiaries
included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus
Supplement and prior to the termination of the offering of the Class A
Certificates 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.
S-2
<PAGE>
The Depositor will provide without charge to any person to whom this
Prospectus Supplement and Prospectus are delivered, upon oral or written
request of such person, a copy of any or all of the documents incorporated
herein by reference other than the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Request should be directed to Brian Bernard, Vice President of Financial Asset
Securities Corp. in writing at 600 Steamboat Road, Greenwich, Connecticut
06830.
The Depositor 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 financial statements of the Certificate Insurer included in or
as an exhibit to the documents of Holdings referred to above and filed
pursuant to Section 13(a) or Section 15(d) of the Exchange Act, and each
filing of the financial statements of Financial Security included in or as an
exhibit to the annual report of Holdings filed pursuant to Section 13(a) or
15(d) of the Exchange Act, that is incorporated by reference in the
Registration Statement of which this Prospectus Supplement and related
Prospectus is a part shall be deemed to be a new registration statement
relating to the Class A Certificates offered hereby and the offering of such
Class A Certificates at that time shall be deemed to be the initial bona fide
offering thereof.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent
not defined herein, have the meanings assigned to such terms in the
Prospectus.
Issuer..................... FASCO Auto Trust 1996-1, a trust to be formed
pursuant to a Pooling and Servicing Agreement to
be dated as of June 17, 1996 (the "Pooling and
Servicing Agreement"), among the Depositor,
Consumer Portfolio Services, Inc., as Originator
and as Servicer, and the Trustee and Standby
Servicer.
Depositor.................. Financial Asset Securities Corp., a Delaware
corporation (the "Depositor").
Originator and Servicer ... Consumer Portfolio Services, Inc. ("CPS"), a
California corporation (in its capacity as
originator of the Receivables, the "Originator";
in its capacity as servicer of the Receivables,
the "Servicer"). The Servicer is referred to as
the Master Servicer in the Prospectus.
Trustee and Standby Norwest Bank Minnesota, National Association, a
Servicer................... national banking association, (in its capacity as
trustee, the "Trustee" and in its capacity as
standby servicer, the "Standby Servicer").
Certificate Insurer........ Financial Security Assurance Inc., a financial
guaranty insurance company incorporated under the
laws of the State of New York (the "Certificate
Insurer" or "Financial Security").
The Certificates........... The Certificates consist of two classes, entitled
6.65% Asset Backed Certificates, Class A (the
"Class A Certificates") and 10.00% Asset Backed
Certificates, Class B (the "Class B Certificates"
and, together with the Class A Certificates, the
"Certificates"). The Class B Certificates are not
offered hereby and the information herein with
respect thereto is provided only to permit a
better understanding of the Class A Certificates.
Each Certificate will evidence beneficial
ownership of an undivided interest in the Trust.
The Class A Certificates will evidence, in the
aggregate, beneficial ownership of an undivided
interest in the Trust Assets equal to the Class A
Percentage of the Trust Assets, but not including
any interest received by the Trust in excess of
the Class A Pass-Through Rate. The Class B
Certificates will evidence, in the aggregate,
beneficial ownership of an undivided interest in
the Trust Assets equal to the Class B Percentage
of the Trust Assets, but not including any
interest received by the Trust in excess of the
Class B Pass-Through Rate.
The "Class A Percentage" as of any date of
determination will be 95%. The "Class B
Percentage" as of any date of determination will
be 5%.
The rights of the Class B Certificates to receive
distributions will be subordinated to the rights
of the Class A Certificates and the Certificate
Insurer to the extent described herein.
See "The Certificates" herein.
S-4
<PAGE>
The Class A Certificates will be represented
initially by one or more certificates registered
in the name of Cede & Co., as the nominee of DTC.
No person acquiring a beneficial interest in a
Class A Certificate will be entitled to receive a
definitive certificate representing such person's
interest in the Trust except in the limited
circumstances described in the Prospectus. Under
the terms of the Pooling and Servicing Agreement,
unless and until the Certificates are issued in
definitive form, the beneficial owners thereof
will not be recognized as Certificateholders and
will be permitted to exercise the rights of
Certificateholders only indirectly through DTC.
See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--
Definitive Securities" in the Prospectus.
Trust Assets............... The property of the Trust (the "Trust Assets")
will include (i) a pool of retail installment
sale contracts (collectively, the "Receivables")
secured by the used and new automobiles, light
trucks, vans and minivans financed thereby (the
"Financed Vehicles"), (ii) with respect to Rule
of 78's Receivables, all payments due thereon
after June 17, 1996 (the "Cutoff Date"), and,
with respect to Simple Interest Receivables, all
payments received thereunder after the Cutoff
Date, (iii) security interests in the Financed
Vehicles, (iv) certain bank accounts and the
proceeds thereof, (v) the right of the Depositor
to receive proceeds from claims under, or refunds
of unearned premiums from, certain insurance
policies and extended service contracts, (vi) all
right, title and interest of the Depositor in and
to the Purchase Agreement (the "Purchase
Agreement") between the Depositor and the
Originator, (vii) the benefits of a financial
guaranty insurance policy (the "Policy") issued
by the Certificate Insurer with respect to the
Class A Certificates, and (viii) certain other
property, as more fully described herein. See
"The Trust Assets".
The Receivables............ On the Closing Date, the Depositor will purchase
Receivables (the "Receivables") from the
Originator having an aggregate principal balance
of approximately $88,900,750.37 as of the Cutoff
Date (the "Original Pool Balance"). The
Receivables will be purchased pursuant to a
purchase agreement dated as of June 17, 1996 (the
"Purchase Agreement"), between the Originator and
the Depositor. The Trust, in turn, will purchase
the Receivables on the Closing Date from the
Depositor, and the Servicer will agree to service
the Receivables, pursuant to the Pooling and
Servicing Agreement. See "The Receivables Pool"
herein and "The Receivables Pools" in the
Prospectus.
The Receivables will consist of retail
installment sale contracts secured by used or new
automobiles, light trucks, vans and minivans,
including, with respect to Rule of 78's
Receivables, the rights to all payments due with
respect to such Receivables after the Cutoff
Date, and, with respect to Simple Interest
Receivables, the rights to all payments received
with respect to such Receivables after the Cutoff
Date. As of the Cutoff Date, approximately 85.08%
of the aggregate principal balance of the
Receivables represented financing of used
vehicles. The Receivables arise from loans
originated by automobile dealers for
S-5
<PAGE>
assignment to the Originator pursuant to the
Originator's auto loan programs. The auto loan
programs target automobile purchasers with
marginal credit ratings ("sub-prime borrowers")
who are generally unable to obtain credit from
banks or other low-risk lenders. See "CPS's
Automobile Contract Portfolio--Underwriting". The
Receivables have been selected from the contracts
owned by the Originator on the criteria specified
in the Purchase Agreement and described herein.
Each Receivable is a Rule of 78's Receivable or a
Simple Interest Receivable. As of the Cutoff
Date, the weighted average annual percentage rate
(the "APR") of the Receivables was approximately
20.496%, the weighted average remaining term to
maturity of the Receivables was approximately
52.83 months and the weighted average original
term to maturity of the Receivables was
approximately 54.67 months. As of the Cutoff
Date, no Receivable had a scheduled maturity
later than July 6, 2001.
Terms of the Certificates
A. Distribution Dates...... Distributions of interest and principal on the
Certificates will be made on the 15th day of each
month or, if any such day is not a Business Day,
on the next succeeding Business Day (each, a
"Distribution Date"), commencing July 15, 1996.
Distributions will be made to holders of record
of the Certificates (the "Certificateholders") as
of the Business Day immediately preceding each
Distribution Date (each, a "Record Date"). A
"Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions or
trust companies in the City of New York, the
state in which the corporate trust office of the
Trustee is located, the state in which the
executive offices of the Servicer are located or
the state in which the principal place of
business of the Certificate Insurer is located
are authorized or obligated by law, executive
order or governmental decree to be closed.
B. Pass-Through Rates...... Interest will accrue on the Class A Certificates
at the rate of 6.65% per annum (the "Class A
Pass-Through Rate") and on the Class B
Certificates at the rate of 10.00% per annum (the
"Class B Pass-Through Rate"), calculated on the
basis of a 360-day year consisting of twelve 30-
day months.
C. Distributions........... Interest. On each Distribution Date, the Trustee
will, to the extent there are funds available
from the sources described herein, (i) distribute
pro rata to the holders of record of the Class A
Certificates (the "Class A Certificateholders")
as of the related Record Date thirty (30) days of
interest at the Class A Pass-Through Rate on the
Class A Certificate Balance as of the close of
business on the last day of the related
Collection Period and (ii) distribute pro rata to
the holders of record of the Class B Certificates
(the "Class B Certificateholders") as of the
related Record Date thirty (30) days of interest
at the Class B Pass-Through Rate on the Class B
Certificate Balance as of the close of business
on the last day of the related Collection Period;
provided, however, that on the first Distribution
Date, the Certificateholders will be entitled to
interest at the Class A Pass-Through Rate or the
Class B
S-6
<PAGE>
Pass-Through Rate, as applicable, on the initial
Class A Certificate Balance or the initial Class
B Certificate Balance, as applicable, from and
including the Cutoff Date through and including
July 14, 1996.
Principal. On each Distribution Date, the Trustee
will, to the extent that there are funds
available from the sources described herein,
distribute to (a) the Class A Certificateholders
as of the related Record Date an amount equal to
the Class A Percentage of the Principal
Distributable Amount and (b) the Class B
Certificateholders as of the related Record Date
an amount equal to the Class B Percentage of the
Principal Distributable Amount. The "Principal
Distributable Amount" for a Distribution Date
shall equal the sum of (a) the principal portion
of all Scheduled Payments received during the
preceding Collection Period on Rule of 78's
Receivables and all payments of principal
received on Simple Interest Receivables during
the preceding Collection Period; (b) the
principal portion of all prepayments in full
(including prepayments in full resulting from
collections with respect to a Receivable received
during the preceding Collection Period plus any
amounts applied from the Payahead Account with
respect to such Receivable) (without duplication
of amounts included in (a) above and (d) below);
(c) the portion of the Purchase Amount allocable
to principal of each Receivable that was
repurchased by the Originator or purchased by the
Servicer as of the last day of the related
Collection Period (without duplication of the
amounts referred to in (a) and (b) above); (d)
the Principal Balance of each Receivable that
first became a Liquidated Receivable during the
preceding Collection Period (without duplication
of the amounts included in (a) and (b) above);
and (e) the aggregate amount of Cram Down Losses
that shall have occurred during the preceding
Collection Period (without duplication of amounts
included in (a) through (d) above). In addition,
on the November 2001 Distribution Date (the
"Final Scheduled Distribution Date"), to the
extent amounts are available therefor, the
principal required to be distributed to the Class
A Certificateholders will equal the then
outstanding Class A Certificate Balance and the
principal required to be distributed to the Class
B Certificateholders will equal the then
outstanding Class B Certificate Balance.
A "Collection Period" with respect to a
Distribution Date will be the calendar month
preceding the month in which such Distribution
Date occurs; provided however, that with respect
to the first Distribution Date, the "Collection
Period" will be the period from and excluding the
Cutoff Date to and including June 30, 1996.
See "The Certificates--Distributions on
Certificates".
Priority of Payments. On each Distribution Date,
the Trustee shall make the following
distributions in the following order of priority:
(i) to the Servicer, the Servicing Fee and all
unpaid Servicing Fees; provided, however, that as
long as CPS is the Servicer and Norwest Bank
Minnesota, National Association, is the Standby
Servicer, the Trustee will first pay to the
Standby Servicer out of the Servicing Fee
otherwise payable to CPS an amount equal to the
Standby Fee;
S-7
<PAGE>
(ii) in the event the Standby Servicer becomes
the successor Servicer, to the Standby Servicer,
reasonable transition expenses (up to a maximum
of $50,000) incurred in acting as successor
Servicer;
(iii) to the Trustee, the Trustee Fee (as defined
herein) and other reasonable expenses;
(iv) to the Collateral Agent, all fees and
expenses payable to the Collateral Agent with
respect to such Distribution Date;
(v) to the Class A Certificateholders, the Class
A Interest Distributable Amount (as defined
herein) and any Class A Interest Carryover
Shortfall (as defined herein);
(vi) to the Class B Certificateholders, the Class
B Interest Distributable Amount (as defined
herein) and any Class B Interest Carryover
Shortfall (as defined herein);
(vii) to the Class A Certificateholders, the
Class A Principal Distributable Amount (as
defined herein) and any Class A Principal
Carryover Shortfall (as defined herein);
(viii) to the Certificate Insurer, any amounts
due to the Certificate Insurer under the terms of
the Pooling and Servicing Agreement and under the
Insurance Agreement (as defined herein);
(ix) to any successor Servicer, reasonable
transition expenses (up to a maximum of $50,000)
incurred in acting as successor Servicer;
(x) to the Class B Certificateholders, the Class
B Principal Distributable Amount (as defined
herein) and any Class B Principal Carryover
Shortfall (as defined herein); and
(xi) to the Collateral Agent, for deposit into
the Spread Account, the remaining Total
Distribution Amount, if any. See "The
Certificates--Distributions on Certificates--
Priority of Distribution Amounts".
Spread Account............. As part of the consideration for the issuance of
the Policy, CPS Receivables Corp., a wholly owned
special purpose corporation of the Originator
("CPS Receivables Corp."), on behalf of the
Originator, has agreed to cause the Spread
Account to be established with the Collateral
Agent for the benefit of the Certificate Insurer
and the Trustee on behalf of the Class A
Certificateholders. Any portion of the Total
Distribution Amount remaining on any Distribution
Date after payment of all fees and expenses due
on such date to the Servicer, the Standby
Servicer, the Trustee, the Collateral Agent, the
Certificate Insurer and any successor Servicer
and all principal and interest payments due to
the Certificateholders on such Distribution Date,
will be deposited in the Spread Account and held
by the Collateral Agent for the benefit of the
Trustee, on behalf of the Class A
Certificateholders, and the Certificate Insurer.
The Collateral Agent will not hold for the
benefit of the Class B Certificateholders the
amounts on deposit in the Spread Account on any
Distribution Date which (after all payments
required to be made on such date have been made)
are in excess of the requisite amount determined
from time to time in
S-8
<PAGE>
accordance with certain portfolio performance
tests agreed upon by the Certificate Insurer and
CPS Receivables Corp. as a condition to the
issuance of the Policy (such requisite amount,
the "Requisite Amount"). If on any Distribution
Date, the Total Distribution Amount is
insufficient (taking into account the application
of the Total Distribution Amount to the payment
of the Class B Interest Distributable Amount and
any Class B Interest Carryover Shortfall) to pay
all distributions required to be made on such day
pursuant to priorities (i), (ii), (iii), (iv),
(v), (vii), (viii) and (ix) referred to above in
"Priority of Payments", amounts on deposit in the
Spread Account will be applied to pay the amounts
due on such Distribution Date pursuant to such
priorities (i), (ii), (iii), (iv), (v), (vii),
(viii) and (ix). See "The Certificates--
Distributions on Certificates--The Spread
Account".
Amounts on deposit in the Spread Account on any
Distribution Date which (after all payments
required to be made on such date have been made)
are in excess of the Requisite Amount determined
from time to time in accordance with certain
portfolio performance tests agreed upon by the
Certificate Insurer and CPS Receivables Corp.
will be released to CPS Receivables Corp. on such
Distribution Date; provided, however, that if,
prior to such Distribution Date, the Servicer has
notified the Trustee that the Total Distribution
Amount is insufficient to make the payments
required to be made on such Distribution Date to
the Class B Certificateholders, including any
Class B Interest Carryover Shortfall and any
Class B Principal Carryover Shortfall (such
deficiency, a "Class B Deficiency Amount"), then
the Trustee will direct the Collateral Agent to
remit to the Trustee, from such funds being
released on such Distribution Date, an amount
equal to such Class B Deficiency Amount for
application to pay the amounts due to the Class B
Certificateholders on such Distribution Date.
Because the Requisite Amount or the existence of
the Spread Account may be modified or terminated
by the Certificate Insurer prior to the
occurrence and continuation of a Certificate
Insurer Default and with the consent of CPS, CPS
Receivables Corp. and the Collateral Agent (but
without the consent of the Certificateholders),
Class A Certificateholders or Class B
Certificateholders should not rely on amounts in
the Spread Account for payments of principal of,
or interest on, either the Class A Certificates
or the Class B Certificates; provided, however,
that the Certificate Insurer will agree that it
will not reduce the Requisite Amount or modify or
terminate the Master Spread Account Agreement
such that the Class A Certificates, without the
benefit of the Policy, would be rated less than
"BBB" by S&P or "Baa2" by Moody's. See "The
Certificates--Distributions on Certificates--The
Spread Account".
Subordination.............. Distributions of interest on the Class B
Certificates will be subordinated in priority of
payment to interest due on the Class A
Certificates. Distributions of principal on the
Class B Certificates will be subordinated in
priority of payment to interest and principal due
on the Class A Certificates. Accordingly, the
Class A Certificates will receive the benefit of
amounts otherwise due on the Class B Certificates
as
S-9
<PAGE>
credit enhancement. Funds representing the
interest of the Class B Certificateholders in the
Trust Assets will be applied first to the payment
of any amounts due to the Class A
Certificateholders on account of the Class A
Interest Distributable Amount and any Class A
Interest Carryover Shortfall before any portion
thereof is paid to the Class B Certificateholders
and funds otherwise due to pay principal of the
Class B Certificates will be applied first to the
payment of the Class A Principal Distributable
Amount and any Class A Principal Carryover
Shortfall before any portion thereof is paid to
the Class B Certificateholders.
Repurchases and Purchases
of Certain Receivables..... The Originator has made certain representations
and warranties relating to the Receivables to the
Depositor in the Purchase Agreement, and the
Depositor has assigned such representations and
warranties to the Trustee for the benefit of the
Trust and the Certificate Insurer in the Pooling
and Servicing Agreement. The Trustee, as
acknowledged assignee of the repurchase
obligations of the Originator under the Purchase
Agreement, will be entitled to require the
Originator to repurchase any Receivable if such
Receivable is materially adversely affected by a
breach of any representation or warranty made by
the Originator with respect to the Receivable and
such breach has not been cured following
discovery by the Depositor or the Originator or
notice to the Depositor and the Originator.
The Servicer will be obligated to repurchase any
Receivable if, among other things, it extends the
date for final payment by the Obligor of such
Receivable beyond the last day of the penultimate
Collection Period preceding the Final Scheduled
Distribution Date or fails to maintain a
perfected security interest in the Financed
Vehicle. See "The Certificates--Servicing
Procedures".
The Policy................. On the Closing Date, the Certificate Insurer will
issue the Policy to the Trustee for the benefit
of the Class A Certificateholders. Pursuant to
the Policy, the Certificate Insurer will
unconditionally and irrevocably guarantee to the
Class A Certificateholders payment of the Class A
Interest Distributable Amount and the Class A
Principal Distributable Amount (collectively, the
"Class A Guaranteed Distribution Amount") on each
Distribution Date. The Class B Certificates do
not have the benefit of the Policy.
Servicing.................. The Servicer will be responsible for servicing,
managing and making collections on the
Receivables. On or prior to the next billing
period after the Cutoff Date, the Servicer will
notify each Obligor to make payments with respect
to the Receivables after the Cutoff Date directly
to a post office box in the name of the Trustee
for the benefit of the Certificateholders and the
Certificate Insurer (the "Post Office Box"). On
each Business Day, Cash Flex, L.P., as the lock-
box processor (the "Lock-Box Processor"), will
transfer any such payments received in the Post
Office Box to a segregated lock-box account at
Bank of America (the "Lock-Box Bank"), in the
name of the Trustee for the benefit of the
Certificateholders and the Certificate Insurer
(the "Lock-Box Account"). Within two Business
Days of receipt of funds into the
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Lock-Box Account, the Servicer is required to
direct the Lock-Box Bank to effect a transfer of
funds from the Lock-Box Account to one or more
accounts established with the Trustee. The
Servicer will not be obligated to make advances
with respect to principal or interest due on
delinquent or defaulted Receivables. See "The
Certificates--Accounts", and "--Payments on the
Receivables".
Standby Servicer........... If an Event of Default occurs and remains
unremedied, (1) provided no Certificate Insurer
Default has occurred and is continuing, then the
Certificate Insurer in its sole and absolute
discretion, or (2) if a Certificate Insurer
Default shall have occurred and be continuing,
then the Trustee or the holders of Class A
Certificates evidencing not less than 25% of the
Class A Certificate Balance, may terminate the
rights and obligations of the Servicer under the
Pooling and Servicing Agreement. If such event
occurs when CPS is the Servicer, or, if CPS
resigns as Servicer or is terminated as Servicer
by the Certificate Insurer, Norwest Bank
Minnesota, National Association (in such
capacity, the "Standby Servicer") has agreed to
serve as successor Servicer under the Pooling and
Servicing Agreement pursuant to a Servicing
Assumption Agreement dated as of June 17, 1996
among CPS, the Standby Servicer and the Trustee
(the "Servicing Assumption Agreement"). The
Standby Servicer will receive a portion of the
Servicing Fee (the "Standby Fee") for agreeing to
stand by as successor Servicer and for performing
other functions. If the Standby Servicer or any
other entity serving at the time as Standby
Servicer becomes the successor Servicer, it will
receive compensation at a Servicing Fee Rate not
to exceed 3.00% per annum. See "Standby
Servicer".
Servicing Fee.............. The Servicer will be entitled to receive a
Servicing Fee on each Distribution Date equal to
the product of one-twelfth and 2.12% (the
"Servicing Fee Rate") of the Pool Balance as of
the close of business on the last day of the
second preceding Collection Period; provided,
however, that with respect to the first
Distribution Date the Servicer will be entitled
to receive a Servicing Fee equal to the product
of one-twelfth and 2.12% of the Original Pool
Balance. As additional servicing compensation,
the Servicer will also be entitled to certain
late fees, prepayment charges and other
administrative fees or similar charges. For so
long as CPS is Servicer, a portion of the
Servicing Fee, equal to the Standby Fee, will be
payable to the Standby Servicer.
Optional Purchase.......... The Servicer may at its option purchase all the
Receivables as of the last day of any month on or
after which the aggregate principal balance of
the Receivables is equal to 10% or less of the
Original Pool Balance, at a purchase price equal
to the aggregate principal balance of the
Receivables, plus accrued interest at the
respective APRs; provided that the Servicer's
right to exercise such option will be subject to
the prior approval of the Certificate Insurer,
but only if, after giving effect thereto, a claim
on the Policy would occur or any amount owing to
the Certificate Insurer or the holders of the
Class A Certificates would remain unpaid.
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Trust Accounts.............
The property of the Trust will include all
amounts on deposit from time to time in the
Collection Account. See "Description of the
Transfer and Servicing Agreements--Trust
Accounts" in the Prospectus.
The Depositor will maintain the Spread Account
with the Trustee as a segregated trust account;
however, the Spread Account will not be property
of the Trust. See "The Certificates--Accounts" in
this Prospectus Supplement.
Tax Status................. In the opinion of Brown & Wood, the Trust will be
treated as a grantor trust for federal income tax
purposes and will not be subject to federal
income tax. Owners of beneficial interests in the
Certificates will report their pro rata share of
all income earned on the Receivables (other than
amounts, if any, treated as "stripped coupons")
and, subject to certain limitations in the case
of such owners who are individuals, trusts or
estates, may deduct their pro rata share of
reasonable servicing and other fees.
See "Material Federal Income Tax Consequences" in
the Prospectus for additional information
concerning the application of federal income tax
laws to the Trust and the Certificates. Persons
considering a purchase of Class A Certificates
should also consider and discuss with their tax
advisors the information set forth in the
Prospectus under "Material Federal Income Tax
Consequences--Trusts Treated as Grantor Trusts".
ERISA Considerations....... The Class A Certificates will be eligible for
purchase by employee benefit plans subject to the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
Any benefit plan fiduciary considering a purchase
of Certificates should, among other things,
consult with experienced legal counsel in
determining whether all required conditions for
such purchase have been satisfied. See "ERISA
Considerations" herein and in the Prospectus.
Ratings of the It is a condition to the issuance of the
Certificates............... Certificates that the Class A Certificates be
rated "AAA" by Standard & Poor's Ratings Services
("S&P") and "Aaa" by Moody's Investors Service,
Inc. ("Moody's" and, together with S&P, the
"Rating Agencies"). The ratings of the Class A
Certificates will be based primarily on the
issuance of the Policy by the Certificate
Insurer, the credit quality of the Receivables
and the subordination of the Class B
Certificates.
A rating is not a recommendation to purchase,
hold or sell the Class A Certificates, inasmuch
as such rating does not comment as to market
price or suitability for a particular investor.
The ratings address the likelihood that principal
of and interest on the Class A Certificates will
be paid pursuant to their terms. There can be no
assurance that a rating will not be lowered or
withdrawn by a rating agency if circumstances so
warrant. See "Risk Factors--Limited Nature of
Ratings of the Certificates" herein.
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RISK FACTORS
In addition to the other information contained in this Prospectus Supplement
and the Prospectus, prospective investors should carefully consider the
following risk factors before investing in the Class A Certificates.
Limited Liquidity. There is currently no secondary market for the Class A
Certificates. The Underwriter currently intends to make a market in the Class
A Certificates, but is under no obligation to do so. There can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide Class A Certificateholders with liquidity of investment
or that it will continue for the life of the Class A Certificates.
Sub-Prime Nature of Obligors; Servicing. The Originator purchases loans
originated for assignment to the Originator through automobile dealers. The
Originator's customers are generally "sub-prime borrowers" who have marginal
credit and fall into one of two categories: customers with moderate income,
limited assets and other income characteristics which cause difficulty in
borrowing from banks, captive finance companies of automakers or other
traditional sources of auto loan financing; and customers with a derogatory
credit record including a history of irregular employment, previous bankruptcy
filings, repossessions of property, charged-off loans and garnishment of
wages. The average interest rate charged by CPS to such "sub-prime" borrowers
is generally higher than that charged by commercial banks, financing arms of
automobile manufacturers and other traditional sources of consumer credit,
which typically impose more stringent credit requirements. The payment
experience on receivables of obligors with this credit profile is likely to be
different from that on receivables of traditional auto financing sources and
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the
Obligors and the APRs of the Receivables, the historical credit loss and
delinquency rates on the Receivables may be higher than those experienced by
banks and the captive finance companies of the automobile manufacturers. In
the event of a default under a Receivable, the only source of repayment may be
liquidation proceeds from the related Financed Vehicle. The Financed Vehicles
securing the Receivables will consist primarily of used vehicles which may not
have a liquidation value sufficient to pay in full the amount financed by the
related Receivable. See "The Originator--Description of Business".
The servicing of receivables of customers with such credit profiles requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflect in part its trained staff and collection
procedures. If an Event of Default occurs and CPS is removed as Servicer, or,
if CPS resigns or is terminated by the Certificate Insurer as Servicer, the
Standby Servicer has agreed to assume the obligations of successor Servicer
under the Pooling and Servicing Agreement. See "The Certificates--Rights Upon
Event of Default". There can be no assurance, however, that collections with
respect to the Receivables will not be adversely affected by any change in
Servicer. See "Standby Servicer" herein and "Description of the Transfer and
Servicing Agreements--Rights Upon Servicer Default" in the Prospectus.
The Pooling and Servicing Agreement provides that the rights and obligations
of the Servicer terminate after 90 days unless renewed by the Certificate
Insurer for successive 90-day periods. The Certificate Insurer will agree to
grant continuous renewals so long as (i) no Event of Default under the Pooling
and Servicing Agreement has occurred and (ii) no event of default under the
insurance and indemnity agreement among CPS, CPS Receivables Corp., the
Depositor and the Certificate Insurer (the "Insurance Agreement") has
occurred.
Certain Legal Aspects--Security Interests in Financed Vehicles. In
connection with the sale of the Receivables, security interests in the
Financed Vehicles securing the Receivables will be assigned by the Originator
to the Depositor and from the Depositor to the Trustee. By virtue of the
assignment of the Purchase Agreement to the Trust, the Originator will be
obligated to repurchase any Receivable sold to the Trust as to which there did
not exist on the Closing Date a perfected security interest in the name of the
Originator in the Financed Vehicle. If there are any vehicles as to which the
Originator failed to obtain and assign to the Depositor a perfected security
interest, the security interest of the Originator would be subordinate to,
among others,
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subsequent purchasers of the vehicles and holders of perfected security
interests. Such a failure, however, would constitute a breach of the
warranties of the Originator under the Purchase Agreement and would create an
obligation of the Originator to repurchase the related Receivables unless the
breach is cured by the last day of the second (or, if the Originator elects,
the first) month following the discovery by or notice to the Originator of
such breach. The Servicer will be obligated to purchase any Receivable sold to
the Trust as to which it failed to maintain a perfected security interest in
the name of the Originator in the Financed Vehicle securing such Receivable if
such breach materially and adversely affects such Receivable and if such
failure or breach is not cured. Neither the Originator nor the Servicer will
have any obligation to purchase a Receivable as to which a lien for repairs of
a Financed Vehicle or for taxes unpaid by an Obligor under a Receivable result
in losing the priority of the security interest or the security interest in
such Financed Vehicle after the Closing Date. No notice will be given to the
Trustee or Certificateholders in the event such lien arises.
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 Financed Vehicle securing a
receivable without the consent of the Originator. 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, CPS is obligated to
repurchase Receivables as a result of breaches of representations and
warranties, and under certain circumstances, the Servicer is obligated to
purchase Receivables pursuant to the Agreement as a result of breaches of
certain covenants. Subject to certain conditions, the Servicer also has the
right to purchase the Receivables when the aggregate principal balance thereof
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 Certificateholders.
Limited Obligations of the Depositor and the Originator. The Class A
Certificates are obligations of the Trust only, and neither the Depositor nor
the Originator is obligated to make any payments on the Class A Certificates.
In addition, if the Originator fails to repurchase any Receivable with respect
to which it is in breach of a representation or warranty, the Depositor will
have no obligation to purchase such Receivable from the Trust.
Geographic Concentration. As of the Cutoff Date, 28.98%, 12.29%, and 9.08%
of the Receivables by Principal Balance had Obligors residing in the states of
California, Florida and Pennsylvania, respectively. Economic conditions in
these states may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables.
Limited Nature of Ratings of the Certificates. It is a condition to the
issuance of the Certificates that the Class A Certificates be rated "AAA" by
S&P and "Aaa" by Moody's. The ratings of the Class A Certificates will be
based primarily on the issuance of the Policy by the Certificate Insurer, the
credit quality of the Receivables and the subordination of the Class B
Certificates.
A rating is not a recommendation to purchase, hold or sell the Class A
Certificates, inasmuch as a rating does not comment as to market price or
suitability for a particular investor. The ratings of the Class A Certificates
address the likelihood that principal of and interest on the Class A
Certificates will be paid pursuant to their terms. There can be no assurance
that a rating will remain for any given period of time or that a rating will
not be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. In the event that a rating is
subsequently lowered or withdrawn, no person or entity will be required to
provide any additional credit enhancement.
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THE TRUST
The Depositor will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Certificates.
The Servicer will initially service the Receivables pursuant to the Pooling
and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses" in the Prospectus. The Trustee will be
appointed custodian for the Receivables and the certificates of title relating
to the Financed Vehicles, and the Receivables and such certificates of title
will be delivered to and held in physical custody by the Trustee. However, the
Receivables will not be marked or stamped to indicate that they have been sold
to the Trust, and the certificates of title of the Financed Vehicles will not
be endorsed or otherwise amended to identify the Trust as the new secured
party. In the absence of amendments to the certificates of title, the Trustee
may not have perfected security interests in the Financed Vehicles securing
the Receivables originated in some states. See "Risk Factors--Certain Legal
Aspects--Security Interests in Financed Vehicles" herein and "Certain Legal
Aspects of the Receivables" in the Prospectus.
The Trust will not acquire any assets other than the Trust Assets.
The Originator also will take such steps as are necessary for the
Certificate Insurer to issue the Policy to the Trustee for the benefit of the
Class A Certificateholders. Under the Policy, the Certificate Insurer will
unconditionally and irrevocably guarantee to the Class A Certificateholders
full and complete payment of the Class A Guaranteed Distribution Amount on
each Distribution Date. In the event of a Certificate Insurer Default, the
Class A Certificateholders must rely on the amount otherwise due on the Class
B Certificates, the Obligors on the Receivables, and the proceeds from the
repossession and sale of Financed Vehicles which secure defaulted Receivables.
In such event, certain factors, such as the Trustee's not having perfected
security interests in some of the Financed Vehicles, may affect the Trust's
ability to realize on the collateral securing the Receivables and thus may
reduce the proceeds to be distributed to Class A Certificateholders on a
current basis. See "Risk Factors--Certain Legal Aspects--Security Interests in
Financed Vehicles" herein and "Certain Legal Aspects of the Receivables" in
the Prospectus.
THE TRUST ASSETS
Each Certificate will represent a fractional undivided interest in the
Trust, other than interest received by the Trust in excess of the Class A
Pass-Through Rate or the Class B Pass-Through Rate, as applicable. The Trust
Assets include retail installment sale contracts between dealers (the
"Dealers") in new and used automobiles, light trucks, vans and minivans and
retail purchasers (the "Obligors") and, with respect to Rule of 78's
Receivables, certain monies due thereunder after the Cutoff Date, and, with
respect to Simple Interest Receivables, certain monies received thereunder
after the Cutoff Date. The Receivables were originated by the Dealers for
assignment to the Originator. Pursuant to agreements between the Dealers and
the Originator ("Dealer Agreements"), the Receivables were purchased by the
Originator and, prior to the Closing Date, evidenced financing made available
by the Originator to the Obligors. The Trust Assets also include (i) such
amounts as from time to time may be held in one or more trust accounts
established and maintained by the Trustee pursuant to the Agreement, as
described below; see "The Certificates--Accounts"; (ii) the rights of the
Depositor under the Purchase Agreement; (iii) security interests in the
Financed Vehicles; (iv) the rights of the Depositor to receive any proceeds
with respect to the Receivables from claims on physical damage, credit life
and credit accident and health insurance policies covering the Financed
Vehicles or the Obligors, as the case may be; (v) the rights of the Depositor
to refunds for the costs of extended service contracts and to refunds of
unearned premiums with respect to credit life and credit accident and health
insurance policies covering the Financed Vehicles or Obligors, as the case may
be; and (vi) any and all proceeds of the foregoing. The Trust Assets also will
include the Policy for the benefit of the Class A Certificateholders. The
Payahead Account will be maintained with the Trustee for the benefit of the
Obligors, but will not be part of the Trust.
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CPS'S AUTOMOBILE CONTRACT PORTFOLIO
GENERAL
CPS was incorporated in the State of California on March 8, 1991. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts")
originated by Dealers located primarily in California, Florida, Pennsylvania,
Texas, Illinois and Nevada. CPS specializes in Contracts with sub-prime
borrowers who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile
manufacturers' captive finance companies. Sub-prime borrowers generally have
limited credit history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial Services,
Inc., a consumer loan servicing company, whose assets consisted primarily of
servicing contracts with respect to loan portfolios owned by third parties.
G&A Financial Services, Inc. has subsequently been dissolved. On September 1,
1991, CPS was engaged to act as servicer for loan portfolios aggregating $16.5
million by two companies who had purchased such portfolios from the Resolution
Trust Corporation. As of December 31, 1994, CPS had terminated all such third-
party servicing arrangements. On October 1, 1991, CPS began its program of
purchasing Contracts from Dealers and selling them to institutional investors.
Through March 31, 1996, CPS had purchased $450.2 million of Contracts from
Dealers and sold $391.6 million of Contracts to institutional investors. CPS
continues to service all of the Contracts it has purchased, including those it
has re-sold.
CPS has relationships and is party to Dealer Agreements with over 1,200
dealerships located in 32 states of the United States. CPS purchases Contracts
from Dealers at a discount ranging from 0% to 10% of the total amount financed
under the Contracts. In addition, CPS generally charges Dealers an acquisition
fee to defray the direct administrative costs associated with the processing
of contracts that are ultimately purchased by CPS. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it
obligate CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them. Prior
to the issuances of the Certificates, Contracts have been sold to
institutional investors either as bulk sales or as private placements of
securities collateralized by the Contracts. Purchasers of the Contracts
receive a pass- through rate of interest set at the time of the sale, and CPS
receives a base servicing fee for its duties relating to the accounting for
and collection of the Contracts. In addition, CPS is entitled to certain
excess servicing fees that represent collections on the Contracts in excess of
those required to pay principal and interest due to the investor and the base
servicing fee to CPS. Generally, CPS sells the Contracts to such institutional
investors at face value and without recourse except that the representations
and warranties made to CPS by the Dealers are similarly made to the investors
by CPS. CPS has some credit risk with respect to the excess servicing fees it
receives in connection with the sale of contracts to investors and its
continued servicing function since the receipt by CPS of such excess servicing
fees is dependent upon the credit performance of the Contracts.
The principal executive offices of CPS are located at 2 Ada, Suite 100,
Irvine, California 92718. CPS's telephone number is (714) 753-6800.
UNDERWRITING
CPS markets its services to Dealers under three programs: the CPS standard
program (the "Standard Program"), the CPS Alpha Program (the "Alpha Program")
and the CPS Delta Program (the "Delta Program"). CPS applies underwriting
standards in purchasing loans on new and used vehicles from Dealers based upon
the particular program under which the loan was submitted for purchase. The
Alpha Program guidelines are designed to accommodate applicants who meet all
the requirements of the Standard Program and exceed such requirements in
respect of job stability, residence stability, income level or the nature of
the credit history. The Delta Program guidelines are designed to accommodate
applicants who may not meet all of the requirements of the Standard Program
but who are deemed by CPS to be generally as creditworthy as Standard Program
applicants. CPS uses the degree of the applicant's creditworthiness and the
collateral value of the financed vehicle as the basic criteria
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in determining whether to purchase an installment sales contract from a
Dealer. Each credit application provides current information regarding the
applicant's employment and residence history, bank account information, debts,
credit references, and other factors that bear on the applicant's
creditworthiness. Upon receiving from the Dealer the completed application of
a prospective purchaser and a one-page Dealer summary of the proposed
financing, generally by facsimile copy, CPS obtains a credit report compiling
credit information on the applicant from three credit bureaus. The credit
report summarizes the applicant's credit history and paying habits, including
such information as open accounts, delinquent payments, bankruptcy,
repossessions, lawsuits and judgments. At this point a CPS loan officer will
review the credit application, Dealer summary and credit report and will
either conditionally approve or reject the application. Such conditional
approval or rejection by the loan officer usually occurs within one business
day of receipt of the credit application. The loan officer determines the
condition to his or her approval of a credit application based on many factors
such as the applicant's residential situation, downpayment, and collateral
value with regard to the loan, employment history, monthly income level,
household debt ratio and the applicant's credit history. Based on the
stipulations of the loan officer, the Dealer and the applicant compile a more
complete application package which is forwarded to CPS and reviewed by a
processor for deficiencies. As part of this review, direct calls are made to
the applicant and employment income and residence verification is done. Upon
the completion of his or her review, the processor forwards the application
package to an underwriter for further review. The underwriter will confirm the
satisfaction of any remaining deficiencies in the application package.
Finally, before the loan is funded, the application package is checked for
deficiencies again by a loan review officer. CPS conditionally approves
approximately 50% of the credit applications is receives and ultimately
purchases approximately 20% of the received applications.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, 110% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and
its mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum downpayment required on the purchase of a vehicle is generally
10% to 15% of the purchase price. The downpayment may be made in cash, and/or
with a trade-in car and, if available, a proven manufacturer's rebate. The
cash and trade-in value must equal at least 50% of the minimum downpayment
required, with the proven manufacturer's rebate constituting the remainder of
the downpayment. CPS believes that the relatively high downpayment requirement
will result in higher collateral values as a percentage of the amount financed
and the selection of buyers with stronger commitment to the vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has arranged
for casualty insurance by reviewing documentary evidence of the policy or by
contacting the insurance company or agent. The policy must indicate that CPS
is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS's computerized system for ongoing
monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is
updated in the computerized records. In the event that a policy reaches its
expiration date without a renewal, or if CPS receives a notice that the policy
has been cancelled prior to its expiration date, a letter is generated to
advise the borrower of its obligation to continue to provide insurance. If no
action is taken by the borrower to insure the vehicle, two successive and more
forceful letters are generated, after which the collection department will
contact the borrower telephonically to further counsel the borrower, including
possibly advising them that CPS has the right to repossess the vehicle if the
borrower refused to obtain insurance. Although it has the right, CPS rarely
repossesses vehicles in such circumstances. In addition, CPS does not force
place a policy and add the premium to the borrower's outstanding obligation,
although it also has the right to do so. Rather in such circumstances the
account is flagged as not having insurance and continuing efforts are made to
get the obligor to comply with the insurance requirement in the Contract. CPS
believes that handling non-compliance with insurance requirements in this
manner ultimately results in
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better portfolio performance because it believes that the increased monthly
payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation
would increase the likelihood of delinquency or default by such borrower on
future monthly payments.
SERVICING AND COLLECTIONS
CPS's servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of loans owned or
originated by third parties, consist of collecting, accounting for and posting
of all payments received with respect to such Contracts or loans, responding
to borrower inquiries, taking steps to maintain the security interest granted
in the Financed Vehicle or other collateral, investigating delinquencies,
communicating with the borrower, repossessing and liquidating collateral when
necessary, and generally monitoring each Contract or loan and related
collateral. CPS maintains sophisticated data processing and management
information systems to support its Contract and loan servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by a loan portfolio owner for CPS's services, CPS mails to
borrowers monthly billing statements directing them to mail payments on the
Contracts or loans to a lock-box account which is unique for each investor or
portfolio owner. CPS engages an independent lock-box processing agent to
retrieve and process payments received in the lock-box account. This results
in a daily deposit to the investor or portfolio owner's account of the day's
lock-box account receipts and a simultaneous electronic data transfer to CPS
of the borrower payment data for posting to CPS's computerized records.
Pursuant to the various servicing agreements with each investor or portfolio
owner, CPS is required to deliver monthly reports reflecting all transaction
activity with respect to the Contracts or loans.
If an account becomes six days past due, CPS's collection staff typically
attempts to contact the borrower with the aid of a high-penetration auto-
dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment
within seven days. If payment is not received by the end of such seven-day
period, the customer is called again through auto-dialer system and the
collection officer attempts to elicit a second promise to make the overdue
payment within seven days. If a second promise to make the overdue payment is
not satisfied, the account automatically is referred to a supervisor for
further action. In most cases, if payment is not received by the tenth day
after the due date, a late fee of approximately 5% of the delinquent payment
is imposed. If the customer cannot be reached by a collection officer, a
letter is automatically generated and the customer's references are contacted.
Field agents (who are independent contractors) often make calls on customers
who are unreachable or whose payment is thirty days or more delinquent. A
decision to repossess the vehicle is generally made after 30 to 45 days of
delinquency or three unfulfilled promises to make the overdue payment. Other
than granting such limited extensions are described under the heading "The
Certificates--Servicing Procedures", CPS does not modify or rewrite delinquent
Contracts.
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DELINQUENCY AND LOSS EXPERIENCE
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck,
van and minivan receivables, including those previously sold, which CPS
continues to service. Loans were first originated under the Delta Program in
August 1994 and under the Alpha Program in April 1995. CPS has found that the
delinquency and net credit loss and repossession experience with respect to
the Delta Program is somewhat greater than that under its Standard Program.
CPS has found that the delinquency and net credit loss and repossession
experience with respect to the Alpha Program is somewhat lower than that
experienced under the Standard Program. There can be no assurance, however,
that the delinquency and net credit loss and repossession experience on the
Receivables will continue to be comparable to CPS's experience shown in the
following tables.
CONSUMER PORTFOLIO SERVICES, INC.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1992 1993 1994 1995 1996
------------------- ------------------- -------------------- -------------------- --------------------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
------ ----------- ------ ----------- ------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio(1)......... 1,480 $22,494,000 4,224 $60,725,000 14,235 $203,879,000 27,113 $355,965,000 31,153 $405,276,000
Period of Delinquency
(2)
31-60.............. 11 165,000 54 806,000 243 3,539,000 909 11,520,000 987 12,872,000
61-90.............. 3 39,000 11 182,000 68 1,091,000 203 2,654,000 317 3,982,000
91+................ 5 70,000 10 167,000 56 876,000 272 3,899,000 304 4,305,000
----- ----------- ----- ----------- ------ ------------ ------ ------------ ------ ------------
Total Delinquencies.. 19 274,000 75 1,155,000 367 5,506,000 1,384 18,073,000 1,608 21,159,000
Amount in
Repossession(3)..... 15 206,000 44 595,000 271 3,759,000 834 10,151,000 776 8,705,000
----- ----------- ----- ----------- ------ ------------ ------ ------------ ------ ------------
Total Delinquencies
and Amount in
Repossession(4)..... 34 $ 480,000 119 $ 1,750,000 638 $ 9,265,000 2,218 $ 28,224,000 2,384 $ 29,864,000
===== =========== ===== =========== ====== ============ ====== ============ ====== ============
Delinquencies as a
Percent of the
Portfolio........... 1.28% 1.22% 1.78% 1.90% 2.58% 2.70% 5.10% 5.08% 5.16% 5.22%
Repo Inventory as a
Percent of the
Portfolio........... 1.01% 0.92% 1.04% 0.98% 1.90% 1.84% 3.08% 2.85% 2.49% 2.15%
Total Delinquencies
and Amount in
Repossession as a
Percent of
Portfolio........... 2.30% 2.13% 2.82% 2.88% 4.48% 4.54% 8.18% 7.93% 7.65% 7.37%
</TABLE>
- --------
(1) All amounts and percentages are based on the full amount remaining to be
repaid on each Contract, including for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at least
90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually past
due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
S-19
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
NET CREDIT LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED
1992 1993 1994 1995 MARCH 31, 1996
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Average Amount
Outstanding During the
Period(1).............. $8,446,675 $29,440,272 $98,916,991 $221,926,489 $307,718,319
Average Number of Loans
Outstanding During the
Period................. 805 2,762 9,171 20,809 28,594
Number of Repossessions. 39 177 669 2,018 562
Gross Charge-Offs(2).... $ 164,782 $ 954,704 $ 3,166,408 $ 11,658,461 $ 4,597,320
Recoveries(3)........... $ 9,563 $ 60,963 $ 347,519 $ 1,028,378 $ 554,591
Net Losses.............. $ 155,219 $ 893,741 $ 2,818,889 $ 10,630,083 $ 4,042,729
Annualized Repossessions
as a Percentage of
Average Number of Loans
Outstanding............ 4.84% 6.41% 7.29% 9.70% 7.86%
Annualized Net Losses as
a Percentage of Average
Amount Outstanding..... 1.84% 3.04% 2.85% 4.79% 5.26%
</TABLE>
- --------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Contract. The information in the table represents all
Contracts originated by CPS including sold Contracts which CPS continues
to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and may
pertain to charge offs from prior periods.
THE RECEIVABLES POOL
The Receivables existing as of the Cutoff Date were selected from CPS's
Portfolio on the basis of several criteria, including the following: each
Receivable was originated, based on the billing address of the Obligors, in
the United States, has an original term of not more than 60 months, provides
for level monthly payments which fully amortize the amount financed over the
original term (except for the last payment, which may be different from the
level payment for various reasons, including late or early payments during the
term of the Contract), has a remaining maturity of 60 months or less as of the
Cutoff Date, has an outstanding principal balance of not more than $25,000, is
not more than 30 days past due as of the Cutoff Date and has an APR of not
less than 15.460%. On the Cutoff Date, as of the date of each Obligor's
application for the loan from which the related Receivable arises, each
Obligor (i) did not have any material past due credit obligations or any
repossessions or garnishments of property within one year prior to the date of
application, unless such amounts have been repaid or discharged through
bankruptcy, (ii) was not the subject of any bankruptcy or insolvency
proceeding that is not discharged, and (iii) had not been the subject of more
than one bankruptcy proceeding. As of the Cutoff Date, the latest scheduled
maturity of any Receivable is not later than July 6, 2001.
As of the Cutoff Date, approximately 85.08% of the aggregate principal
balance of the Receivables, constituting 88.32% of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. Approximately 12.49% of the aggregate
principal balance of the Receivables were originated under the Delta Program
and approximately 38.75% of the aggregate principal balance of the Receivables
were originated under the Alpha Program; the remainder of the Receivables
represent financing under the Standard Program. The composition, geographic
distribution, distribution by APR, and distribution by remaining term of the
Receivables as of the Cutoff Date are set forth in the following tables.
S-20
<PAGE>
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
WEIGHTED AGGREGATE NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
AVERAGE APR PRINCIPAL BALANCE RECEIVABLES REMAINING TERM ORIGINAL TERM PRINCIPAL BALANCE
- ----------- ----------------- ----------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
20.496% $88,900,750.37 7,338 52.83 months 54.67 months $12,115.12
</TABLE>
DISTRIBUTION OF THE RECEIVABLES BY APR AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF NUMBER OF AGGREGATE AGGREGATE PRINCIPAL
APR RANGE RECEIVABLES RECEIVABLES(1) PRINCIPAL BALANCE BALANCE(1)
--------- ----------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
15.460% -- 16.000%...... 1 0.01% $ 14,786.54 0.02%
16.001% -- 17.000%...... 43 0.59 612,549.89 0.69
17.001% -- 18.000%...... 1,026 13.98 14,241,599.20 16.02
18.001% -- 19.000%...... 434 5.91 5,727,032.49 6.44
19.001% -- 20.000%...... 674 9.19 9,578,306.49 10.77
20.001% -- 21.000%...... 3,543 48.28 41,798,778.58 47.02
21.001% -- 22.000%...... 288 3.92 2,971,475.06 3.34
22.001% -- 23.000%...... 867 11.82 9,186,378.15 10.33
23.001% -- 24.000%...... 165 2.25 1,728,489.26 1.94
24.001% -- 25.000%...... 200 2.73 2,158,938.52 2.43
25.001% -- 26.000%...... 85 1.16 804,638.93 0.91
27.001% -- 28.000%...... 7 0.10 50,413.35 0.06
28.001% -- 29.000%...... 4 0.05 18,504.83 0.02
Greater than 29.000%.... 1 0.01 8,859.08 0.01
----- ------ -------------- ------
Total................. 7,338 100.00% $88,900,750.37 100.00%
===== ====== ============== ======
- --------
(1) Percentages may not add to 100.00% because of rounding.
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE
OF THE RECEIVABLES AS OF THE CUTOFF DATE
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF AGGREGATE
RNGE OF REMAININGA NUMBER OF NUMBER OF AGGREGATE PRINCIPAL
PINCIPAL BALANCESR RECEIVABLES RECEIVABLES(1) PRINCIPAL BALANCE BALANCE(1)
- ------------------ ----------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
$ 2,925 -- $ 5,000...... 96 1.31% $ 413,383.63 0.46%
5,001 -- 7,500...... 566 7.71 3,681,986.23 4.14
7,501 -- 10,000...... 1,499 20.43 13,343,442.02 15.01
10,001 -- 12,500...... 2,061 28.09 23,214,113.99 26.11
12,501 -- 15,000...... 1,660 22.62 22,673,000.97 25.50
15,001 -- 17,500...... 880 11.99 14,161,642.31 15.93
17,501 -- 20,000...... 362 4.93 6,725,608.09 7.57
20,001 -- 22,500...... 148 2.02 3,122,086.09 3.51
22,501 -- 25,000...... 66 0.90 1,565,487.04 1.76
----- ------ -------------- ------
Total................. 7,338 100.0% $88,900,750.37 100.00%
===== ====== ============== ======
</TABLE>
- --------
(1) Percentages may not add to 100.00% because of rounding.
S-21
<PAGE>
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF AGGREGATE
RANGE OF NUMBER OF NUMBER OF AGGREGATE PRINCIPAL
EMAINING TERMSR RECEIVABLES RECEIVABLES(1) PRINCIPAL BALANCE BALANCE(1)
- --------------- ----------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
16--20................ 1 0.01% $ 3,647.62 0.00%
21--30................ 73 0.99 436,833.73 0.49
31--40................ 956 13.03 7,806,147.79 8.78
41--50................ 1,848 25.18 19,329,622.61 21.74
51--60................ 4,460 60.78 61,324,498.62 68.98
----- ----- -------------- ------
Total............... 7,338 100.0% $88,900,750.37 100.00%
===== ===== ============== ======
</TABLE>
- --------
(1) Percentages may not add to 100.00% because of rounding.
S-22
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF AGGREGATE
NUMBER OF NUMBER OF AGGREGATE PRINCIPAL
STATE(1) RECEIVABLES RECEIVABLES(2) PRINCIPAL BALANCE BALANCE(2)
-------- ----------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
Alabama................. 297 4.05% $ 3,489,129.91 3.92%
American Embassy........ 1 0.01 16,296.23 0.02
Arizona................. 23 0.31 241,242.09 0.27
Arkansas................ 27 0.37 355,460.68 0.40
California.............. 1,986 27.06 25,766,482.31 28.98
Colorado................ 1 0.01 11,094.56 0.01
Connecticut............. 1 0.01 17,200.51 0.02
Delaware................ 50 0.68 529,785.70 0.60
District of Columbia.... 16 0.22 222,624.83 0.25
Florida................. 837 11.41 10,922,718.16 12.29
Georgia................. 17 0.23 214,419.98 0.24
Hawaii.................. 109 1.49 1,173,749.70 1.32
Illinois................ 291 3.97 3,155,590.59 3.55
Indiana................. 26 0.35 349,667.21 0.39
Iowa.................... 75 1.02 782,084.66 0.88
Kansas.................. 22 0.30 214,976.49 0.24
Kentucky................ 41 0.56 389,864.21 0.44
Louisiana............... 267 3.64 3,360,092.42 3.78
Maine................... 1 0.01 14,300.80 0.02
Maryland................ 222 3.03 2,676,102.21 3.01
Michigan................ 251 3.42 3,042,054.50 3.42
Minnesota............... 23 0.31 235,473.01 0.26
Mississippi............. 51 0.70 622,301.67 0.70
Missouri................ 11 0.15 88,123.97 0.10
Montana................. 3 0.04 21,292.32 0.02
Nebraska................ 13 0.18 119,412.37 0.13
Nevada.................. 296 4.03 3,523,089.61 3.96
New Jersey.............. 176 2.40 1,858,226.90 2.09
New Mexico.............. 4 0.05 51,596.28 0.06
New York................ 291 3.97 3,287,455.43 3.70
North Carolina.......... 33 0.45 340,142.61 0.38
Ohio.................... 255 3.48 2,729,587.45 3.07
Oklahoma................ 40 0.55 392,239.02 0.44
Oregon.................. 13 0.18 146,482.67 0.16
Pennsylvania............ 697 9.50 8,075,280.56 9.08
South Carolina.......... 3 0.04 37,011.72 0.04
South Dakota............ 7 0.10 66,929.77 0.08
Tennessee............... 221 3.01 2,673,626.46 3.01
Texas................... 503 6.85 6,193,191.73 6.97
Utah.................... 8 0.11 88,574.19 0.10
Virginia................ 13 0.18 143,207.54 0.16
Washington.............. 84 1.14 967,791.42 1.09
West Virginia........... 22 0.30 207,108.00 0.23
Wisconsin............... 6 0.08 50,200.40 0.06
Wyoming................. 4 0.05 37,467.52 0.04
----- ----- -------------- ------
Total................... 7,338 100.0% $88,900,750.37 100.00%
===== ===== ============== ======
</TABLE>
- --------
(1) Based on billing addresses of the Obligors.
(2) Percentages may not add to 100.00% because of rounding.
S-23
<PAGE>
As of the Cutoff Date, approximately 43.56% of the aggregate principal
balance of the Receivables in the Trust provide for allocation of payments
according to the "sum of periodic balances" or "sum of monthly payments"
method, similar to the "Rule of 78's" ("Rule of 78's Receivables"). A Rule of
78's Receivable provides for the payment by the Obligor of a specified total
amount of payments, payable in equal monthly installments on each due date,
which total represents the principal amount financed and add-on interest in an
amount calculated on the basis of the stated APR for the term of the
Receivable. The rate at which such amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal are calculated in accordance with the
"Rule of 78's".
As of the Cutoff Date, approximately 56.44% of the aggregate principal
balance of the Receivables in the Trust provide for allocation of payments
according to the "simple interest" method ("Simple Interest Receivables"). A
Simple Interest Receivable provides for the amortization of the amount
financed under the Receivable over a series of fixed level monthly payments.
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 Receivable, 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 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.
In the event of the prepayment in full (voluntarily or by acceleration) of a
Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-
on interest, calculated in accordance with a method equivalent to the Rule of
78's. If a Simple Interest Receivable 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 78's Receivable generally
will be less than the remaining scheduled payments of interest that would have
been due under a Simple Interest Receivable for which all payments were made
on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Certificateholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
On each Distribution Date, interest on the Receivables will be passed
through to the Certificateholders to the extent of thirty (30) days' interest
at the Class A Pass-Through Rate applied to the Class A Certificate Balance on
the last day of the preceding Collection Period and to the Class B
Certificateholders to the extent of thirty (30) days' interest at the Class B
Pass-Through Rate applied to the Class B Certificate Balance on the last day
of the preceding Collection Period; provided, however, that on the first
Distribution Date, Certificateholders will be entitled to interest at the
Class A Pass-Through Rate or the Class B Pass-Through Rate, as applicable, on
the original Class A Certificate Balance or Class B Certificate Balance, as
applicable, from the Closing Date
S-24
<PAGE>
through and including July 14, 1996. In the event of prepayments on
Receivables, Certificateholders will nonetheless be entitled to receive
interest for the full month on the Certificates.
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as
well as receipts of proceeds from physical damage, credit life and credit
accident and health insurance policies and certain other Receivables
repurchased for administrative reasons.) 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 Financed Vehicle securing a Receivable without the consent of CPS. In
addition, the rate of prepayments on the Receivables may be affected by the
nature of the Obligors and the Financed Vehicles and servicing decisions. See
"Risk Factors--Sub-Prime Nature of Obligors; Servicing". Any reinvestment
risks resulting from a faster or slower incidence of prepayment of Receivables
will be borne entirely by the Certificateholders. See also "The Certificates--
Termination" regarding the Servicer's option to purchase the Receivables when
the aggregate principal balance thereof is less than or equal to 10% of the
Original Pool Balance.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal balance of
the Receivables at the end of the preceding Collection Period, after giving
effect to all payments (other than Payaheads) received from Obligors, all
payments and Purchase Amounts remitted by the Originator or the Servicer, as
the case may be, all for such Collection Period, all losses realized on
Receivables liquidated during such Collection Period and any Cram Down Losses
with respect to such Receivables. The Pool Balance is computed by allocating
payments to principal and to interest, with respect to Rule of 78's
Receivables, using the constant yield or actuarial method, and with respect to
Simple Interest Receivables, using the simple interest method. The "Class A
Pool Factor" is a seven-digit decimal which the Servicer will compute each
month indicating the Class A Certificate Balance as a fraction of the initial
Class A Certificate Balance. The "Class B Pool Factor" is a seven-digit
decimal which the Servicer will compute each month indicating the Class B
Certificate Balance as a fraction of the initial Class B Certificate Balance.
The Class A Pool Factor and the Class B Pool Factor will be 1.0000000 as of
the Closing Date; thereafter, the Class A Pool Factor and the Class B Pool
Factor will decline to reflect reductions in the Class A Certificate Balance
or Class B Certificate Balance, as applicable. An individual
Certificateholder's share of the Class A Certificate Balance or Class B
Certificate Balance, as applicable, is the product of (i) the original
denomination of the Certificateholder's Certificate and (ii) the Class A Pool
Factor or the Class B Pool Factor, as applicable. The Class A Pool Factor and
the Class B Pool Factor will be made available on or about the eighth business
day of each month.
Pursuant to the Pooling and Servicing Agreement, the Certificateholders will
receive monthly reports concerning the payments received on the Receivables,
the Pool Balance, the Class A Pool Factor, the Class B Pool Factor and various
other items of information. Certificateholders of record during any calendar
year will be furnished information for tax reporting purposes not later than
the latest date permitted by law. See "The Certificates--Statements to
Certificateholders".
USE OF PROCEEDS
The net proceeds to be received by the Depositor from the sale of the
Certificates will be applied to the purchase of the Receivables from the
Originator. The Originator will apply the net proceeds received from the
Depositor to purchase new Contracts or to repay debt incurred to purchase the
Contracts.
THE DEPOSITOR
Information regarding the Depositor is set forth under "The Depositor" in
the Prospectus.
S-25
<PAGE>
THE ORIGINATOR AND SERVICER
CPS was incorporated in the State of California on March 8, 1991. On October
22, 1992, CPS completed a public offering of 2,600,000 shares (approximately
31% of the shares then outstanding) of its common stock at an initial price of
$2.50 per share. Prior to that time, 100% of the common stock of CPS was owned
by CPS Holdings, Inc., a holding company the majority of the shares of which
are owned by Charles E. Bradley, Sr. On March 6, 1995, CPS completed a second
public offering of 2,000,000 shares (approximately 18.5% of the shares then
outstanding) of its common stock at $7.38 per share. CPS and its subsidiaries
engage primarily in the business of purchasing, selling and servicing
Contracts originated by Dealers located primarily in California, Florida,
Pennsylvania, Texas, Illinois and Nevada. CPS specializes in Contracts with
sub-prime borrowers who generally would not be expected to qualify for
traditional financing such as that provided by commercial banks or automobile
manufacturers' captive finance companies. Sub-prime borrowers generally have
limited credit history, lower than average income or past credit problems. CPS
has also provided accounting and collection services to third party owners of
automobile loan portfolios that were not originated by CPS. CPS's executive
offices are located at 2 Ada, Irvine, California 92718; telephone (714) 753-
6800.
STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each
Distribution Date for agreeing to stand by as successor Servicer and for
performing certain other functions. Such fee will be payable to the Standby
Servicer from the Servicing Fee payable to CPS. If the Standby Servicer, or
any other entity serving at the time as Standby Servicer, becomes the
successor Servicer, it will receive compensation at a Servicing Fee Rate not
to exceed 3.00% per annum.
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Pooling and
Servicing Agreement. A copy of the Pooling and Servicing Agreement will be
filed with the Commission following the issuance of the Certificates. The
following summary describes certain terms of the Certificates and the Pooling
and Servicing Agreement. 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 Certificates and the Pooling and Servicing Agreement. The
following summary supplements the description of the general terms and
provisions of the Certificates of any given Series and the description of the
related Pooling and Servicing Agreement set forth in the Prospectus, to which
descriptions reference is hereby made.
The Certificates consist of two classes, one entitled 6.65% Asset Backed
Certificates, Class A (the "Class A Certificates"), and one entitled 10.00%
Asset Backed Certificates, Class B (the "Class B Certificates" and, together
with the Class A Certificates, the "Certificates"). The Certificates will
evidence beneficial ownership interests in the Trust. The Class A Certificates
will evidence, in the aggregate, beneficial ownership of an undivided 95%
interest in the Trust Assets, other than interest received by the Trust in
excess of the Class A Pass-Through Rate, and the Class B Certificates will
evidence, in the aggregate, beneficial ownership of an undivided 5% interest
in the Trust Assets, other than interest received by the Trust in excess of
the Class B Pass-Through Rate. Only the Class A Certificates are being offered
hereby.
In general, it is intended that the Class A Certificateholders receive, on
each Distribution Date, a distribution equal to the Class A Distributable
Amount and that the Class B Certificateholders receive, on each Distribution
Date, a distribution equal to the Class B Distributable Amount, as applicable.
See "--Distributions on Certificates".
S-26
<PAGE>
Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to interest due on the Class A Certificates.
Distributions of principal of the Class B Certificates will be subordinated in
priority of payment to interest and principal due on the Class A Certificates.
Accordingly, the Class A Certificates will receive, if necessary, the benefit
of amounts otherwise owing to the Class B Certificateholders as credit
enhancement. Funds representing the interest of the Class B Certificateholders
in the Trust Assets will be applied first to the payment of any amounts due to
the Class A Certificateholders on account of the Class A Interest
Distributable Amount and any Class A Interest Carryover Shortfall before any
portion thereof is paid to the Class B Certificateholders and funds otherwise
due to pay principal of the Class B Certificates will be applied first to the
payment of the Class A Principal Distributable Amount and any Class A
Principal Carryover Shortfall before any portion thereof is paid to the Class
B Certificateholders.
To the extent funds are available therefor, distributions of principal of,
and interest on, the Certificates will be made by the Trustee, in its capacity
as Paying Agent (the "Paying Agent"), directly to holders of Certificates in
accordance with the procedures set forth in the Pooling and Servicing
Agreement. Interest payments and any principal payments on each Distribution
Date will be made to Holders in whose names the Certificates were registered
at the close of business on the Business Day immediately preceding such
Distribution Date (each, a "Record Date"), except that the Record Date for the
first Distribution Date will be the Closing Date.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date, the Originator will sell and assign to the
Depositor, without recourse, except as provided in the Purchase Agreement, its
entire interest in the Receivables, together with its security interests in
the Financed Vehicles. At the time of issuance of the Certificates, the
Depositor will sell and assign to the Trust, without recourse, except as
provided in the Pooling and Servicing Agreement, its entire interest in the
Receivables, together with its security interests in the Financed Vehicles.
Each Receivable will be identified in a schedule appearing as an exhibit to
the Pooling and Servicing Agreement. The Trustee will concurrently with such
sale and assignment, execute, authenticate, and deliver the Certificates to
the Depositor in exchange for the Receivables.
In the Purchase Agreement, the Originator will represent and warrant to the
Depositor, among other things, that (i) the information provided with respect
to the Receivables is correct in all material respects; (ii) at the date of
issuance of the Certificates, physical damage insurance covering each Financed
Vehicle is in effect in accordance with the Originator's normal requirements;
(iii) at the date of issuance of the Certificates, the Receivables are free
and clear of all security interests, liens, charges, and encumbrances and no
offsets, defenses, or counterclaims against Dealers have been asserted or
threatened; (iv) at the date of issuance of the Certificates, each of the
Receivables is or will be secured by a first-priority perfected security
interest in the Financed Vehicle in favor of the Originator; and (v) each
Receivable, at the time it was originated, complied and, at the date of
issuance of the Certificates, complies in all material respects with
applicable federal and state laws, including, without limitation, consumer
credit, truth in lending, equal credit opportunity and disclosure laws. As of
the last day of the second (or, if the Originator elects, the first) month
following the discovery by or notice to the Depositor and the Originator of a
breach of any representation or warranty that materially and adversely affects
a Receivable, unless the breach is cured, the Originator will purchase such
Receivable from the Trust for the Purchase Amount. The repurchase obligation
will constitute the sole remedy available to the Certificateholders, the
Certificate Insurer, the Depositor, or the Trustee for any such uncured
breach.
On or prior to the Closing Date, the Contracts will be delivered to the
Trustee as custodian, and the Trustee thereafter will maintain physical
possession of the Receivables except as may be necessary for the servicing
thereof by the Servicer. The Receivables will not be stamped to show the
ownership thereof by the Trust. However, CPS's accounting records and computer
systems will reflect the sale and assignment of the Receivables to the
Depositor, and Uniform Commercial Code ("UCC") financing statements reflecting
such sales and assignments will be filed. See "The Trust" and "Risk Factors--
Certain Legal Aspects--Security Interests in Financed Vehicles" herein and
"Certain Legal Aspects of the Receivables" in the Prospectus.
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ACCOUNTS
A segregated lock-box account will be established and maintained with Bank
of America in the name of the Trustee for the benefit of the
Certificateholders and the Certificate Insurer, into which all payments made
by Obligors on or with respect to the Receivables must be deposited by the
Lock-Box Processor (the "Lock-Box Account"). See "--Payments on Receivables".
The Trustee will also establish and maintain initially with itself one or more
accounts, in the name of the Trustee on behalf of the Certificateholders and
the Certificate Insurer, into which all amounts previously deposited in the
Lock-Box Account will be transferred within two Business Days of the receipt
of funds therein (the "Collection Account"). Upon receipt, the Servicer will
deposit all amounts received by it in respect of the Receivables in the Lock-
Box Account or the Collection Account. The Trustee will also establish and
maintain initially with itself one or more accounts, in the name of the
Trustee on behalf of the Certificateholders and the Certificate Insurer, from
which all distributions with respect to the Certificates and payments to the
Certificate Insurer will be made (the "Certificate Account"). In addition, the
Trustee will establish and maintain initially with itself one or more
accounts, in the name of the Trustee on behalf of the Obligors, in which early
payments with respect to Rule of 78's Receivables by or on behalf of the
Obligors which do not constitute current scheduled payments, late fees or full
repayments will be deposited until such time as the payment falls due or until
such funds are applied to shortfalls in the scheduled payments with respect to
Rule of 78's Receivables (the "Payahead Account"). Until such time as payments
are transferred from the Payahead Account to the Certificate Account, they
will not constitute collected interest or collected principal, and will not be
available for distribution to the Certificateholders. The Collection Account,
Certificate Account and Payahead Account will be maintained with the Trustee
so long as the Trustee's deposits have a rating acceptable to the Certificate
Insurer and the Rating Agencies. If the deposits of the Trustee or its
corporate parent no longer have such acceptable rating, the Trustee shall
cause such Accounts to be moved to a bank acceptable to the Certificate
Insurer. In addition, the Trustee may transfer the Payahead Account at any
time to any depository bank or trust company which is acceptable to the
Certificate Insurer.
The Collateral Agent will establish the Spread Account as a segregated trust
account at its office or at another depository institution or trust company.
SERVICING PROCEDURES
The Servicer shall follow its currently employed standards, or such more
exacting standards as the Servicer employs in the future, in servicing the
Receivables. The Servicer will make reasonable efforts to collect all payments
due with respect to the Receivables and, in a manner consistent with the
Pooling and Servicing Agreement, will continue such collection procedures as
it follows with respect to automotive retail installment sale contracts it
services for itself and others. Consistent with its normal procedures, the
Servicer may, in its sole discretion, arrange with the Obligor on a Receivable
to extend the payment schedule; provided, however, that the Servicer may not
(i) grant more than three extensions with respect to a Receivable, (ii) grant
more than one extension per calendar year with respect to a Receivable, or
(iii) grant an extension for more than one calendar month with respect to a
Receivable, without the consent of the Certificate Insurer. No such
arrangement will, for purposes of the Pooling and Servicing Agreement, modify
the original due dates or the amount of the scheduled payments, or extend the
final payment date on any Receivable beyond the last day of the penultimate
Collection Period before the Final Scheduled Distribution Date. If the
Servicer grants an extension with respect to a Receivable other than in
accordance with the aforementioned limitations, the Servicer will be required
to purchase the Receivable for the Purchase Amount. Following any such
purchase of a Receivable by the Servicer, such Receivable will be released
from the Trust and conveyed to the Servicer.
PAYMENTS ON RECEIVABLES
The Servicer will notify each Obligor that payments made by such Obligor
after the Cutoff Date with respect to a Receivable must be mailed directly to
the Post Office Box. On each Business Day, the Lock-Box Processor will
transfer any such payments received in the Post Office Box to the Lock-Box
Account. Any payments received by the Servicer from an Obligor or from a
source other than an Obligor must be deposited in
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the Lock-Box Account or the Collection Account upon receipt. The Servicer
will, within two Business Days following the receipt of funds in the Lock-Box
Account, direct the Lock-Box Bank to transfer such funds to the Collection
Account. Prior to the Distribution Date, the Trustee, on the basis of
instructions provided by the Servicer, will transfer funds held in the
Collection Account to the Payahead Account if such payments constitute
Payaheads or to the Certificate Account for distribution to the
Certificateholders.
Collections on a Rule of 78's Receivable made during a Collection Period
will be applied first, to the scheduled payment on such Rule of 78's
Receivable, and second, to any late fees accrued with respect to such Rule of
78's Receivable. If the collections remaining after application to the
scheduled payment and late fees, if any, are insufficient to prepay the Rule
of 78's Receivable in full, such collections (the "Payaheads") will be
transferred to and kept in the Payahead Account, until such later Collection
Period as the collections may be transferred to the Certificate Account and
applied either to the scheduled payment or to prepay such Rule of 78's
Receivable in full.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee on each
Distribution Date, equal to the product of one-twelfth of the Servicing Fee
Rate and the Pool Balance as of the close of business on the last day of the
second preceding Collection Period; provided, however, that with respect to
the first Distribution Date, the Servicing Fee will equal the product of one-
twelfth of the Servicing Fee Rate and the Original Pool Balance (the
"Servicing Fee"). So long as CPS is Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to the Standby Servicer for agreeing
to stand by as successor Servicer and for performing certain other functions.
If the Standby Servicer, or any other entity serving at the time as Standby
Servicer, becomes the successor Servicer, it will receive compensation at a
Servicing Fee Rate not to exceed 3.00% per annum. See "Standby Servicer". The
Servicer will also collect and retain, as additional servicing compensation,
any late fees, prepayment charges, including, in the case of a Rule of 78's
Receivable that is prepaid in full, to the extent not required by law to be
remitted to the related Obligor, the difference between the principal balance
of such Receivable computed on an actuarial basis plus accrued interest to the
date of prepayment and the principal balance of such Receivable computed
according to the Rule of 78's, and other administrative fees or similar
charges allowed by applicable law with respect to the Receivables, and will be
entitled to reimbursement from the Trust for certain liabilities. 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 be paid out of
collections from the Receivables, prior to distributions to
Certificateholders.
The Servicing Fee and additional servicing compensation 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, sending payment coupons to Obligors, reporting
tax information to Obligors, paying costs of disposition of defaults 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 Trustee and the Certificate
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.
DISTRIBUTIONS ON CERTIFICATES
No later than 10:00 a.m., Minneapolis time, on each Determination Date, the
Servicer will inform the Trustee of the amount of aggregate collections on the
Receivables, and the aggregate Purchase Amount of Receivables to be
repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
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On or before each Distribution Date, the Trustee will cause to be
transferred from the Payahead Account to the Certificate Account the amounts
then on deposit in the Payahead Account that constitute scheduled payments due
during the related Collection Period or that may be applied to full
prepayments on the Rule of 78's Receivables.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Interest Distributable Amount, the Class B
Interest Distributable Amount, the Class A Principal Distributable Amount, the
Class B Principal Distributable Amount, the Class A Distributable Amount and
the Class B Distributable Amount.
The "Determination Date" applicable to any Distribution Date will be the
earlier of (i) the seventh business day of the month of such Distribution Date
and (ii) the fifth business day preceding such Distribution Date.
Determination of Total Distribution Amount. The "Total Distribution Amount"
for a Distribution Date (being the funds available for distribution to the
Certificateholders with respect to such Distribution Date in accordance with
the priorities described below) will be the sum of the following amounts with
respect to the preceding Collection Period: (i) all collections on Receivables
(including amounts withdrawn from the Payahead Account but excluding amounts
deposited into the Payahead Account); (ii) all proceeds received during the
Collection Period with respect to Receivables that became Liquidated
Receivables during the Collection Period in accordance with the Servicer's
customary servicing procedures, net of the reasonable expenses incurred by the
Servicer in connection with such liquidation and any amounts required by law
to be remitted to the Obligor on such Liquidated Receivable ("Liquidation
Proceeds"); (iii) proceeds from Recoveries with respect to Liquidated
Receivables; and (iv) the Purchase Amount of each Receivable that was
repurchased by the Originator or purchased by the Servicer as of the last day
of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been liquidated by
the Servicer through the sale of the Financed Vehicle, or (ii) for which the
related Financed Vehicle has been repossessed and 90 days have elapsed since
the date of such repossession, or (iii) as to which an Obligor has failed to
make more than 90% of a scheduled payment of more than ten dollars for 120 or
more days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as of the
close of business on the last day of a Collection Period, required to prepay
in full such Receivable under the terms thereof including interest to the end
of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the last
day of a Collection Period means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Payments received on or prior to
such day allocable to principal using the actuarial or constant yield method;
(ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Payments actually received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram
Down Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Payment" means, for any Collection Period for any Receivable, the
amount indicated in such Receivable as required to be paid by the Obligor in
such Collection Period (without giving effect to deferments
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of payments granted to Obligors by the Servicer pursuant to the Pooling and
Servicing Agreement or any rescheduling of payments in any insolvency or
similar proceedings).
Calculation of Distribution Amounts. The Class A Certificateholders will be
entitled to receive, to the extent funds are available therefor, the "Class A
Distributable Amount" with respect to each Distribution Date. The "Class A
Distributable Amount" with respect to a Distribution Date will be an amount
equal to the sum of:
(i) the "Class A Principal Distributable Amount", consisting of the Class
A Percentage of the following:
(a) the principal portion, allocated on an actuarial basis pursuant
to the Pooling and Servicing Agreement, of all Scheduled Payments due
during the preceding Collection Period and all prior Collection Periods
and received during the preceding Collection Period on Rule of 78's
Receivables and all payments of principal received on Simple Interest
Receivables during such Collection Period (including amounts withdrawn
from the Payahead Account but excluding amounts deposited into the
Payahead Account);
(b) the principal portion of all prepayments in full received during
the preceding Collection Period, including amounts withdrawn from the
Payahead Account with respect to such Distribution Date but excluding
amounts deposited in the Payahead Account (except to the extent
included in clauses (a) or (d));
(c) the principal balance of each Receivable that was repurchased by
the Originator or purchased by the Servicer in each case as of the last
day of the preceding Collection Period and at the option of the
Certificate Insurer, the Principal Balance of each Receivable that was
required to be but was not so purchased or repurchased (except to the
extent included in (a) and (b) above);
(d) the principal balance of each Liquidated Receivable which became
such during the preceding Collection Period (except to the extent
included in (a) and (b) above); and
(e) the aggregate amount of Cram Down Losses that occurred during the
preceding Collection Period (a "Cram Down Loss" means with respect to a
Receivable, if a court of appropriate jurisdiction in an insolvency
preceding 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 such reduction in Principal
Balance of such Receivable or the net present value (using as the
discount rate the lower of the contract rate or the rate of interest
specified by the court in such order) of the Scheduled Payments as so
modified; a Cram Down Loss shall be deemed to have occurred on the date
of issuance of such order) (the amounts set forth in (a) through (e),
the "Principal Distributable Amount"); plus
(ii) the "Class A Interest Distributable Amount", consisting of thirty
(30) days' interest at the Class A Pass-Through Rate on the Class A
Certificate Balance as of the close of business on the last day of the
related Collection Period; provided, however, that on the first
Distribution Date, the Class A Interest Distributable Amount will include
interest from and including the Cutoff Date through and including July 14,
1996.
The Class B Certificateholders will be entitled to receive, to the extent
funds are available therefor, the "Class B Distributable Amount" with respect
to each Distribution Date. The "Class B Distributable Amount" with respect to
a Distribution Date will be an amount equal to the sum of:
(i) the "Class B Principal Distributable Amount", consisting of the Class
B Percentage of the Principal Distributable Amount; plus
(ii) the "Class B Interest Distributable Amount", consisting of thirty
(30) days' interest at the Class B Pass-Through Rate on the Class B
Certificate Balance as of the close of business on the last day of the
related Collection Period; provided, however, that on the first
Distribution Date, the Class B Interest Distributable Amount will include
interest from and including the Cutoff Date through and including July 14,
1996.
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On the Final Scheduled Distribution Date, the Class A Principal
Distributable Amount and the Class B Principal Distributable Amount will equal
the then outstanding Class A Certificate Balance and Class B Certificate
Balance, respectively.
In addition to the foregoing, the Certificate Insurer may with respect to
any Distribution Date exercise its option to make a Certificate Insurer
Optional Deposit, to be distributed in accordance with the direction of the
Certificate Insurer.
"Certificate Insurer Optional Deposit" means, with respect to a Distribution
Date, an amount delivered by the Certificate Insurer, at its sole option, to
the Trustee 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; (ii) to distribute as a component of the Class A Principal Distributable
Amount to the extent that the Class A Certificate Balance as of the
Determination Date preceding such Distribution Date exceeds the Class A
Percentage of the Pool Balance as of such Determination Date; or (iii) to
include such amount as part of the Total Distribution Amount for such
Distribution Date to the extent that without such amount a draw would be
required to be made on the Policy.
Priority of Distribution Amounts. On each Determination Date, the Servicer
will calculate the amount to be distributed to the Certificateholders.
On each Distribution Date, the Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
(i) to the Servicer, from the Total Distribution Amount, the Servicing
Fee and all unpaid Servicing Fees from prior Collection Periods; provided,
however, that as long as CPS is the Servicer and Norwest Bank Minnesota,
National Association, is the Standby Servicer, the Trustee will first pay
to the Standby Servicer out of the Servicing Fee otherwise payable to CPS
an amount equal to the Standby Fee;
(ii) in the event the Standby Servicer becomes the successor Servicer, to
the Standby Servicer, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clause (i)
above), to the extent not previously paid by the predecessor Servicer
pursuant to the Pooling and Servicing Agreement, reasonable transition
expenses (up to a maximum of $50,000) incurred in acting as successor
Servicer;
(iii) to the Trustee, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clauses (i)
and (ii) above), the fees and expenses payable to the Trustee for its
services pursuant to the Pooling and Servicing Agreement (the "Trustee
Fee") and reasonable out-of-pocket expenses of the Trustee (including
counsel fees and expenses) and all unpaid Trustee Fees and all unpaid
reasonable out-of-pocket expenses (including counsel fees and expenses)
from prior Collection Periods; provided, however, that unless an Event of
Default shall have occurred and be continuing, expenses payable to the
Trustee pursuant to this clause (iii) and expenses payable to the
collateral agent pursuant to clause (iv) below, shall be limited to $50,000
per annum;
(iv) to the Collateral Agent, from the Total Distribution Amount (as such
Total Distribution Amount has been reduced by payments pursuant to clauses
(i) through (iii) above), all fees and expenses payable to the collateral
agent with respect to such Distribution Date;
(v) to the Class A Certificateholders, from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (iv) above) the Class A Interest Distributable Amount
and any Class A Interest Carryover Shortfall as of the close of the
preceding Distribution Date;
(vi) to the Class B Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above) the Class B Interest
Distributable Amount and any Class B Interest Carryover Shortfall as of the
close of the preceding Distribution Date;
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(vii) to the Class A Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (vi) above), the Class A Principal
Distributable Amount and any Class A Principal Carryover Shortfall as of
the close of the preceding Distribution Date with respect to each
Distribution Date;
(viii) to the Certificate Insurer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments made pursuant
to clauses (i) through (vii) above), any amounts due to the Certificate
Insurer under the terms of the Pooling and Servicing Agreement and under
the Insurance Agreement;
(ix) to any successor Servicer, from the total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (viii) above) and any amount deposited into the
Collection Account pursuant to the Pooling and Servicing Agreement, to the
extent not paid pursuant to clause (ii) above, reasonable transition
expenses (up to a maximum of $50,000) incurred in acting as successor
Servicer;
(x) to the Class B Certificateholders, from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (ix) above) the Class B Principal Distributable Amount
and any Class B Principal Carryover Shortfall as of the close of the
preceding Distribution Date; and
(xi) to the Collateral Agent, for deposit in to the Spread Account, the
remaining Total Distribution Amount, if any.
The right of the Class B Certificateholders to receive distributions of
interest pursuant to clause (vi) above will be subordinated to the prior
payment in full of all amounts payable pursuant to clauses (i) through (v).
The right of the Class B Certificateholders to receive distributions of
principal pursuant to clause (x) above will be subordinated to the prior
payment in full of all amounts payable pursuant to clauses (i) through (ix).
For purposes hereof, the following terms shall have the following meanings:
"Class A Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Interest Distributable Amount for
such Distribution Date, plus any outstanding Class A Interest Carryover
Shortfall from the preceding Distribution Date, plus interest on such
outstanding Class A Interest Carryover Shortfall, to the extent permitted by
law, at the Class A Pass-Through Rate from such preceding Distribution Date
through the current Distribution Date, over the amount of interest that the
holders of the Class A Certificates actually received on such current
Distribution Date.
"Class A Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Principal Distributable Amount
plus any outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class A
Certificates actually received on such current Distribution Date.
"Class B Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Interest Distributable Amount for
such Distribution Date, plus any outstanding Class B Interest Carryover
Shortfall from the preceding Distribution Date, plus interest on such
outstanding Class B Interest Carryover Shortfall, to the extent permitted by
law, at the Class B Pass-Through Rate from such preceding Distribution Date
through the current Distribution Date, over the amount of interest that the
holders of the Class B Certificates actually received on such current
Distribution Date.
"Class B Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Principal Distributable Amount
plus any outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class B
Certificates actually received on such current Distribution Date.
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On the third business day prior to a Distribution Date, the Trustee will
determine, based on a certificate from the Servicer, whether there are amounts
sufficient, after payment of amounts as set forth in the priorities of
distribution in the Pooling and Servicing Agreement, to distribute the Class A
Distributable Amount. Pursuant to the Policy, the Certificate Insurer will
unconditionally and irrevocably guarantee to the Class A Certificateholders
payment of the Class A Guaranteed Distribution Amount. See "The Policy"
herein.
The Spread Account. As part of the consideration for the issuance of the
Policy, CPS Receivables Corp., on behalf of the Originator, has agreed to
cause to be established with Norwest Bank Minnesota, National Association (in
such capacity, the "Collateral Agent") an account (the "Spread Account") for
the benefit of the Certificate Insurer and the Trustee on behalf of the Class
A Certificateholders. The Collateral Agent will not hold the Requisite Amount
for the benefit of the Class B Certificateholders. Any portion of the Total
Distribution Amount remaining on any Distribution Date after payment of all
fees and expenses due on such date to the Servicer, the Standby Servicer, the
Trustee and the Collateral Agent and all principal and interest payments due
to the Certificateholders on such Distribution Date, will be deposited in the
Spread Account and held by the Collateral Agent for the benefit of the
Certificate Insurer and the Trustee on behalf of the Class A
Certificateholders. If on any Distribution Date, the Total Distribution Amount
is insufficient (taking into account the application of the Total Distribution
Amount to the payment of the Class B Interest Distributable Amount and any
Class B Interest Carryover Shortfall) to pay all distributions required to be
made on such day pursuant to priorities (i), (ii), (iii), (iv), (v), (vii),
(viii) and (ix) under "--Priority of Distribution Amounts", then amounts on
deposit in the Spread Account will be applied to pay the amounts due on such
Distribution Date pursuant to such priorities (i), (ii), (iii), (iv), (v),
(vii), (viii) and (ix).
Amounts on deposit in the Spread Account on any Distribution Date which
(after all payments required to be made on such Distribution Date have been
made) are in excess of the Requisite Amount will be released to CPS
Receivables Corp. on such Distribution Date; provided, however, that if, prior
to such Distribution Date, the Servicer has notified the Trustee that there
exists a Class B Deficiency Amount, then the Trustee, will direct the
Collateral Agent to remit to the Trustee from such funds being released on
such Distribution Date, an amount equal to such Class B Deficiency Amount for
application to pay the amounts due to the Class B Certificateholders on such
Distribution Date.
So long as a Certificate Insurer Default shall not have occurred and be
continuing, the Certificate Insurer will be entitled to exercise in its sole
discretion all rights under the Master Spread Account Agreement, dated as of
June 10, 1994, as amended and restated on June 17, 1996, among CPS Receivables
Corp., the Certificate Insurer and the Trustee and Collateral Agent (the
"Master Spread Account Agreement") with respect to the Spread Account and any
amounts on deposit therein and will have no liability to the Trustee or the
Certificateholders for the exercise of such rights. The Certificate Insurer
(so long as a Certificate Insurer Default shall not have occurred and be
continuing) may, with the written consent of CPS, CPS Receivables Corp. and
the Collateral Agent but without the consent of the Trustee or any
Certificateholder, reduce the Requisite Amount or modify any term of the
Master Spread Account Agreement including terminating the Master Spread
Account Agreement and releasing all funds on deposit in the Spread Account);
provided, however, that the Certificate Insurer will agree that it will not
reduce the Requisite Amount or modify or terminate the Master Spread Account
Agreement such that the Class A Certificates, without the benefit of the
Policy, would be rated less than "BBB" by Standard & Poor's or "Baa2" by
Moody's. Because the Requisite Amount or the existence of the Spread Account
may be modified or terminated by the Certificate Insurer as described above,
there is no assurance that funding will be available in the Spread Account to
pay principal of or interest on the Certificates in the event that collections
on the Receivables and other amounts available under the Pooling and Servicing
Agreement are insufficient to make any distribution of principal of or
interest on the Certificates on any Distribution Date.
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder of record as of the close of business on the
applicable Record Date and each rating agency that is currently rating the
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Certificates a statement (prepared by the Servicer) setting forth the
following information with respect to the preceding Collection Period, to the
extent applicable:
(i) the amount of the distribution allocable to principal of the Class A
Certificates and the Class B Certificates, respectively;
(ii) the amount of the distribution allocable to interest on the Class A
Certificates and the Class B Certificates, respectively;
(iii) the Pool Balance, the Class A Pool Factor and the Class B Pool
Factor as of the close of business on the last day of the preceding
Collection Period;
(iv) the aggregate Class A Certificate Balance as of the close of
business on the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under (i) above;
(v) the aggregate Class B Certificate Balance as of the close of business
on the last day of the preceding Collection Period, after giving effect to
payments allocated to principal reported under (i) above;
(vi) the amount of the Servicing Fee paid to the Servicer with respect to
the related Collection Period and the Class A Percentage and the Class B
Percentage of the Servicing Fee (inclusive of the Standby Fee), the amount
of any unpaid Servicing Fees and the change in such amount from that of the
prior Distribution Date;
(vii) the amount of the Class A Interest Carryover Shortfall, if
applicable, and Class A Principal Carryover Shortfall, if applicable, on
such Distribution Date and the change in such amounts from those on the
prior Distribution Date;
(viii) the amount of the Class B Interest Carryover Shortfall, if
applicable, and Class B Principal Carryover Shortfall, if applicable, on
such Distribution Date and the change in such amounts from those on the
prior Distribution Date;
(ix) the amount paid to the Class A Certificateholders under the Policy
for such Distribution Date;
(x) the amount distributable of the Certificate Insurer on such
Distribution Date;
(xi) the aggregate amount in each of the Payahead Account and the Spread
Account and the change in each such amount from the previous Distribution
Date;
(xii) the number of Receivables and the aggregate gross amount scheduled
to be paid thereon, including unearned finance and other charges, for which
the related Obligors are delinquent in making scheduled payments between 31
and 59 days and 60 days or more;
(xiii) the number and the aggregate Purchase Amount of Receivables
repurchased by the Originator or purchased by the Servicer; and
(xiv) the cumulative amount of Liquidated Receivables, net of Recoveries,
since the Cutoff Date to the last day of the related Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (vi), (vii) and
(viii) above shall be expressed in the aggregate and as a dollar amount per
$1,000 of original principal balance of a Certificate.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Pooling and Servicing
Agreement, the Trustee will mail to each person who at any time during such
calendar year shall have been a Certificateholder and received any payment on
such holder's Certificates, a statement (prepared by the Servicer) containing
the sum of the amounts described in (i), (ii) and (vi) above for the purposes
of such Certificateholder's preparation of federal income tax returns.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement will provide that a firm of independent
certified public accountants will furnish to the Trustee and the Certificate
Insurer on or before July 31 of each year, beginning July 31, 1997,
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a report as to compliance by the Servicer during the preceding twelve months
ended June 30 with certain standards relating to the servicing of the
Receivables (or in the case of the first such certificate, the period from the
Closing Date to June 30, 1997).
The Pooling and Servicing Agreement will also provide for delivery to the
Trustee and the Certificate Insurer, on or before July 31 of each year,
commencing July 31, 1997 of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Pooling and
Servicing Agreement throughout the preceding twelve months ended June 30 or,
if there has been a default in the fulfillment of any such obligation,
describing each such default (or in the case of the first such certificate,
the period from the Cutoff Date to June 30, 1997). The Servicer has agreed to
give the Trustee and the Certificate Insurer notice of any Events of Default
under the Pooling and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Pooling and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible
under applicable law and with the consent of the Certificate Insurer. No such
resignation will become effective until a successor servicer has assumed the
servicing obligations and duties under the Pooling and Servicing Agreement. In
the event CPS resigns as Servicer or is terminated as Servicer, the Standby
Servicer has agreed pursuant to the Servicing Assumption Agreement to assume
the servicing obligations and duties under the Pooling and Servicing
Agreement.
The Pooling and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be
under any liability to the Trust or the Certificateholders for taking any
action or for refraining from taking any action pursuant to the Pooling and
Servicing 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 negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. In addition, the Pooling and
Servicing 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 the Pooling and Servicing Agreement and that,
in its opinion, may cause it to incur any expense or liability.
Under the circumstance specified in the Pooling and Servicing 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 which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor of the Servicer under the Pooling and
Servicing Agreement.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement will consist
of (i) any failure by the Servicer to deliver to the Trustee for distribution
to the Certificateholders any required payment, which failure continues
unremedied for two Business Days, or any failure to deliver to the Trustee the
annual accountant's report, the annual statement as to compliance or the
statement to the Certificateholders, in each case, within five days of the
date it is due and which shall comply with the requirements therefor; (ii) any
failure by CPS, the Servicer or the Depositor, as the case may be, duly to
observe or perform in any material respect any other covenant or agreement in
the Pooling and Servicing Agreement which continues unremedied for 30 days
after the giving of written notice of such failure (1) to CPS, the Servicer or
the Depositor, as the case may be, by the Certificate Insurer or by the
Trustee, or (2) to the Servicer or the Depositor, as the case may be, and to
the Trustee and the Certificate Insurer by the holders of Class A Certificates
evidencing not less than 25% of the Class A
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Certificate Balance or, after the Class A Certificates have been paid in full
and all outstanding amounts due to the Certificate Insurer have been paid in
full, by the holders of Class B Certificates evidencing nor less than 25% of
the Class B Certificate Balance; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings with respect to CPS or the Servicer, or, so long as CPS is
Servicer, of any of its affiliates, and certain actions by CPS or the
Servicer, or, so long as CPS is Servicer, of any of its affiliates, indicating
its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations; or (iv) the occurrence of an Event of
Default under the Insurance Agreement.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, (x) provided no Certificate Insurer Default shall have
occurred and be continuing, the Certificate Insurer in its sole and absolute
discretion or (y) if a Certificate Insurer Default shall have occurred and be
continuing, then the Trustee or the holders of Class A Certificates evidencing
not less than 25% of the Class A Certificate Balance or (z) if the Class A
Certificates have been paid in full and either (i) all outstanding amounts due
to the Certificate Insurer have been paid in full or (ii) a Certificate
Insurer Default shall have occurred and be continuing, then either the Trustee
or the holders of Class B Certificates evidencing not less than 25% of the
Class B Certificate Balance, may terminate all the rights and obligations of
the Servicer under the Pooling and Servicing Agreement, whereupon the Standby
Servicer, or other successor Servicer as shall be or have been appointed by
the Certificate Insurer (or, if a Certificate Insurer Default shall have
occurred and be continuing, by the Trustee or the Class A or Class B
Certificateholders, as described above) will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Pooling
and Servicing Agreement; provided, however, that such successor Servicer shall
have no liability with respect to any obligation which was required to be
performed by the predecessor Servicer prior to the date such successor
Servicer becomes the Servicer or the claim of a third party (including a
Certificateholder) based on any alleged action or inaction of the predecessor
Servicer as Servicer. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Event of Default other than such
appointment has occurred, such trustee or official may have the power to
prevent or delay a transfer of servicing. In the event the Standby Servicer is
unable to act, the Certificate Insurer may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor Servicer. The
compensation to be paid to the successor Servicer under the Pooling and
Servicing Agreement (other than the Standby Servicer) shall in no event be
greater than the servicing compensation to be paid to CPS under the Pooling
and Servicing Agreement. See "Standby Servicer".
"Certificate Insurer Default" shall mean any one of the following events
shall have occurred and be continuing: (i) the Certificate Insurer fails to
make a payment required under the Policy in accordance with its terms; (ii)
the Certificate Insurer (A) files any petition or commences 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, (B) makes a general assignment
for the benefit of its creditors, or (C) has 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 (iii) a
court of competent jurisdiction, the New York Department of Insurance or other
competent regulatory authority enters a final and nonappealable order,
judgment or decree (A) appointing a custodian, trustee, agent or receiver for
the Certificate Insurer or for all or any material portion of its property or
(B) authorizing the taking of possession by a custodian, trustee, agent or
receiver of the Certificate Insurer (or the taking of possession of all or any
material portion of the property of the Certificate Insurer).
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Servicer and the Trustee, with the consent of the Certificate Insurer but
without the consent of the Certificateholders, to cure any ambiguity, correct
or supplement any provision therein or make any other provisions with respect
to matters or questions arising under such Pooling and Servicing Agreement
which are not inconsistent with the provisions of the Pooling and Servicing
Agreement; provided that such action will not, in the opinion of counsel
satisfactory to
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the Trustee and the Certificate Insurer, materially and adversely affect the
interests of any Certificateholder. The Pooling and Servicing Agreement may
also be amended by the Depositor, the Servicer and the Trustee with the
consent of the Certificate Insurer, the holders of Class A Certificates
evidencing not less than 66 2/3% of the Class A Certificate Balance and the
holders (other than the Depositor or any affiliate thereof) of Class B
Certificates evidencing not less than 66 2/3% of the aggregate principal
balance of all Class B Certificates which are not held by the Depositor or an
affiliate thereof, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying or changing in any manner or eliminating in any
manner the rights of Certificateholders; provided, however, that no such
amendment may (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 on any Certificate without the
consent of each Certificateholder affected thereby, (ii) reduce the aforesaid
percentage of the Class A Certificate Balance or principal balance of the
Class B Certificates which is required to consent to any such amendment,
without the consent of the holders of all Certificates of each Class affected
thereby, (iii) result in a downgrading or withdrawal of the then current
rating of the Class A Certificates without the consent of all the Class A
Certificateholders or (iv) result in a downgrading or withdrawal of the then
current rating of the Class B Certificates without the consent of all the
holders of record of the Class B Certificates.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Servicer, the Trustee will provide to the
Servicer within 15 days after receipt of such request a list of the names and
addresses of all Certificateholders of record as of the most recent Record
Date. Upon written request by three or more Class A Certificateholders or by
Class A Certificateholders evidencing not less than 25% of the Class A
Certificate Balance, and upon compliance by such Certificateholders with
certain other provisions of the Pooling and Servicing Agreement, the Trustee
will afford such Certificateholders access during business hours to the
current list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement will not provide for the holding of any
annual or other meetings of Certificateholders.
TERMINATION
The obligations of the Servicer, the Depositor and the Trustee pursuant to
the Pooling and Servicing Agreement will terminate upon (i) the maturity or
other liquidation of the last Receivable and the disposition of any amounts
received upon liquidation of any remaining Receivables and (ii) the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Pooling and Servicing Agreement and the expiration of any preference period
related thereto.
In order to avoid excessive administrative expense, the Servicer, or its
successor, is permitted at its option to purchase from the Trust (with the
consent of the Certificate Insurer if such purchase would result in a claim on
the Policy or any amount owing to the Certificate Insurer or on the
Certificates would remain unpaid), as of the last day of any month as of which
the then outstanding Pool Balance is equal to 10% or less of the original Pool
Balance, all remaining Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of such last day. Exercise of such right will
effect early retirement of the Certificates. The Trustee will give written
notice of termination to each Certificateholder of record. The final
distribution to any Certificateholder will be made only upon surrender and
cancellation of such holder's Certificate at the office or agency of the
Trustee specified in the notice of termination. Any funds remaining with the
Trustee, after the Trustee has taken certain measures to locate a
Certificateholder and such measures have failed, will be distributed to The
American Red Cross.
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DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Pooling and Servicing Agreement, the Certificates (other than the
authentication of the Certificates), or any Receivables or related documents,
and is not accountable for the use or application by the Depositor or the
Servicer of any funds paid to the Depositor or the Servicer in respect of the
Certificates or the Receivables, or the investment of any monies received by
the Servicer before such monies are deposited into the Collection Account. The
Trustee has not independently verified the Receivables. If no Event of Default
has occurred, the Trustee is required to perform only those duties
specifically required of it under the Pooling and Servicing Agreement.
Generally, those duties are limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the
Trustee under the Pooling and Servicing Agreement, in which case it is only
required to examine them to determine whether they conform to the requirements
of the Pooling and Servicing Agreement. The Trustee shall not be charged with
knowledge of a failure by the Servicer to perform its duties under the Pooling
and Servicing Agreement which failure constitutes an Event of Default unless
the Trustee obtains actual knowledge of such failure as specified in the
Pooling and Servicing Agreement.
The Trustee is under no obligation to exercise any of the rights or powers
vested in it by the Pooling and Servicing Agreement or to make any
investigation of matters arising thereunder or to institute, conduct, or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the Certificateholders, unless such Certificateholders
have offered to the Trustee reasonable security or indemnity against the
costs, expenses, and liabilities that may be incurred therein or thereby. No
Class A Certificateholder will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect to the Pooling and
Servicing Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Class A Certificates with
not less than 25% of the Class A Certificate Balance have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for 30 days has neglected or refused to institute any such
proceedings. No Class B Certificateholder will have any right under the
Pooling and Servicing Agreement or institute any proceeding with respect to
the Pooling and Servicing Agreement, unless such holder has the prior written
consent of the Certificate Insurer and, if any Class A Certificate shall
remain outstanding, the prior written consent of the holders of the Class A
Certificates evidencing not less than 66 2/3% of the Class A Certificate
Balance; provided that, the necessity for such consents will cease on the date
the Class A Certificates have been paid in full and all outstanding amounts
due to the Certificate Insurer have been paid in full.
THE TRUSTEE
Norwest Bank Minnesota, National Association, is the Trustee under the
Pooling and Servicing Agreement. The Trustee, in its individual capacity or
otherwise, may hold Certificates in its own name or as pledgee. For the
purpose of meeting the legal requirements of certain jurisdictions, the
Servicer and the Trustee acting jointly (or in some instances, the Trustee
acting alone) shall have the power to appoint co-trustees or separate trustees
of all or any part of the Trust. In the event of such appointment, all rights,
powers, duties, and obligations conferred or imposed upon the Trustee by the
Pooling and Servicing Agreement shall be conferred or imposed upon the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties, and obligations solely at the direction of the
Trustee.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee with the consent of the Certificate
Insurer and the holders of Class A Certificates evidencing not less than 66
2/3% of the outstanding Class A Certificate Balance or if the Class A
Certificates have been paid in full and all outstanding amounts due to the
Certificate Insurer have been paid in full, with the consent of the holders of
Class B Certificates evidencing not less than 51% of the Class B Certificate
Balance. The Servicer may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Pooling and Servicing Agreement,
becomes legally unable to act, or becomes insolvent. ln such circumstances,
the Servicer will be obligated to appoint a successor trustee with the consent
of the Certificate Insurer. Any resignation or removal of the Trustee
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and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
The Pooling and Servicing Agreement will provide that the Trustee will be
entitled to indemnification by the Servicer for and will be held harmless
against, any loss, liability, fee, disbursement, or expense incurred by the
Trustee not resulting from the Trustee's own willful misfeasance, bad faith,
or negligence (other than by reason of a breach of any of its representations
or warranties set forth in the Pooling and Servicing Agreement). The Pooling
and Servicing Agreement will further provide that the Servicer will indemnify
the Trustee for certain taxes that may be asserted in connection with the
transaction.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Class A Certificates, the
Certificate Insurer will deliver the Policy to the Trustee for the benefit of
each Class A Certificateholder. Under the Policy, the Certificate Insurer
unconditionally and irrevocably guarantees to the Trustee for the benefit of
each Class A Certificateholder the full and complete payment of (i) the Class
A Guaranteed Distribution Amount with respect to the Class A Certificates; and
(ii) any Class A Guaranteed Distribution Amount which subsequently is avoided
in whole or in part as a preference payment under applicable law.
"Class A Guaranteed Distribution Amount" means, with respect to each
Distribution Date, the distribution to be made to the Class A
Certificateholders in an amount equal to the Class A Interest Distributable
Amount and the Class A Principal Distributable Amount due and payable on such
Distribution Date, in each case in accordance with the original terms of the
Class A Certificates when issued and without regard to any amendment or
modification of the Certificates or the Pooling and Servicing Agreement which
has not been consented to by the Certificate Insurer. The Class A Guaranteed
Distribution Amount shall not include, nor shall coverage be provided under
the Policy in respect of, any taxes, withholding or other charge imposed with
respect to any Class A Certificateholder by any governmental authority.
Payment of claims on the Policy made in respect of the Class A Guaranteed
Distribution Amount will be made by the Certificate Insurer following Receipt
by the Certificate Insurer of the appropriate notice for payment on the later
to occur of (a) 12:00 noon, New York City time, on the third Business Day
following Receipt of such notice for payment, and (b) 12:00 noon, New York
City time, on the Distribution Date on which such payment was due on the Class
A Certificates.
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 Certificate Insurer shall cause such payment to be made
on the later of the date when due to be paid pursuant to the Order referred to
below or the first to occur of (a) the fourth Business Day following Receipt
by the Certificate Insurer from the Trustee of (i) 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 Certificateholder is required to
return the amount of any Class A Guaranteed Distribution Amount distributed
with respect to the Class A Certificates during the term of the Policy because
such distributions were avoidable as preference payments under applicable
bankruptcy law, (ii) a certificate of the Class A Certificateholder that the
Order has been entered and is not subject to any stay, and (iii) an assignment
duly executed and delivered by the Class A Certificateholder, in such form as
is reasonably required by the Certificate Insurer and provided to the Class A
Certificateholder by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Class A Certificateholder
relating to or arising under the Class A Certificates against the debtor which
made such preference payment or otherwise with respect to such preference
payment, or (b) the date of Receipt by the Certificate Insurer from the
Trustee of the items referred to in clauses (i), (ii) and (iii) above if, at
least four Business Days prior to such date of Receipt, the Certificate
Insurer will
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have received written notice from the Trustee 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 Trustee or any
Class A Certificateholder directly (unless a Class A Certificateholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Order, in which such payment shall be
disbursed to the Trustee for distribution to such Class A Certificateholder
upon proof of such payment reasonably satisfactory to the Certificate
Insurer). In connection with the foregoing, the Certificate Insurer shall have
the rights provided pursuant to Section 9.5 of the Pooling and Servicing
Agreement.
The terms "Receipt" and "Received" with respect to the Policy, shall mean
actual delivery to the Certificate 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 Trustee is not in proper
form or is not properly completed, executed or delivered, it shall be deemed
not to have been Received, and the Certificate Insurer or its fiscal agent
shall promptly so advise the Trustee and the Trustee may submit an amended
notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in The City of New York,
New York or Minneapolis, Minnesota are authorized or obligated by law or
executive order to be closed.
The Certificate Insurer's obligations under the Policy in respect of the
Class A Guaranteed Distribution Amount shall be discharged to the extent funds
are transferred to the Trustee as provided in the Policy whether or not such
funds are properly applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each Class A
Certificateholder to receive payments of principal and interest to the extent
of any payment by the Certificate Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Certificate Insurer ranking not less than pari passu with
other unsecured and unsubordinated indebtedness of the Certificate Insurer for
borrowed money. Claims against the Certificate Insurer under the Policy and
claims against the Certificate Insurer under each other financial guaranty
insurance policy issued thereby constitute pari passu claims against the
general assets of the Certificate 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 Trust. The Policy may not be canceled or
revoked prior to distribution in full of all Class A Guaranteed Distribution
Amounts with respect to the Class A Certificates. 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.
In the absence of payments under the Policy, Class A Certificateholders will
bear directly the credit and other risks associated with their undivided
interest in the Trust.
THE CERTIFICATE INSURER
The following information has been obtained from the Certificate Insurer and
has not been verified by the Depositor. No representation or warranty is made
by the Depositor as to the accuracy and completeness of such information.
GENERAL
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in financial guaranty insurance business in all 50 states, the District
of Columbia and Puerto Rico.
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Financial Security 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. Financial
Security 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. Financial Security insures both newly issued securities sold in
the primary market and outstanding securities sold in the secondary market
that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), 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
Financial Security or any claim under any insurance policy issued by Financial
Security or to make any additional contribution to the capital of Financial
Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security 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, Financial Security 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 Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
Financial Security's claims-paying ability is rated "Aaa" by Moody's and
"AAA" by S&P, 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--Limited Nature of Ratings of the Certificates".
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CAPITALIZATION
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C>
Unearned Premium Reserve (net of prepaid reinsurance premi-
ums)........................................................ $ 340,226
----------
Shareholder's Equity:
Common Stock............................................... 15,000
Additional Paid-In Capital................................. 681,470
Unrealized Gain (Loss) on Investments (net of deferred in-
come taxes)............................................... (737)
Accumulated Earnings....................................... 83,444
----------
Total Shareholders' Equity................................... 779,177
----------
Total Unsecured Premium Reserve and Shareholders' Equity..... $1,119,403
==========
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Copies of the statutory quarterly
and annual statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York
Insurance Department.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described above under "Incorporation of Certain
Documents by Reference," the consolidated financial statements of Financial
Security and Subsidiaries included (a) as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995, which has been filed with the
Commission by Holdings which Report included as an exhibit the consolidated
financial statements of Financial Security and Subsidiaries for the year ended
December 31, 1995, and (b) as an exhibit to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, which has been filed with the Commission
by Holdings, which Report included as an exhibit the consolidated financial
statements of Financial Security and Subsidiaries for the quarter ended March
31, 1996, are hereby incorporated by reference in this Prospectus Supplement.
All financial statements of Financial Security included in documents filed
by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date of this Prospectus
Supplement and prior to the termination of the offering of the Class A
Certificates 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.
INSURANCE REGULATION
Financial Security 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, Financial Security 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, Financial Security is subject to Article 69 of the New York Insurance
Law which, among other things, limits the business of each 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 Financial Security, 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.
S-43
<PAGE>
Financial Security does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding Financial Security set forth under the heading
"The Certificate Insurer."
ERISA CONSIDERATIONS
Subject to the considerations set forth under "ERISA Considerations--Senior
Certificates" in the Prospectus, the Class A Certificates may be purchased by
employee benefit plans or individual retirement accounts (each, a "Plan")
subject to ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"). A fiduciary of a Plan must determine that the purchase
of a Class A Certificate is consistent with its fiduciary duties under ERISA
and will not result in a nonexempt prohibited transaction as defined in
Section 406 of ERISA or Section 4975 of the Code. For additional information
regarding treatment of the Class A Certificates under ERISA, see "ERISA
Considerations" in the Prospectus.
Because the Class B Certificates are subordinated to the Class A
Certificates, the Class B Certificates may not be purchased by Plans.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
relating to the Certificates (the "Underwriting Agreement") between the
Depositor and Greenwich Capital Markets, Inc. (the "Underwriter"), the
Depositor has agreed to cause the Trust to sell to the Underwriter, and the
Underwriter has agreed to purchase, the Certificates.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Class A Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. In connection with the sale of the Class A Certificates, the Underwriter
may be deemed to have received compensation from the Depositor in the form of
underwriting discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Collection Account
and the Payahead Account in Eligible Investments acquired from the
Underwriter.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or a request by such
investor's representative within the period during which there is an
obligation to deliver a Prospectus Supplement and Prospectus, the Depositor or
the Underwriter will promptly deliver, or cause to be delivered, without
charge, a paper copy of the Prospectus Supplement and Prospectus.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Trust, the Depositor and the Underwriter by Brown & Wood, New York, New
York. Certain legal matters will be passed upon for the Originator and the
Servicer by Mayer, Brown & Platt, New York, New York. Certain legal matters
relating to the Policy will be passed upon for the Certificate Insurer by
Bruce E. Stern, General Counsel of the Certificate Insurer.
S-44
<PAGE>
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
S-45
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Actuarial Receivables.................................................... 24
Alpha Program............................................................ 16
APR...................................................................... 6
Business Day............................................................. 6
Certificate Account...................................................... 28
Certificate Insurer...................................................... 4
Certificate Insurer Default.............................................. 37
Certificate Insurer Optional Deposit..................................... 32
Certificateholders....................................................... 6
Certificates............................................................. 1
Class A Certificateholders............................................... 6
Class A Certificates..................................................... 1
Class A Distributable Amount............................................. 31
Class A Guaranteed Distribution Amount................................... 10, 40
Class A Interest Carryover Shortfall..................................... 33
Class A Interest Distributable Amount.................................... 31
Class A Pass-Through Rate................................................ 6
Class A Percentage....................................................... 4
Class A Pool Factor...................................................... 25
Class A Principal Carryover Shortfall.................................... 33
Class A Principal Distributable Amount................................... 31
Class B Certificateholders............................................... 6
Class B Certificates..................................................... 1
Class B Deficiency Amount................................................ 9
Class B Distributable Amount............................................. 31
Class B Interest Carryover Shortfall..................................... 33
Class B Interest Distributable Amount.................................... 31
Class B Pass-Through Rate................................................ 6
Class B Percentage....................................................... 4
Class B Pool Factor...................................................... 25
Class B Principal Carryover Shortfall.................................... 33
Class B Principal Distributable Amount................................... 31
Closing Date............................................................. 1
Code..................................................................... 44
Collateral Agent......................................................... 34
Collection Account....................................................... 28
Collection Period........................................................ 7
Commission............................................................... 2
Contracts................................................................ 16
CPS...................................................................... 4
CPS Receivables Corp. ................................................... 8
Cram Down Loss........................................................... 31
Cutoff Date.............................................................. 5
Dealer Agreements........................................................ 15
Dealers.................................................................. 15
Delta Program............................................................ 16
Depositor................................................................ 4
Determination Date....................................................... 30
Distribution Date........................................................ 6
ERISA.................................................................... 12
Events of Default........................................................ 36
Exchange Act............................................................. 2
</TABLE>
S-46
<PAGE>
<TABLE>
<S> <C>
Final Scheduled Distribution Date.......................................... 7
Financed Vehicles.......................................................... 5
Financial Security......................................................... 4
Holdings................................................................... 42
Insurance Agreement........................................................ 13
Liquidated Receivable...................................................... 30
Liquidation Proceeds....................................................... 30
Lock-Box Account........................................................... 10
Lock-Box Bank.............................................................. 10
Lock-Box Processor......................................................... 10
Master Spread Account Agreement............................................ 34
Moody's.................................................................... 12
Obligors................................................................... 15
Order...................................................................... 40
Original Pool Balance...................................................... 5
Originator................................................................. 4
Payahead Account........................................................... 28
Payaheads.................................................................. 29
Paying Agent............................................................... 27
Plan....................................................................... 44
Policy..................................................................... 5
Pool Balance............................................................... 25
Pooling and Servicing Agreement............................................ 4
Post Office Box............................................................ 10
Principal Balance.......................................................... 30
Principal Distributable Amount............................................. 7
Prospectus................................................................. 2
Purchase Agreement......................................................... 5
Purchase Amount............................................................ 30
Rating Agencies............................................................ 12
Receivables................................................................ 5
Record Date................................................................ 6
Recoveries................................................................. 30
Requisite Amount........................................................... 9
Rule of 78's Receivables................................................... 24
S&P........................................................................ 12
Scheduled Payment.......................................................... 30
Servicer................................................................... 4
Servicing Assumption Agreement............................................. 11
Servicing Fee.............................................................. 29
Servicing Fee Rate......................................................... 11
Simple Interest Receivables................................................ 24
Spread Account............................................................. 34
Standard Program........................................................... 16
Standby Fee................................................................ 11
Standby Servicer........................................................... 4
Total Distribution Amount.................................................. 30
Trust...................................................................... 1
Trust Assets............................................................... 5
Trustee.................................................................... 4
Trustee Fee................................................................ 32
UCC........................................................................ 27
Underwriter................................................................ 44
Underwriting Agreement..................................................... 44
</TABLE>
S-47
<PAGE>
PROSPECTUS
FASCO AUTO TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
---------------
FINANCIAL ASSET SECURITIES CORP.
DEPOSITOR
---------------
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described
herein may be sold from time to time in one or more series (each, a "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 (a "Prospectus Supplement").
Each Series of Securities will be issued by a trust (each, a "Trust") to be
formed with respect to such Series and may include one or more classes of
Notes and/or one or more classes of Certificates. The property of each Trust
will include a pool of motor vehicle retail installment sale contracts or
motor vehicle installment loans secured by new and used automobiles, vans and
light duty trucks (the "Receivables"), certain monies due or received
thereunder on and after the applicable cutoff date, security interests in the
vehicles financed thereby and certain other property, as more fully described
herein and in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the property of a Trust will include monies on
deposit in a trust account, which will be used to purchase additional
Receivables after the Closing Date. The Receivables will have been acquired by
Financial Asset Securities Corp. (the "Depositor"), either directly or
indirectly, from one or more institutions (each an "Originator"). Each
Originator will be an entity generally in the business of originating or
acquiring Receivables. Specific information regarding the Receivables included
in each pool and the Originator or Originators thereof will be provided in the
related Prospectus Supplement. The Prospectus Supplement for each Series will
name the entity that will act, directly or indirectly through one or more
Subservicers, as Master Servicer of the Receivables.
Each class of Securities of each Series will represent the right to receive
a specified amount of payments of principal and interest on the related
Receivables, at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. As more fully described herein and in
the related Prospectus Supplement, distributions on any class of Securities
may be senior or subordinate to distributions on one or more other classes of
Securities of the same Series, and payments on the Certificates of a Series
may be subordinated in priority to payments on the Notes of such Series. If
provided in the related Prospectus Supplement, a Series of Securities may
include one or more classes of Securities entitled to principal distributions
with disproportionate, nominal or no distributions in respect of interest, or
to interest distributions with disproportionate, nominal or no distributions
in respect of principal.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE 11 OF THIS PROSPECTUS.
THE NOTES OF A SERIES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF
A SERIES WILL REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY, AND
WILL NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR
INSURED BY, FINANCIAL ASSET SECURITIES CORP., GREENWICH CAPITAL MARKETS, INC.
OR ANY OF THEIR RESPECTIVE AFFILIATES.
---------------
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 REP-
RESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities of any Series unless accompanied by a
Prospectus Supplement.
---------------
[LOGO OF GREENWICH CAPITAL MARKETS, INC. APPEARS HERE]
June 21, 1996.
<PAGE>
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-
3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Securities being offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement, which is available for inspection without
charge at the public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the regional
offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such information can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an underwriter or a request by such
investor's representative within the period during which there is an
obligation to deliver a Prospectus Supplement and Prospectus, the Depositor or
the underwriter will promptly deliver, or cause to be delivered, without
charge, to such investor a paper copy of the Prospectus Supplement and
Prospectus.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities, on or prior to each Distribution
Date, the Master Servicer will prepare and forward, or cause to be prepared
and forwarded, to the related Indenture Trustee or Trustee to be included with
the distribution to each Securityholder of record a statement setting forth
for the related Collection Period the information specified in the related
Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting purposes
after the end of each calendar year during the term of each Trust, the related
Trustee or Indenture Trustee, as applicable, will mail to each person who at
any time during such calendar year shall have been a registered Securityholder
a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Material
Federal Income Tax Consequences".
Each Indenture Trustee will be required to mail each year to all related
Noteholders a brief report relating to its eligibility and qualification to
continue as Indenture Trustee under the related Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity
date of certain indebtedness owing by the related Owner Trust to such
Indenture Trustee in its individual capacity, the property and funds
physically held by such Indenture Trustee as such and any action taken by it
that materially affects the related Notes and that has not been previously
reported.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor with the Commission on behalf of the
Trust referred to in the accompanying Prospectus Supplement pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, after the date of this Prospectus and prior to the termination of the
offering of the Securities offered by such Trust shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
dates of filing of such documents. Any statement contained herein or 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 subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus, except as so modified or superseded.
The Depositor will provide on behalf of each Trust without charge to each
person to whom a copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents. Requests for such
copies should be directed to Peter Sanchez, Operations Manager, Financial
Asset Securities Corp., 600 Steamboat Road, Greenwich, Connecticut 06830.
Telephone requests may be directed to Peter Sanchez at (203) 625-7909.
2
<PAGE>
SUMMARY OF TERMS
This 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 each Series of Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of such Securities. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus on the pages indicated in the "Index of
Principal Terms".
Issuer.................... With respect to any Series of Securities, a Trust
formed pursuant to either (i) a pooling and servic-
ing agreement (a "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, the
Trustee for such Trust and, if so specified in the
related Prospectus Supplement, one or more Origina-
tors (as defined below) of the related Receivables
(each such Trust being referred to herein as a
"Grantor Trust") or (ii) a trust agreement (a
"Trust Agreement") among the Depositor, an entity
to be specified in the related Prospectus Supple-
ment (the "Company") and the Trustee for such Trust
(each such Trust being referred to herein as an
"Owner Trust").
Depositor................. Financial Asset Securities Corp. is a Delaware cor-
poration and an indirect limited purpose finance
subsidiary of The Long-Term Credit Bank of Japan,
Limited and an affiliate of Greenwich Capital Mar-
kets, Inc. See "The Depositor".
Master Servicer........... The entity named as Master Servicer in the related
Prospectus Supplement (the "Master Servicer"). Each
Prospectus Supplement will specify whether the Mas-
ter Servicer will service the Receivables in the
related Receivables Pool directly or indirectly
through one or more subservicers (each, a
"Subservicer").
Originators............... The Depositor will acquire the Receivables, di-
rectly or indirectly, from one or more institutions
(each an "Originator"). Each Originator will be an
entity generally in the business of originating or
acquiring Receivables, or an affiliate of such an
entity. The Receivables will be either (i) origi-
nated by the related Originator, (ii) originated by
various dealers ("Dealers") and assigned to the
Originator or (iii) acquired by the related Origi-
nator from other originators or owners of receiv-
ables.
Trustee................... With respect to each Owner Trust and each Grantor
Trust, the trustee specified in the related Pro-
spectus Supplement (the "Trustee").
Indenture Trustee......... With respect to any Series of Securities that is
issued by an Owner Trust and includes one or more
classes of Notes, the indenture trustee specified
in the related Prospectus Supplement (the "Inden-
ture Trustee").
3
<PAGE>
Securities Offered........ Each Series of Securities issued by an Owner Trust
may include one or more classes of Certificates
and/or one or more classes of Notes. Each Series of
Securities issued by a Grantor Trust will include
one or more classes of Certificates, but will not
include any Notes. Each class of Notes will be is-
sued pursuant to an indenture (each, an "Inden-
ture") between the related Owner Trust and the In-
denture Trustee specified in the related Prospectus
Supplement. Each class of Certificates will be is-
sued pursuant to the related Trust Agreement (in
the case of Certificates issued by an Owner Trust)
or the related Pooling and Servicing Agreement (in
the case of Certificates issued by a Grantor
Trust). The related Prospectus Supplement will
specify which class or classes of Notes and/or Cer-
tificates of the related Series are being offered
thereby.
Notes..................... Each class of Notes will have a stated principal
amount and will bear interest at a specified rate
or rates (with respect to each class of Notes, the
"Interest Rate") as set forth in the related Pro-
spectus Supplement. Each class of Notes may have a
different Interest Rate, which may be a fixed,
variable or adjustable Interest Rate or any combi-
nation of the foregoing. The related Prospectus
Supplement will specify the Interest Rate, or the
method for determining the Interest Rate, for each
class of Notes.
A Series of Securities issued by an Owner Trust may
include two or more classes of Notes that differ as
to timing and priority of payments, seniority, al-
locations of losses, Interest Rate or amount of
payments of principal or interest. Additionally,
payments of principal or interest in respect of any
such class or classes may or may not be made upon
the occurrence of specified events or on the basis
of collections from designated portions of the Re-
ceivables Pool. If specified in the related Pro-
spectus Supplement, one or more classes of Notes
("Strip Notes") may be entitled to (i) principal
payments with disproportionate, nominal or no in-
terest payments or (ii) interest payments with dis-
proportionate, nominal or no principal payments.
See "Description of the Notes--Distributions of
Principal and Interest".
Unless otherwise specified in the related Prospec-
tus Supplement, Notes will be available for pur-
chase in denominations of $1,000 and integral mul-
tiples thereof and will be available in book-entry
form only. Noteholders will be able to receive De-
finitive Notes only in the limited circumstances
described herein or in the related Prospectus Sup-
plement. See "Certain Information Regarding the Se-
curities--Definitive Securities".
If the Master Servicer exercises its option to pur-
chase the Receivables of a Trust (or if not and, if
and to the extent provided in the related Prospec-
tus Supplement, satisfactory bids for the purchase
of such Receivables are received) in the manner and
on the respective terms and conditions described
under "Description of the Transfer and Servicing
Agreements--Termination", all of the outstanding
Notes will be redeemed as set forth in the related
Prospectus Supplement. In addition, if the related
Prospectus Supplement provides that the property of
a Trust will include monies in a Pre-Funding Ac-
count or Collateral
4
<PAGE>
Reinvestment Account that will be used to purchase
additional Receivables after the Closing Date, one
or more classes of the outstanding Notes may be
subject to partial redemption at or immediately
following the end of the period specified in such
Prospectus Supplement for the purchase of such ad-
ditional Receivables in the manner and to the ex-
tent specified in the related Prospectus Supple-
ment.
The Certificates.......... Each class of Certificates will have a stated cer-
tificate balance (the "Certificate Balance") and
will accrue interest on such Certificate Balance at
a specified rate (with respect to each class of
Certificates, the "Pass-Through Rate") as set forth
in the related Prospectus Supplement. Each class of
Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable
Pass-Through Rate, or any combination of the fore-
going. The related Prospectus Supplement will spec-
ify the Pass-Through Rate, or the method for deter-
mining the applicable Pass-Through Rate, for each
class of Certificates.
A Series of Securities may include two or more
classes of Certificates that differ as to timing
and priority of distributions, seniority, alloca-
tions of losses, Pass-Through Rate or amount of
distributions in respect of principal or interest.
Additionally, distributions in respect of principal
or interest in respect of any such class or classes
may or may not be made upon the occurrence of spec-
ified events or on the basis of collections from
designated portions of the related Receivables
Pool. If specified in the related Prospectus Sup-
plement, one or more classes of Certificates
("Strip Certificates") may be entitled to (i) prin-
cipal distributions with disproportionate, nominal
or no interest distributions or (ii) interest dis-
tributions with disproportionate, nominal or no
principal distributions. See "Description of the
Certificates--Distributions of Principal and Inter-
est". If a Series of Securities issued by an Owner
Trust includes one or more classes of Notes, dis-
tributions in respect of the Certificates may be
subordinated in priority of payment to payments on
the Notes to the extent specified in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospec-
tus Supplement, Certificates will be available for
purchase in a minimum denomination of $20,000 and
in integral multiples of $1,000 in excess thereof
and will be available in book-entry form only.
Certificateholders will be able to receive Defini-
tive Certificates only in the limited circumstances
described herein or in the related Prospectus Sup-
plement. See "Certain Information Regarding the Se-
curities--Definitive Securities".
If the Master Servicer or any Subservicer exercises
its option to purchase the Receivables of a Trust
(or if not and, if and to the extent provided in
the related Prospectus Supplement, satisfactory
bids for the purchase of such Receivables are re-
ceived), in the manner and on the respective terms
and conditions described under "Description of the
Transfer and Servicing Agreements--Termination",
the Certificates will be prepaid as set forth in
the related Prospectus Supplement. In addition, if
the related Prospectus Supplement provides that the
property
5
<PAGE>
of a Trust will include a Pre-Funding Account or
Collateral Reinvestment Account that will be used
to purchase additional Receivables after the Clos-
ing Date, one or more classes of Certificates may
be subject to a partial prepayment of principal at
or immediately following the end of the period
specified in such Prospectus Supplement for the
purchase of such additional Receivables, in the
manner and to the extent specified in the related
Prospectus Supplement.
The Trust Property........ The property of each Trust will include a pool of
simple interest or precomputed interest motor vehi-
cle installment sale contracts or motor vehicle in-
stallment loans secured by new and used automo-
biles, vans and light duty trucks (the "Receiv-
ables"), including the right to receive payments
received or due on or with respect to such Receiv-
ables on and after the date or dates specified in
the related Prospectus Supplement (each, a "Cutoff
Date"), security interests in the vehicles financed
thereby (the "Financed Vehicles"), and any proceeds
from claims under certain related insurance poli-
cies. On the date of issuance of a Series of Secu-
rities specified in the related Prospectus Supple-
ment (the "Closing Date"), the Depositor will con-
vey Receivables having the aggregate principal bal-
ance specified in such Prospectus Supplement as of
the Cutoff Date specified therein to such Trust
pursuant to either (i) a Pooling and Servicing
Agreement (in the case of a Grantor Trust) or (ii)
a sale and servicing agreement (a "Sale and Servic-
ing Agreement") among the Depositor, the Master
Servicer, such Trust and, if so specified in the
related Prospectus Supplement, one or more Origina-
tors of the related Receivables (in the case of an
Owner Trust). The property of each Trust also will
include amounts on deposit in, or certain rights
with respect to, certain trust accounts, including
the related Collection Account, any Pre-Funding Ac-
count, any Collateral Reinvestment Account and any
other account identified in the applicable Prospec-
tus Supplement. See "Description of the Transfer
and Servicing Agreements--Trust Accounts".
If the related Prospectus Supplement provides that
the property of a Trust will include monies ini-
tially deposited into an account (a "Pre-Funding
Account") to purchase additional Receivables after
the Closing Date, the Depositor will be obligated
pursuant to the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, to
sell additional Receivables (the "Subsequent Re-
ceivables") to the related Trust, subject only to
the availability thereof, having an aggregate prin-
cipal balance approximately equal to the amount de-
posited to the Pre-Funding Account on the Closing
Date (the "Pre-Funded Amount"), and the Trust will
be obligated to purchase such Subsequent Receiv-
ables (subject to the satisfaction of certain con-
ditions set forth in such Sale and Servicing Agree-
ment or Pooling and Servicing Agreement) from time
to time during the period (the "Funding Period")
specified in such Prospectus Supplement for the
purchase of such Subsequent Receivables. Any Subse-
quent Receivables conveyed to a Trust will have
been acquired by the Depositor, directly or indi-
rectly, from the same Originator or Originators
from which the Depositor
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<PAGE>
acquired the Receivables conveyed to such Trust on
the related Closing Date (the "Initial Receiv-
ables") and will meet all of the credit and other
criteria set forth herein and in the related Pro-
spectus Supplement. See "Risk Factors--Sales of
Subsequent Receivables", "The Receivables Pools"
and "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables"
herein and "The Receivables Pool" in the related
Prospectus Supplement.
In addition, if so provided in the related Prospec-
tus Supplement, in lieu of a Funding Period, during
the period (the "Revolving Period") from the Clos-
ing Date until the first to occur of (i) such event
or events as are described in the related Prospec-
tus Supplement (each, an "Early Amortization
Event") or (ii) the last day of the Collection Pe-
riod preceding a Distribution Date specified in the
related Prospectus Supplement, an account will be
maintained in the name of the Trustee, the Owner
Trustee or the Indenture Trustee (the "Collateral
Reinvestment Account"). The amount on deposit in
the Collateral Reinvestment Account on the Closing
Date may, if so specified in the related Prospectus
Supplement, include an amount specified in the re-
lated Prospectus Supplement (which will be depos-
ited out of the net proceeds of the sale of the re-
lated Securities) and, during the Revolving Period
principal will not be distributed on the Securities
of the related series and principal collections,
together with (if and to the extent described in
the related Prospectus Supplement) interest collec-
tions on the Receivables that are in excess of
amounts required to be distributed therefrom will
be deposited from time to time in the Collateral
Reinvestment Account and will be used to purchase
Subsequent Receivables.
As used in this Prospectus, the term Receivables
will include the Initial Receivables transferred to
a Trust on the Closing Date as well as any Subse-
quent Receivables transferred to such Trust during
the related Funding Period or Revolving Period, if
any.
Amounts on deposit in any Pre-Funding Account dur-
ing the related Funding Period or in any Collateral
Reinvestment Account during the related Revolving
Period will be invested by the Trustee (as directed
by the Master Servicer) in Eligible Investments,
and any resultant investment income, less any re-
lated investment expenses ("Investment Income"),
will be added, on the Distribution Date immediately
following the date on which such Investment Income
is paid to the Trust, to interest collections on
the Receivables for the related Collection Period
and distributed in the manner specified in the re-
lated Prospectus Supplement. Any funds remaining in
a Pre-Funding Account at the end of the related
Funding Period or in a Collateral Reinvestment Ac-
count at the end of the related Revolving Period
will be distributed as a prepayment or early dis-
tribution of principal to holders of one or more
classes of the Notes and/or Certificates of the re-
lated Series of Securities, in the amounts and in
accordance with the payment priorities specified in
the related Prospectus Supplement. In no event will
a Funding Period continue for more than one year
after the related Closing Date. See
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<PAGE>
"Risk Factors--Pre-Funding Accounts", "--Sales of
Subsequent Receivables" and "Description of the
Transfer and Servicing Agreements--Trust Accounts--
Pre-Funding Accounts".
Credit and Cash Flow
Enhancement.............. If and to the extent specified in the related Pro-
spectus Supplement, credit enhancement with respect
to a Trust or any class or classes of Securities
may include any one or more of the following: sub-
ordination of one or more other classes of Securi-
ties of the same Series, reserve funds, spread ac-
counts, surety bonds, insurance policies, letters
of credit, credit or liquidity facilities, cash
collateral accounts, over-collateralization, guar-
anteed investment contracts, swaps or other inter-
est rate protection agreements, repurchase obliga-
tions, other agreements with respect to third party
payments or other support, cash deposits, or other
arrangements. To the extent specified in the re-
lated Prospectus Supplement, a form of credit en-
hancement with respect to a Trust or a class or
classes of Securities may be subject to certain
limitations and exclusions from coverage thereun-
der.
Transfer and Servicing
Agreements............... The Depositor will sell the related Receivables to
a Trust pursuant to a Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable.
The rights and benefits of an Owner Trust under any
such Sale and Servicing Agreement will, if such
Owner Trust issues Notes, be assigned to the re-
lated Indenture Trustee as collateral for such
Notes pursuant to the Indenture. The Master
Servicer will agree with each Trust to be responsi-
ble for servicing, managing, maintaining custody of
and making collections on the Receivables, either
directly or indirectly through one or more
Subservicers. In addition, the Master Servicer may
undertake certain administrative duties under an
Administration Agreement with respect to an Owner
Trust.
Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will advance sched-
uled payments under each Precomputed Receivable
that are not timely made (a "Precomputed Advance")
to the extent that the Master Servicer, in its sole
discretion, expects to recoup such Precomputed Ad-
vance from subsequent payments on or with respect
to such Receivable or from other Precomputed Re-
ceivables. If so provided in the related Prospectus
Supplement, with respect to Simple Interest Receiv-
ables, the Master Servicer will advance any inter-
est shortfall (a "Simple Interest Advance"). As
used herein, "Advance" means any Precomputed Ad-
vance or Simple Interest Advance. The Master
Servicer will be entitled to reimbursement of Ad-
vances from subsequent payments on or with respect
to the Receivables to the extent described in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospec-
tus Supplement, the Master Servicer will receive a
fee for servicing the Receivables of each Trust
equal to the percentage specified in the related
Prospectus Supplement of the aggregate outstanding
principal balance of the related
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<PAGE>
Receivables Pool, plus certain late fees, prepay-
ment charges and other administrative fees or simi-
lar charges. Fees payable to any Subservicer as
compensation for performing certain servicing func-
tions with respect to all or a portion of the Re-
ceivables in a Receivables Pool will be the respon-
sibility of the Master Servicer and will not be an
additional expense of the Trust. See "Description
of the Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses" herein.
Tax Considerations........ If a Prospectus Supplement specifies that the re-
lated Trust will be a partnership or will not issue
any classes of Certificates, upon the issuance of
the related Series of Securities (a) Federal Tax
Counsel or Special Federal Tax Counsel to such
Trust will deliver an opinion to the effect that,
for federal income tax purposes: (i) any Notes of
such Series will be characterized as debt and (ii)
such Trust will not be characterized as an associa-
tion or a publicly traded partnership taxable as a
corporation and (b) local tax counsel to such Trust
will deliver an opinion to the effect that the same
characterizations apply for applicable state income
and business tax purposes. In respect of any such
Series, each holder of a Note (each, a "Notehold-
er"), by the acceptance of a Note of such Series,
will agree to treat such Note as indebtedness, and
each holder of a Certificate, if any, (each, a
"Certificateholder"), by the acceptance of a Cer-
tificate of such Series, will agree to treat such
Trust as a partnership in which such
Certificateholder is a partner for federal income
and for state income and business tax purposes. Al-
ternative characterizations of such Trust and any
such Certificates are possible, but would not re-
sult in materially adverse tax consequences to
Certificateholders.
If a Prospectus Supplement specifies that the re-
lated Trust will be a Grantor Trust, upon the issu-
ance of the related Series of Certificates Federal
Tax Counsel or Special Federal Tax Counsel to such
Trust will deliver an opinion to the effect that
such Trust will be treated as a grantor trust for
federal income tax purposes and will not be subject
to federal income tax.
If a Prospectus Supplement specifies that the re-
lated Trust will issue one or more classes of Cer-
tificates treated as debt, upon the issuance of the
related Series of Securities (a) Federal Tax Coun-
sel or Special Federal Tax Counsel to such Trust
will deliver an opinion to the effect that for fed-
eral income tax purposes: (i) unless provided oth-
erwise in the Prospectus Supplement, any Certifi-
cates of such Series will be characterized as debt
and (ii) such Trust will not be characterized as an
association or a publicly traded partnership tax-
able as a corporation and (b) local tax counsel to
such Trust will deliver an opinion to the effect
that the same characterizations apply for applica-
ble state income and business tax purposes. In re-
spect of any such Series, each Certificateholder,
by the acceptance of a Certificate of such Series,
will agree to treat such Certificate as indebted-
ness. Alternative characterizations of such Trust
and such Certificates are possible, but would not
result in materially adverse tax consequences to
Certificateholders.
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<PAGE>
See "Material Federal Income Tax Consequences" for
additional information regarding the application of
federal tax laws.
ERISA Considerations...... Subject to the considerations discussed under
"ERISA Considerations" herein and in the related
Prospectus Supplement, and if so specified therein,
(i) the Notes of any Series issued by an Owner
Trust and (ii) any Certificates issued by an Owner
Trust or a Grantor Trust that meet certain Depart-
ment of Labor requirements are eligible for pur-
chase by employee benefit plans.
Unless otherwise specified in the related Prospec-
tus Supplement, the Certificates of any Series that
are subordinated to any other Security of that Se-
ries may not be acquired by any employee benefit
plan subject to the Employee Retirement Income Se-
curity Act of 1974, as amended, or by any individ-
ual retirement account. See "ERISA Considerations"
herein and in the related Prospectus Supplement.
Ratings................... It is a condition to the issuance of the Securities
to be offered hereunder that they be rated in one
of the four highest rating categories by at least
one nationally recognized statistical rating organ-
ization. A rating is not a recommendation to pur-
chase, hold or sell Securities inasmuch as such
rating does not comment as to market price or suit-
ability for a particular investor. Ratings of Secu-
rities will address the likelihood of the payment
of principal and interest thereon pursuant to their
terms. The ratings of Securities will not address
the likelihood of an Early Amortization Event.
There can be no assurance that a rating will remain
for a given period of time or that a rating will
not be lowered or withdrawn entirely by a rating
agency if in its judgment circumstances in the fu-
ture so warrant. For more detailed information re-
garding the ratings assigned to any class of a par-
ticular Series of Securities, see "Summary of
Terms--Rating of the Securities" and "Risk Fac-
tors--Ratings of the Securities" in the related
Prospectus Supplement.
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<PAGE>
RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Pre-Funding Accounts and Collateral Reinvestment Accounts. If so provided in
the related Prospectus Supplement, on the Closing Date the Depositor will
deposit the Pre-Funded Amount specified in such Prospectus Supplement into the
Pre-Funding Account. In no event will the Pre-Funded Amount exceed 40% of the
initial aggregate principal amount of the Notes and/or Certificates of the
related Series of Securities. In addition, if so specified in the related
Prospectus Supplement, on the Closing Date the Depositor will deposit the
amount, if any, specified in such Prospectus Supplement into the Collateral
Reinvestment Account and, during the Revolving Period, principal will not be
distributed on the Securities of the related Series and principal collections,
together with (if and to the extent described in the related Prospectus
Supplement) interest collections on the Receivables that are in excess of
amounts required to be distributed therefrom will be deposited from time to
time in the Collateral Reinvestment Account. The Pre-Funded Amount and the
amounts on deposit in the Collateral Reinvestment Account will be used to
purchase Subsequent Receivables from the Depositor (which, in turn, will
acquire such Subsequent Receivables from the Originator or Originators
specified in the related Prospectus Supplement) from time to time during the
related Funding Period or Revolving Period. During the related Funding Period
or Revolving Period and until such amounts are applied by the Trustee to
purchase Subsequent Receivables, amounts on deposit in the Pre-Funding Account
or the Collateral Reinvestment Account will be invested by the Trustee (as
instructed by the Master Servicer) in Eligible Investments, and any investment
income with respect thereto (net of any related investment expenses) will be
added to amounts received on or in respect of the Receivables during the
related Collection Period and allocated to interest and will be distributed on
the Distribution Date pursuant to the payment priorities specified in the
related Prospectus Supplement. No Funding Period will end more than one year
after the related Closing Date.
To the extent that the entire Pre-Funded Amount or the entire amount on
deposit in the Collateral Reinvestment Account has not been applied to the
purchase of Subsequent Receivables by the end of the related Funding Period or
Revolving Period, any amounts remaining in the Pre-Funding Account or the
Collateral Reinvestment Account will be distributed as a prepayment of
principal to Noteholders and Certificateholders (collectively the
"Securityholders") on the Distribution Date at or immediately following the
end of the Funding Period or Revolving Period, in the amounts and pursuant to
the priorities set forth in the related Prospectus Supplement. Any such
prepayment of principal could have the effect of shortening the weighted
average life of the Securities of the related Series. In addition, holders of
the related Securities will bear the risk that they may be unable to reinvest
any such principal prepayment at yields at least equal to the yield on such
Securities.
Sales of Subsequent Receivables. If so provided in the related Prospectus
Supplement, the Depositor will be obligated pursuant to the Pooling and
Servicing Agreement or Sale and Servicing Agreement, as applicable, to sell
Subsequent Receivables to the Trust, and the Trust will be obligated to
purchase such Subsequent Receivables, subject only to the satisfaction of
certain conditions set forth in the Pooling and Servicing Agreement or Sale
and Servicing Agreement, as applicable, and described in the related
Prospectus Supplement. If the principal amount of the eligible Subsequent
Receivables acquired by the Depositor from the applicable Originator or
Originators during a Funding Period or Revolving Period is less than the Pre-
Funded Amount or the amount on deposit in the Collateral Reinvestment Account,
as the case may be, the Depositor may have insufficient Subsequent Receivables
to transfer to a Trust and holders of one or more classes of the related
Series of Securities may receive a prepayment or early distribution of
principal at the end of the Funding Period or Revolving Period as described
above under "Pre-Funding Accounts and Collateral Reinvestment Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Pooling and Servicing Agreement or Sale and Servicing Agreement,
as applicable; (ii) the Depositor shall not have selected such Subsequent
Receivables in a manner that is adverse to the interests of holders of the
related Securities;
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<PAGE>
(iii) as of the respective Cutoff Dates for such Subsequent Receivables, all
of the Receivables in the Trust, including the Subsequent Receivables to be
conveyed to the Trust as of such date, must satisfy the parameters described
under "The Receivables Pools" herein and "The Receivables Pool" in the related
Prospectus Supplement; and (iv) the Depositor must execute and deliver to such
Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition subsequent, among others, which must be
satisfied within the applicable time period specified in the related
Prospectus Supplement, that the Depositor deliver certain legal opinions to
the related Trustee with respect to the validity of the conveyance of the
Subsequent Receivables to the Trust. If any such conditions precedent or
conditions subsequent are not met with respect to any Subsequent Receivables
within the time period specified in the related Prospectus Supplement, the
Originator or the Depositor, as specified in the related Prospectus
Supplement, will be required to repurchase such Subsequent Receivables from
the related Trust, at a purchase price equal to the related Repurchase Amounts
therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary significantly as Subsequent Receivables are conveyed to such
Trust from time to time during the Funding Period or Revolving Period. See
"The Receivables Pools" herein.
Certain Legal Aspects--Security Interests in Financed Vehicles. In
connection with its transfer of Receivables to a Trust, the Originator of such
Receivables will transfer and assign its security interest in the related
Financed Vehicles to the Depositor, and the Depositor will transfer and assign
such security interest to the Trust. However, because of the administrative
burden and expense, neither the Originator nor the Depositor will amend any
certificates of title to identify such Trust as the new secured party on the
certificates of title relating to such Financed Vehicles. In the absence of
such amendments, such Trust may not have a perfected security interest in such
Financed Vehicles in certain states. As more fully described in the related
Prospectus Supplement, each Originator will make certain representations and
warranties with respect to its conveyance of a perfected security interest in
a Financed Vehicle to a related Trust and the Originator will be obligated to
repurchase the related Receivable from the Trust if there is a breach of such
representations and warranties that materially adversely affects the interest
of the Trust in such Receivable and such breach has not been cured.
If a Trust does not have a perfected security interest in a Financed
Vehicle, its ability to realize on such Financed Vehicle in the event of a
default may be adversely affected. To the extent the security interest is
perfected, the Trust will have a prior claim over subsequent purchasers of
such Financed Vehicle and holders of subsequently perfected security
interests; however, the Trust could lose its security interest or the priority
of its security interest as against liens for repairs of Financed Vehicles or
for taxes unpaid by an Obligor under a Receivable or through fraud or
negligence. None of the applicable Originator, the Depositor or the Master
Servicer will have any obligation to repurchase a Receivable in respect of
which a Trust so loses its security interest or the priority of its security
interest in the related Financed Vehicle after the date such security interest
was conveyed to such Trust. See "Certain Legal Aspects of the Receivables--
Security Interests in Financed Vehicles".
Certain Legal Aspects--Consumer Protection Laws. Federal and state consumer
protection laws impose requirements on creditors in connection with extensions
of credit and collections of retail installment loans, and certain of these
laws make an assignee of such a loan (such as a Trust) liable to the obligor
thereon for any violation by the lender. To the extent specified herein and in
the related Prospectus Supplement, the Originator will be obligated to
repurchase any Receivable that fails to comply with such legal requirements,
and the Depositor and the Master Servicer will undertake to enforce such
obligation on behalf of the Trust. See "Certain Legal Aspects of the
Receivables--Consumer Protection Laws".
Certain Legal Aspects--Insolvency Considerations. The Depositor will take
steps in structuring the transactions contemplated hereby that are intended to
ensure that the sale of the Receivables from each Originator to the Depositor
and from the Depositor to a Trust is, in each such case, a valid sale of the
Receivables.
12
<PAGE>
Notwithstanding the foregoing, if an Originator or the Depositor were to
become a debtor in a bankruptcy case and a creditor or trustee-in-bankruptcy
of such debtor or such debtor itself were to take the position that the sale
of Receivables by such debtor should be treated as a pledge of such
Receivables to secure a borrowing of such debtor, then delays in payments of
collections of Receivables to Securityholders could occur or (should the court
rule in favor of any such trustee, creditor or debtor) reductions in the
amounts of such payments could result. If a transfer of Receivables by an
Originator or the Depositor is treated as a pledge instead of a sale by it, a
tax or government lien on its property arising before the transfer of such
Receivables by such debtor may have priority over the related Trust's interest
in such Receivables. If the transactions contemplated herein are treated as a
sale, the Receivables would not be part of the Originators' or the Depositor's
bankruptcy estate and would not be available to creditors of the Originators
or the Depositor.
Additionally, because the Originators may have purchased the Receivables
from other originators or dealers, it is possible that (as a result of
recourse retained against such other originators or dealers or otherwise) the
transfer of the Receivables from such originators or dealers to the Originator
could be treated as a pledge rather than a sale and the corresponding negative
implications for timing and receipt of payments by a Trust could apply.
The U.S. Court of Appeals for the Tenth Circuit in its decision in Octagon
Gas Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May 27,
1993) determined that "accounts", a defined term under the Uniform Commercial
Code, would be included in the bankruptcy estate of a transferor regardless of
whether the transfer is treated as a sale or a secured loan. Although the
Receivables are likely to be viewed as "chattel paper", as defined under the
Uniform Commercial Code, rather than as accounts, the Octagon holding is
equally applicable to chattel paper. The circumstances under which the Octagon
ruling would apply are not fully known and the extent to which the Octagon
decision will be followed in other courts or outside of the Tenth Circuit is
not certain. If the holding in the Octagon case were applied in a bankruptcy
of an Originator, the Depositor, or an originator or dealer which sells
Receivables to the Originator, even if the transfer of Receivables by it were
treated as a sale, the Receivables would be part of its bankruptcy estate and
would be subject to claims of certain creditors, and delays and reductions in
payments to the Securityholders could result.
If so specified in the related Prospectus Supplement, with respect to each
Trust that is not a grantor trust, if an Insolvency Event occurs with respect
to the Company, the Indenture Trustee or Trustee for such Trust will promptly
sell, dispose or otherwise liquidate the related Receivables in a commercially
reasonable manner on commercially reasonable terms, except under certain
limited circumstances. The proceeds from any such sale, disposition or
liquidation of Receivables will be treated as collections on the Receivables
and deposited in the Collection Account of such Trust. If the proceeds from
the liquidation of the Receivables and any amounts on deposit in the Note
Distribution Account, if any, and the Certificate Distribution Account, if
any, with respect to any such Trust and any amounts available from any credit
enhancement are not sufficient to pay the Notes and/or the Certificates of the
related Series in full, the amount of principal returned to such Noteholders
and/or the Certificateholders will be reduced and such Noteholders and/or
Certificateholders will incur a loss. See "Description of the Transfer and
Servicing Agreements--Insolvency Event".
Nature of Contracts and Obligors. If and to the extent specified in the
related Prospectus Supplement, the Obligors on the Receivables to be conveyed
to a Trust may include "sub-prime" borrowers who have a low income level
and/or limited or adverse credit histories. Typical "sub-prime" borrowers
include young borrowers (18 to 25 years old) who do not have a credit history,
previously bankrupt borrowers who desire to reestablish their credit history,
slow payers of credit cards and department store accounts and borrowers who
desire payment terms slightly longer than the maximum term permitted by
traditional sources of consumer credit. The average interest rate charged by
the Originators to such "sub-prime" borrowers is generally higher than that
charged to more creditworthy customers. The payment experience on receivables
of obligors with this credit profile is likely to be different from that on
receivables of traditional auto financing sources in that default rates are
likely to be higher. In addition, the payment experience on such receivables
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the
obligors and
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<PAGE>
the APRs of such receivables, the historical credit loss and delinquency rates
on such receivables are generally higher than those experienced by banks and
the captive finance companies of the automobile manufacturers.
Social, Economic and Other Factors. The ability of the Obligors to make
payments on the Receivables, as well as the prepayment experience thereon,
will be affected by a variety of social and economic factors. Economic factors
include interest rates, unemployment levels, the rate of inflation and
consumer perceptions of economic conditions generally. However, the Depositor
is unable to determine and has no basis to predict whether or to what extent
economic or social factors will affect the Receivables.
Limited Obligation of the Depositor. None of the Depositor, any Originator
or any of their affiliates will insure or be obligated to make any payments in
respect of the Notes, the Certificates or the Receivables of a given Trust.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one or more
classes of Certificates of a Series may be subordinated in priority of payment
to interest and principal due on the Notes, if any, of such Series or one or
more classes of Certificates of such Series. Moreover, none of the Trusts will
have, nor will any Trust be permitted or expected to have, any significant
assets or sources of funds other than the Receivables and, to the extent
provided in the related Prospectus Supplement, a Pre-Funding Account, a
Collateral Reinvestment Account and reserve account or other form of credit
enhancement. The Notes, if any, of any Series will represent obligations
solely of, and the Certificates of any Series will represent interests solely
in, the related Trust, and neither the Notes nor the Certificates of any such
Series will represent obligations of or interests in, or be insured or
guaranteed by, the Depositor, any Originator, any of their affiliates or any
other entity. Consequently, holders of the Securities of any Series must rely
for repayment upon payments on the related Receivables and, if and to the
extent available, amounts available under any available form of credit
enhancement, all as specified in the related Prospectus Supplement.
Maturity and Prepayment Considerations. All of the Receivables are
prepayable at any time. When used herein with respect to any Receivable, the
term "prepayment" includes prepayments in full, partial prepayments (including
those related to rebates of extended warranty contract costs and insurance
premiums) and liquidations due to default, as well as receipts of proceeds
from physical damage, credit life and disability insurance policies and
Repurchase Amounts with respect to certain other Receivables repurchased for
administrative reasons. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors. The rate of
prepayment on the Receivables also may be influenced by the structure of the
underlying loans. See "Weighted Average Life of the Securities". In addition,
the applicable Originator may be obligated to repurchase Receivables in
respect of which it is in breach of certain representations, warranties or
covenants. See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Receivables". Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables held by a Trust will be borne
entirely by the holders of the related Series of Securities. See also
"Description of the Transfer and Servicing Agreements--Termination" regarding
the Master Servicer's or one or more Subservicers' option to purchase the
Receivables of a given Receivables Pool and "--Insolvency Event" regarding the
sale of the Receivables by certain Owner Trusts if an Insolvency Event occurs
with respect to the Company.
Holders of Notes and Certificates should consider, in the case of Securities
purchased at a discount, the risk that a slower than anticipated rate of
principal payments 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 principal
payments on the Receivables could result in an actual yield that is less than
the anticipated yield.
Servicer Default. If so provided in the related Prospectus Supplement with
respect to a Series of Securities issued by an Owner Trust that includes
Notes, upon the occurrence of a Servicer Default the related Indenture Trustee
or Noteholders may remove the Master Servicer without the consent of the
related Trustee or any Certificateholders. The Trustee or the
Certificateholders with respect to such Series that includes Notes will not
14
<PAGE>
have the ability to remove the Master Servicer if a Servicer Default occurs.
In addition, the Noteholders with respect to each Series that includes Notes
will have the ability, with certain specified exceptions, to waive defaults by
the Master Servicer, including defaults that could materially and adversely
affect the Certificateholders of such Series. See "Description of the Transfer
and Servicing Agreements--Waiver of Past Defaults".
Ratings of the Securities. It is a condition of the issuance of the
Securities to be offered hereunder that they be rated in one of the four
highest rating categories by at least one nationally recognized statistical
rating organization. A rating is not a recommendation to purchase, hold or
sell Securities inasmuch as a rating does not comment as to market price or
suitability for a particular investor. The ratings of the Securities will
address the likelihood of the payment of principal and interest thereon
pursuant to their terms. The ratings of the Securities will not address the
likelihood of an Early Amortization Event. There can be no assurance that a
rating will remain in effect for any given period of time or that a rating
will not be lowered or withdrawn entirely by a rating agency if in its
judgment circumstances in the future so warrant. For more detailed information
regarding the ratings assigned to any class of a particular Series of
Certificates, see "Summary of Terms--Rating of the Securities" and "Risk
Factors--Ratings of the Securities" in the related Prospectus Supplement.
Book-Entry Registration. Unless otherwise specified in the related
Prospectus Supplement, each class of the Securities of a given Series
initially will be represented by one or more certificates registered in the
name of Cede & Co. ("Cede") or any other nominee of The Depository Trust
Company ("DTC") set forth in the related Prospectus Supplement, and will not
be registered in the names of the holders of the Securities of such Series or
their nominees. Because of this, unless and until Definitive Securities for
such Series are issued, holders of such Securities will not be recognized by
the applicable Trustee or Indenture Trustee as "Certificateholders",
"Noteholders" or "Securityholders", as the case may be (as such terms are used
herein or in the related Pooling and Servicing Agreement or the related
Indenture and Trust Agreement, as applicable). Hence, until Definitive
Securities are issued, holders of such Securities will be able to exercise the
rights of Securityholders only indirectly through DTC and its participating
organizations. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Securities".
THE TRUSTS
With respect to each Series of Securities, the Depositor will establish a
separate Trust pursuant to a Trust Agreement or Pooling and Servicing
Agreement, as applicable, for the transactions described herein and in the
related Prospectus Supplement. The property of each Trust will include a pool
(a "Receivables Pool") of Receivables secured by new and used automobiles,
vans or light duty trucks and all payments due thereunder on and after the
applicable Cutoff Date in the case of Precomputed Receivables and all payments
received thereunder on and after the applicable Cutoff Date in the case of
Simple Interest Receivables. On the applicable Closing Date, after the
issuance of the Notes and/or Certificates of a given Series, the Depositor
will sell Receivables to the Trust in the outstanding principal amount
specified in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, the property of a Trust may also include a Pre-Funded
Amount, which the Depositor will deposit to the Pre-Funding Account on the
Closing Date and which will be used by the Trust to purchase Subsequent
Receivables from the Depositor during the related Funding Period. In addition,
if so provided in the related Prospectus Supplement, the property of a Trust
may also include monies deposited by the Depositor to the Collateral
Reinvestment Account on the Closing Date and, during the Revolving Period,
principal will not be distributed on the Securities of the related Series and
principal collections, together with (if and to the extent described in the
related Prospectus Supplement) interest collections on the Receivables that
are in excess of amounts required to be distributed therefrom will be
deposited from time to time in the Collateral Reinvestment Account and will be
used by the Trust to purchase Subsequent Receivables during the related
Revolving Period. Any Subsequent Receivables so conveyed to a Trust will also
be assets of such Trust, subject, in the case of any Owner Trust that issues
Notes, to the prior rights therein of the related Indenture Trustee and the
Noteholders. The property of each Trust will also include (i) such amounts
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as from time to time may be held in separate trust accounts established and
maintained pursuant to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, and the proceeds of such accounts, as
described herein and in the related Prospectus Supplement; (ii) security
interests in the Financed Vehicles and any other interest of the Depositor in
such Financed Vehicles; (iii) the rights to proceeds from claims on certain
physical damage, credit life and disability insurance policies covering the
Financed Vehicles or the Obligors, as the case may be; (iv) any property that
shall have secured a Receivable and that shall have been acquired by the
applicable Trust; and (v) any and all proceeds of the foregoing. To the extent
specified in the related Prospectus Supplement, a reserve account or other
form of credit enhancement may be a part of the property of a given Trust or
may be held by the Trustee for the benefit of holders of the related
Securities.
If the protection provided to (i) holders of the Notes, if any, issued by an
Owner Trust by the subordination of the related Certificates, if any, and by
the reserve account, if any, or any other available form of credit enhancement
for such Series or (ii) Certificateholders, if any, by any such reserve
account or other form of credit enhancement is insufficient, such Noteholders
or Certificateholders, as the case may be, will have to look to payments by or
on behalf of Obligors on the related Receivables and the proceeds from the
repossession and sale of Financed Vehicles that secure defaulted Receivables
for distributions of principal and interest on the Securities. In such event,
certain factors, such as the applicable Trust's not having perfected security
interests in all of the Financed Vehicles, may limit the ability of a Trust to
realize on the collateral securing the related Receivables, or may limit the
amount realized to less than the amount due under the related Receivables.
Securityholders may thus be subject to delays in payment on, or may incur
losses on their investment in, such Securities as a result of defaults or
delinquencies by Obligors and depreciation in the value of the related
Financed Vehicles. See "Description of the Transfer and Servicing Agreements--
Credit and Cash Flow Enhancement" and "Certain Legal Aspects of the
Receivables".
The Master Servicer for each Trust will be responsible for the servicing of
the Receivables held by the Trust and will receive fees for such services. The
Master Servicer may subcontract all or any portion of its obligations as
Master Servicer to qualified Subservicers, but the Master Servicer will not be
relieved thereby of its liability with respect to such obligations. Any fees
due to any such Subservicers will be the responsibility of the Master Servicer
and will not be an additional obligation of the related Trust. See
"Description of the Transfer and Servicing Agreements--Servicing Compensation
and Payment of Expenses" herein.
THE TRUSTEE
The Trustee for each Trust 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 and Sale and Servicing
Agreement or the related Pooling and Servicing Agreement, as applicable. A
Trustee may resign at any time, in which event the Master Servicer will be
obligated to appoint a successor trustee. The Administrator of any Owner Trust
that issues Notes and the Master Servicer with respect to any Grantor Trust
may also remove the related Trustee if such Trustee ceases to be eligible to
continue as Trustee under the related Trust Agreement or Pooling and Servicing
Agreement, as applicable, or if the Trustee becomes insolvent. In such
circumstances, the Administrator or Master Servicer, as applicable, will be
obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool have been or will be originated or
acquired by the Originators, and acquired by the Depositor from such
Originators, in the ordinary course of business. The Depositor expects that
each Receivable so acquired will have been originated or acquired by the
Originator thereof in accordance with the underwriting criteria specified in
the related Prospectus Supplement. Each Originator will be an entity generally
in the business of originating or acquiring Receivables, or an affiliate of
such an entity.
If so provided in the related Prospectus Supplement, each Receivable (i)
will be secured by a new or used vehicle, (ii) will provide for level monthly
payments (except for the last payment, which may be minimally different from
the level payments or which, in the case of a Balloon Payment Receivable, may
be a final balloon payment) that fully amortize the amount financed over the
original term to maturity of the related Contract (iii) will be a Precomputed
Receivable or a Simple Interest Receivable and (iv) will satisfy the other
criteria, if any, set forth in the related Prospectus Supplement.
"Precomputed Receivables" will consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level monthly installment payments. Each monthly
installment, including the monthly installment representing the final payment
on the Receivable, consists of (x) an amount of interest equal to 1/12 of the
APR under the related Contract multiplied by the unpaid principal balance of
the loan, plus (y) and an amount allocable to principal equal to the remainder
of the monthly payment. A Rule of 78's Receivable provides for the payment by
the obligor of a specified total amount of payments, payable in equal monthly
installments on each due date, which total represents the principal amount
financed plus add-on interest in an amount calculated at the stated APR for
the term of the receivable. The rate at which such amount of add-on interest
is earned and, correspondingly, the amount of each fixed monthly payment
allocated to reduction of the outstanding principal amount are calculated in
accordance with the Rule of 78's.
"Balloon Payment Receivables" are receivables secured by new and used
automobiles or light duty trucks with a final payment which is greater than
the scheduled monthly payments. A Balloon Payment Receivable provides for
amortization of the loan over a series of fixed level payment monthly
installments like an Actuarial Receivable, but also provides for a final
"balloon" payment due after payment of such monthly installments, which
payment may be substantially larger than the regular scheduled payments and
may result in a balloon payment at maturity which may be equal to a high
percentage of the original amount financed. If so specified in the related
Prospectus Supplement, the final balloon payment on a Balloon Payment
Receivable may be satisfied by one or more of (i) payment in full in cash of
such amount, (ii) transfer of the vehicle to the Originator or its assignee
subject to certain conditions, or (iii) refinancing the balloon payment in
accordance with certain conditions. If so specified in the related Prospectus
Supplement, only the principal payments due prior to the final balloon payment
and not the final balloon payment will be included initially in the related
Trust.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed thereunder over a series of fixed level
monthly payments; however, unlike the monthly payment under an Actuarial
Receivable, each monthly payment consists of an installment of interest that
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 (calculated as a fraction of a calendar year) since the preceding
payment of interest was made. As payments are received under a Simple Interest
Receivable, 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
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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 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 may be
increased or decreased as necessary to repay the then outstanding principal
balance.
In the event of the prepayment in full (voluntarily or by acceleration) of a
Rule of 78's Receivable, under the terms of the contract a "refund" or
"rebate" will be made to the obligor of the portion of the total amount of
payments then due and payable and allocable to "unearned" add-on interest,
calculated in accordance with a method equivalent to the Rule of 78's. If an
Actuarial Receivable is prepaid in full, with minor variations based on state
law, the Actuarial Receivable requires that the rebate be calculated on the
basis of a constant interest rate. If a Simple Interest Receivable 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 78's Receivable
generally will be less than the amount of a rebate on an Actuarial Receivable
and generally will be less than the remaining scheduled payments of interest
that would have been due under a Simple Interest Receivable for which all
payments were made on schedule.
Unless otherwise provided in the related Prospectus Supplement, each Trust
will account for the Rule of 78's Receivables as if such Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of
78's Receivable in excess of the then outstanding principal balance of such
Receivable and accrued interest thereon (calculated pursuant to the actuarial
method) will not be paid to Noteholders or passed through to
Certificateholders of the applicable Series, but will be paid to the Master
Servicer as additional servicing compensation.
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition and distribution by annual percentage rate ("APR") and by states
of origination of the Receivables, the portion of such Receivables Pool
consisting of Precomputed Receivables and of Simple Interest Receivables, and
the portion of such Receivables Pool secured by new vehicles and by used
vehicles.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the experience of the applicable Originator
or Originators with respect to each Receivables Pool pertaining to
delinquencies, repossessions and net losses in respect of motor vehicle retail
installment sale contracts and installment loan contracts (referred to herein
collectively as "Contracts") will be set forth in each Prospectus Supplement.
There can be no assurance that the delinquency, repossession and net loss
experience on any Receivables Pool will be comparable to prior experience of
the applicable Originator or to such information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates, if
any, of any Series generally will be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may be
in the form of scheduled amortization or prepayments. (For this purpose, the
term "prepayments" includes prepayments in full, partial prepayments
(including those related to rebates of extended warranty contract costs and
insurance premiums), liquidations due to defaults, as well as receipts of
proceeds from physical damage, credit life and disability insurance policies,
and the Repurchase Amount of Receivables repurchased by the applicable
Originator or purchased by the Master Servicer for administrative reasons.)
The Receivables generally will be prepayable at any time without penalty to
the Obligor. The rate of prepayment of automotive receivables is influenced by
a variety of economic, social and other factors. The rate of prepayment on the
Receivables may
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also be influenced by the structure of the loan. In addition, under certain
circumstances, the applicable Originator will be obligated to repurchase
Receivables from a given Trust pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, as a result of
breaches of representations and warranties with respect to the Receivables,
and the Master Servicer will be obligated to purchase Receivables from such
Trust pursuant to such Sale and Servicing Agreement or Pooling and Servicing
Agreement as a result of breaches of certain covenants. See "Description of
the Transfer and Servicing Agreements--Sale and Assignment of Receivables" and
"--Servicing Procedures". See also "Description of the Transfer and Servicing
Agreements--Termination" regarding the Master Servicer's or one or more
Subservicers' option to purchase Receivables from a given Trust and "--
Insolvency Event" regarding the sale of the Receivables owned by certain Owner
Trusts if an Insolvency Event occurs with respect to the Company. Also, in the
case of a Trust having a Funding Period or Revolving Period, the addition of
Receivables to the Trust during such period could affect the weighted average
life of the Securities of the related series.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes and/or Certificates of a
Series on each Distribution Date since such amount will depend, in part, on
the amount of principal collected on the related Receivables Pool during the
applicable Collection Period. Any reinvestment risks resulting from a faster
or slower incidence of prepayment of Receivables will be borne entirely by the
Noteholders and Certificateholders. The related Prospectus Supplement may set
forth certain additional information with respect to the maturity and
prepayment considerations applicable to the particular Receivables Pool and
the related Series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit decimal
which the Master Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal balance
of such class of Notes, as of the applicable Distribution Date (after giving
effect to payments to be made on such Distribution Date), as a fraction of the
initial outstanding principal balance of such class of Notes. The "Certificate
Pool Factor" for each class of Certificates will be a seven-digit decimal
which the Master Servicer will compute prior to each distribution with respect
to such class of Certificates indicating the remaining Certificate Balance of
such class of Certificates, as of the applicable Distribution Date (after
giving effect to distributions to be made on such Distribution Date), as a
fraction of the initial Certificate Balance of such class of Certificates.
Each Note Pool Factor and each Certificate Pool Factor will be 1.0000000 as of
the related Closing Date, and thereafter will decline to reflect reductions in
the outstanding principal balance of the applicable class of Notes or the
reduction of the Certificate Balance of the applicable class of Certificates.
A Noteholder's portion of the aggregate outstanding principal balance of the
related class of Notes will be the product of (i) the original denomination of
such Noteholder's Note and (ii) the applicable Note Pool Factor at the time of
determination. A Certificateholder's portion of the aggregate outstanding
Certificate Balance for the related class of Certificates will be the product
of (a) the original denomination of such Certificateholder's Certificate and
(b) the applicable Certificate Pool Factor at the time of determination.
Unless otherwise provided in the related Prospectus Supplement, the
Noteholders, if any, and the Certificateholders, if any, will receive reports
on or about each Distribution Date concerning payments received on the
Receivables, the Pool Balance and each Note Pool Factor or Certificate Pool
Factor, as applicable. 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. See "Certain Information
Regarding the Securities--Statements to Securityholders".
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a Series will be applied by the
applicable Trust to the purchase of the Receivables from the
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Depositor and to make the deposit of the Pre-Funded Amount, if any, to the
Pre-Funding Account or the initial deposit, if any, to the Collateral
Reinvestment Account, if any. The Depositor will use the portion of such
proceeds paid to it for general corporate purposes.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on August 2, 1995
and is an indirect, limited purpose finance subsidiary of The Long-Term Credit
Bank of Japan, Limited and an affiliate of Greenwich Capital Markets, Inc. The
Long-Term Credit Bank of Japan, Limited is a bank organized under the laws of
Japan conducting commercial banking, corporate finance, capital markets and
financial advisory services on a global basis. Greenwich Capital Markets, Inc.
is a registered broker-dealer engaged in the U.S. government securities and
related capital markets business. The principal executive offices of the
Depositor are located at 600 Steamboat Road, Greenwich, Connecticut 06830;
telephone (203) 625-2700.
As described herein under "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables", the only obligations, if any,
of the Depositor with respect to a Series of Securities may be pursuant to
certain limited representations and warranties and limited undertakings to
repurchase or substitute Receivables under certain circumstances. Unless
otherwise specified in the applicable Prospectus Supplement, the Depositor
will have no servicing obligations or responsibilities with respect to any
Trust. The Depositor does not have, nor is it expected in the future to have,
any significant assets.
Neither the Depositor nor any of its affiliates, including Greenwich Capital
Markets, Inc., will insure or guarantee the Securities of any Series.
THE ORIGINATORS
Information regarding the Originator or Originators of the Receivables
conveyed to a Trust will be provided in the related Prospectus Supplement.
DESCRIPTION OF THE NOTES
GENERAL
Each Owner Trust will, if so specified in the related Prospectus Supplement,
issue one or more classes of Notes pursuant to an Indenture, a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The following summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
provisions of the related Notes and Indenture.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by one or more certificates registered
in the name of the nominee of DTC (together with any successor depository
selected by the Trust, the "Depository"). Unless otherwise specified in the
related Prospectus Supplement, the Notes will be available for purchase in
minimum denominations of $1,000 and integral multiples thereof in book-entry
form only. The Depositor has been informed by DTC that DTC's nominee will be
Cede unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the Notes
of each class. Unless and until Definitive Notes are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
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Noteholder will be entitled to receive a physical certificate representing a
Note. All references herein and in the related Prospectus Supplement to
actions by Noteholders refer to actions taken by DTC upon instructions from
its participating organizations, and all references herein and in the related
Prospectus Supplement to distributions, notices, reports and statements to
Noteholders refer to distributions, notices, reports and statements to DTC or
its nominee, as registered holder of the Notes, for distribution to
Noteholders in accordance with DTC's procedures with respect thereto. See
"Certain Information Regarding the Securities--Book-Entry Registration" and
"--Definitive Securities".
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a Series will be described in the related
Prospectus Supplement. The right of holders of any class of Notes to receive
payments of principal and interest may be senior or subordinate to the rights
of holders of one or more other class or classes of Notes of such Series, as
described in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. If so provided in the related Prospectus
Supplement, a Series of Notes may include one or more classes of Strip Notes
entitled to (i) principal payments with disproportionate, nominal or no
interest payments or (ii) interest payments with disproportionate, nominal or
no principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each
class of Notes of a Series or the method for determining such Interest Rate.
One or more classes of Notes of a Series may be redeemable in whole or in part
under the circumstances specified in the related Prospectus Supplement,
including, if a Pre-Funding Account or Collateral Reinvestment Account has
been established with respect to the related Series, from amounts remaining in
the applicable account at the end of the Funding Period or Revolving Period,
as the case may be, or as a result of the exercise by the Master Servicer, a
Subservicer or such other party as may be specified in the related Prospectus
Supplement of its option to purchase the related Receivables Pool. See
"Description of the Transfer and Servicing Agreements--Termination".
To the extent specified in any Prospectus Supplement, one or more classes of
Notes of a given Series may have fixed principal payment schedules, as set
forth in such Prospectus Supplement. Holders of any such Notes will be
entitled to receive payments of principal on any given Distribution Date in
the applicable amounts set forth on such schedule with respect to such Notes,
in the manner and to the extent set forth in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments of
interest to Noteholders of all classes within a Series will have the same
priority. Under certain circumstances, the amount available for such payments
could be less than the amount of interest payable on the Notes on a
Distribution Date, in which case each class of Notes will receive its ratable
share (based on the aggregate amount of interest due to such class of Notes)
of the aggregate amount available to be distributed on such date as interest
on the Notes of such Series. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Credit and Cash Flow Enhancement".
In the case of a Series of Securities issued by an Owner Trust that includes
two or more classes of Notes, the sequential order and priority of payment in
respect of principal and interest, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class will be
set forth in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, payments in respect of principal of and
interest on any class of Notes will be made on a pro rata basis among all the
Noteholders of such class.
CERTAIN PROVISIONS OF THE INDENTURE
Events of Default; Rights upon Event of Default. Unless otherwise provided
in the related Prospectus Supplement, "Events of Default" in respect of a
Series of Notes under the related Indenture will consist of: (i) a
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default for five days or more in the payment of any interest on any such Note;
(ii) a default in the payment of the principal of, or any installment of the
principal of, any such Note when the same becomes due and payable; (iii) a
default in the observance or performance in any material respect of any
covenant or agreement of the related Trust made in such Indenture and the
continuation of any such default for a period of 30 days after notice thereof
is given to the related Trust by the applicable Indenture Trustee or to such
Trust and the related Indenture Trustee by the holders of 25% of the aggregate
outstanding principal amount of such Notes; (iv) any representation or
warranty made by such Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in
a material respect as of the time made, if such breach is not cured within 30
days after notice thereof is given to such Trust by the applicable Indenture
Trustee or to such Trust and such Indenture Trustee by the holders of 25% of
the aggregate outstanding principal amount of such Notes; or (v) certain
events of bankruptcy, insolvency, receivership or liquidation with respect to
such Trust. The amount of principal required to be paid to Noteholders of each
Series under the related Indenture on any Distribution Date generally will be
limited to amounts available to be deposited in the applicable Note
Distribution Account; therefore, the failure to pay principal on a class of
Notes generally will not result in the occurrence of an Event of Default until
the applicable final scheduled Distribution Date for such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an Event
of Default should occur and be continuing with respect to the Notes of any
Series, the related Indenture Trustee or holders of a majority in principal
amount of such Notes may declare the principal of such Notes to be immediately
due and payable. Such declaration may, under certain circumstances, be
rescinded by the holders of a majority in principal amount of such Notes then
outstanding.
If the Notes of any Series are declared due and payable following an Event
of Default, the related Indenture Trustee may institute proceedings to collect
amounts due thereon, foreclose on the property of the Trust, exercise remedies
as a secured party, sell the related Receivables or elect to have the
applicable Trust maintain possession of such Receivables and continue to apply
collections on such Receivables as if there had been no declaration of
acceleration. Unless otherwise specified in the related Prospectus Supplement,
however, the Indenture Trustee will be prohibited from selling the Receivables
following an Event of Default, other than a default in the payment of any
principal of, or a default for five days or more in the payment of any
interest on, any Note of such Series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) such Indenture Trustee
determines that the proceeds of the Receivables would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would become
due if such obligations had not been declared due and payable, and such
Indenture Trustee obtains the consent of the holders of 66 2/3% of the
aggregate outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the duties
of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of such Notes if
it reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities that might be incurred by it in complying with
such request. Subject to the provisions for indemnification and certain
limitations contained in the related Indenture, the holders of a majority of
the aggregate outstanding principal amount of the Notes of a Series will have
the right to direct the time, method and place of conducting any proceeding or
exercising any remedy available to the related Indenture Trustee; in addition,
the holders of Notes representing a majority of the aggregate outstanding
principal amount of such Notes may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal of or interest
on any Note or a default in respect of a covenant or provision of such
Indenture that cannot be modified or amended without the waiver or consent of
the holders of all the outstanding Notes of such Series.
Unless otherwise specified in the related Prospectus Supplement, no holder
of a Note will have the right to institute any proceeding with respect to the
related Indenture, unless (i) such holder previously has given to the
applicable Indenture Trustee written notice of a continuing Event of Default;
(ii) the holders of not less than
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25% of the outstanding principal amount of such Notes have made written
request to such Indenture Trustee to institute such proceeding in its own name
as Indenture Trustee; (iii) such holder or holders have offered such Indenture
Trustee reasonable indemnity; (iv) such Indenture Trustee has for 60 days
failed to institute such proceeding; and (v) no direction inconsistent with
such written request has been given to such Indenture Trustee during such 60-
day period by the holders of a majority of the outstanding principal amount of
the Notes of such Series.
None of the related Indenture Trustee or the related Trustee in its
individual capacity, or any holder of a Certificate representing an ownership
interest in such Trust, or any of their respective owners, beneficiaries,
agents, officers, directors, employees, affiliates, successors or assigns
will, in the absence of an express agreement to the contrary, be personally
liable for the payment of the principal of or interest on the related Notes or
for the agreements of such Trust contained in the applicable Indenture.
No Trust may engage in any activity other than as described herein or in the
related Prospectus Supplement. No Trust will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes
and the related Indenture, pursuant to any Advances made to it by the Master
Servicer or otherwise in accordance with the Related Documents.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the
laws of the United States, any state or the District of Columbia; (ii) such
entity expressly assumes such Trust's obligation to make due and punctual
payments on the Notes of the related Series and to perform or observe every
agreement and covenant of such Trust under the Indenture; (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation; (iv) such Trust shall have been advised by each Rating Agency
that such merger or consolidation will not result in the qualification,
reduction or withdrawal of its then-current rating of any class of the Notes
or Certificates of such Series; and (v) such Trust shall have received an
opinion of counsel to the effect that such consolidation or merger will have
no material adverse tax consequence to the Trust or to any related Noteholder
or Certificateholder.
No Owner Trust will (i) except as expressly permitted by the applicable
Indenture, the applicable Transfer and Servicing Agreements or certain other
documents with respect to such Trust (the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of the Trust;
(ii) claim any credit on or make any deduction from the principal and interest
payable in respect of the related Notes (other than amounts withheld under the
Code or applicable state tax laws) or assert any claim against any present or
former holder of such Notes because of the payment of taxes levied or assessed
upon the Trust; (iii) dissolve or liquidate in whole or in part; (iv) permit
the validity or effectiveness of the related Indenture to be impaired or
permit any person to be released from any covenants or obligations with
respect to the related Notes under such Indenture except as may be expressly
permitted thereby; (v) permit any lien, charge, excise, claim, security
interest, mortgage, or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Trust or any part thereof, or
any interest therein or the proceeds thereof; or (vi) permit the lien of the
related Indenture not to constitute a valid first priority security interest
(other than with respect to a tax, mechanics' or similar lien) in the assets
of the Trust.
Each Indenture Trustee and the related Noteholders, by accepting the related
Notes, will covenant that they will not at any time institute against the
applicable Trust any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
Modification of Indenture. Unless otherwise specified in the related
Prospectus Supplement, each Owner Trust and the related Indenture Trustee may,
with the consent of the holders of a majority of the aggregate outstanding
principal amount of the Notes of the related Series, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any
provisions of, the related Indenture, or modify (except as provided below) in
any manner the rights of the related Noteholders. However, unless otherwise
specified in the related Prospectus Supplement, without the consent of the
holder of each outstanding Note affected thereby, no
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supplemental indenture will: (i) change the due date of any installment of
principal of or interest on the Notes or reduce the principal amount thereof,
the interest rate specified thereon or the redemption price with respect
thereto or change any place of payment where or the coin or currency in which
the Notes or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the related
Indenture regarding payment; (iii) reduce the percentage of the aggregate
amount of the outstanding Notes of such Series, the consent of the holders of
which is required for any such supplemental indenture or for any waiver of
compliance with certain provisions of the related Indenture or of certain
defaults thereunder and their consequences as provided for in such Indenture;
(iv) modify or alter the provisions of the related Indenture regarding the
voting of Notes held by the applicable Owner Trust, any other obligor on such
Notes, the Depositor or an affiliate of any of them; (v) reduce the percentage
of the aggregate outstanding amount of such Notes, the consent of the holders
of which is required to direct the related Indenture Trustee to sell or
liquidate the Receivables if the proceeds of such sale would be insufficient
to pay the principal amount and accrued and unpaid interest on the outstanding
Notes of such Series; (vi) decrease the percentage of the aggregate principal
amount of such Notes required to amend the sections of the related Indenture
that specify the percentage of the aggregate principal amount of the Notes of
such Series necessary to amend such Indenture or certain other related
agreements; or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for the Notes or, unless otherwise permitted or contemplated in
such Indenture, terminate the lien of the Indenture on the collateral or
deprive any holder of the Notes of the security afforded by the lien of such
Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, an Owner
Trust and the related Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
Series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders;
provided that such action does not materially and adversely affect the
interests of any such Noteholder.
Annual Compliance Statement. Each Owner Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. Each Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the related
Owner Trust to such Indenture Trustee in its individual capacity, the property
and funds physically held by such Indenture Trustee as such and any action
taken by it that materially affects the related Notes and that has not been
previously reported.
Satisfaction and Discharge of Indenture. Each Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee for any Series may resign at any
time, in which event the related Owner Trust will be obligated to appoint a
successor Indenture Trustee for such Series. An Owner Trust may also remove
the related Indenture Trustee if such Indenture Trustee ceases to be eligible
to continue as such under the related Indenture or if such Indenture Trustee
becomes insolvent. In such circumstances, such Owner Trust will be obligated
to appoint a successor Indenture Trustee for the applicable Series of Notes.
No resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee for a Series of Notes will become effective until
acceptance of the appointment by the successor Indenture Trustee for such
Series.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Trust will, if so provided in the related Prospectus Supplement, issue
one or more classes of Certificates pursuant to a Trust Agreement or Pooling
and Servicing Agreement, as applicable. A form of each of the Trust Agreement
and the Pooling and Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the related Certificates and
Trust Agreement or Pooling and Servicing Agreement, as applicable.
Unless otherwise specified in the related Prospectus Supplement and except
for the Certificates, if any, of a Series purchased by the Company, each class
of Certificates will initially be represented by one or more certificates
registered in the name of the Depository. Unless otherwise specified in the
related Prospectus Supplement, the Certificates will be available for purchase
in minimum denominations of $20,000 and integral multiples of $1,000 in excess
thereof in book-entry form only. The Depositor has been informed by DTC that
DTC's nominee will be Cede, unless another nominee is specified in the related
Prospectus Supplement. Accordingly, such nominee is expected to be the holder
of record of the Certificates of any Series that are not purchased by the
Company. Unless and until Definitive Certificates are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Certificateholder (other than the Company) will be entitled to receive a
physical certificate representing a Certificate. All references herein and in
the related Prospectus Supplement to actions by Certificateholders refer to
actions taken by DTC upon instructions from the Participants, and all
references herein and in the related Prospectus Supplement to distributions,
notices, reports and statements to Certificateholders refer to distributions,
notices, reports and statements to DTC or its nominee, as the case may be, as
the registered holder of the Certificates, for distribution to
Certificateholders in accordance with DTC's procedures with respect thereto.
See "Certain Information Regarding the Securities--Book-Entry Registration"
and "--Definitive Securities". Any Certificate of a Series owned by the
Company will be entitled to equal and proportionate benefits under the
applicable Trust Agreement or Pooling and Servicing Agreement, as applicable,
except that such Certificates will be deemed not to be outstanding for the
purpose of determining whether the requisite percentage of Certificateholders
has given any request, demand, authorization, direction, notice, or consent or
taken any other action under the Related Documents (other than the
commencement by the related Trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing Agreements--
Insolvency Event").
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest on each class of Certificates of a Series
will be described in the related Prospectus Supplement. Distributions of
interest on such Certificates will be made on the dates specified in the
related Prospectus Supplement (the "Distribution Date") and, if so specified
in the related Prospectus Supplement, will be made prior to distributions with
respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a Series of Certificates may include one or
more classes of Strip Certificates entitled to (i) principal distributions
with disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no principal distributions.
Each class of Certificates may have a different Pass-Through Rate, which may
be a fixed, variable or adjustable Pass-Through Rate (and which may be zero
for certain classes of Strip Certificates) or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through
Rate for each class of Certificates of a Series or the method for determining
such Pass-Through Rate.
In the case of a Series of Securities that includes two or more classes of
Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or
formula or other provisions applicable to the determination thereof, of each
such class shall be as set forth in the related Prospectus Supplement. In the
case of Certificates issued by an Owner Trust that also issues Notes,
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distributions in respect of such Certificates may be subordinated to payments
in respect of the Notes of such Series as more fully described in the related
Prospectus Supplement. Distributions in respect of interest on and principal
of any class of Certificates will be made on a pro rata basis among all
holders of Certificates of such class.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or Strip
Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Unless otherwise set forth
in the applicable Prospectus Supplement, interest on each class of Fixed Rate
Securities will be computed on the basis of a 360-day year of twelve 30-day
months.
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) LIBOR (a
"LIBOR Security"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Security"), (iii) the Treasury Rate (a "Treasury Rate Security"), (iv) the
Federal Funds Rate (a "Federal Funds Rate Security"), (v) the CD Rate (a CD
Rate Security) or (vi) such other Base Rate as is set forth in such Prospectus
Supplement. The "Index Maturity" for any class of Floating Rate Securities is
the period of maturity of the instrument or obligation from which the Base
Rate is calculated. "H.15(5-19)" means the publication entitled "Statistical
Release H.15(519), Selected Interest Rates", or any successor publication,
published by the Board of Governors of the Federal Reserve System. "Composite
Quotations" means the daily statistical release entitled "Composite 3:30 p.m.
Quotations for U.S. Government Securities" published by the Federal Reserve
Bank of New York. "Interest Reset Date" will be the first day of the
applicable Interest Reset Period, or such other day as may be specified in the
related Prospectus Supplement with respect to a class of Floating Rate
Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest period
and (ii) a minimum limitation, or floor, on the rate at which interest may
accrue during any interest period. In addition to any maximum interest rate
that may be applicable to any class of Floating Rate Securities, the interest
rate applicable to any class of Floating Rate Securities will in no event be
higher than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will be
issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class
of Floating Rate Securities issued with respect thereto. The applicable
Prospectus Supplement will set forth
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the identity of the Calculation Agent for each such class of Floating Rate
Securities of a given series, which may be either the related Trustee or
Indenture Trustee with respect to such series. All determinations of interest
by the Calculation Agent shall, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of Floating Rate
Securities of a given class. All percentages resulting from any calculation of
the rate of interest on a Floating Rate Security will be rounded, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward.
CD Rate Securities. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security
and in the applicable Prospectus Supplement.
The "CD Rate" for each Interest Reset Period shall be the rate as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement
as published in H.15(519) under the heading "CDs (Secondary Market)". In the
event that such rate is not published prior to 3:00 p.m., New York City time,
on the Calculation Date (as defined below) pertaining to such CD Rate
Determination Date, then the "CD Rate" for such Interest Reset Period will be
the rate on such CD Rate Determination Date for negotiable certificates of
deposit of the Index Maturity designated in the applicable Prospectus
Supplement as published in Composite Quotations under the heading
"Certificates of Deposit". If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the CD Rate for such Interest Reset Period will be
calculated by the Calculation Agent for such CD Rate Security and will be the
arithmetic mean of the secondary market offered rates as of 10:00 a.m., New
York City time, on such CD Rate Determination Date, of three leading nonbank
dealers in negotiable U.S. dollar certificates of deposit in The City of New
York selected by the Calculation Agent for such CD Rate Security for
negotiable certificates of deposit of major United States money center banks
of the highest credit standing (in the market for negotiable certificates of
deposit) with a remaining maturity closest to the Index Maturity designated in
the related Prospectus Supplement in a denomination of $5,000,000; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent
are not quoting offered rates as mentioned in this sentence, the CD Rate for
such Interest Reset Period will be the same as the CD Rate for the immediately
preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date shall be
the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset
Date.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any, specified in such Security and in the applicable
Prospectus Supplement.
The "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate Security as
of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "Commercial Paper Rate Determination Date") and shall be the
Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date of the rate for commercial paper having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.15(519) under the heading "Commercial Paper". In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Commercial Paper Rate
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper". If by 3:00 p.m., New York City time, on such Calculation Date such
rate is not yet published in either H.15(519) or Composite Quotations, then
the "Commercial Paper Rate" for such Interest Reset Period shall be the Money
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Market Yield of the arithmetic mean of the offered rates, as of 11:00 a.m.,
New York City time, on such Commercial Paper Rate Determination Date of three
leading dealers of commercial paper in The City of New York selected by the
Calculation Agent for such Commercial Paper Rate Security for commercial paper
of the specified Index Maturity placed for an industrial issuer whose bonds
are rated "AA" or the equivalent by a nationally recognized rating agency;
provided, however, that if the dealers selected as aforesaid by such
Calculation Agent are not quoting offered rates as mentioned in this sentence,
the "Commercial Paper Rate" for such Interest Reset Period will be the same as
the Commercial Paper Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Commercial Paper Rate Determination Date or, if such day is not a business
day, the next succeeding business day or (b) the second business day preceding
the date any payment is required to be made for any period following the
applicable Interest Reset Date.
Federal Funds Rate Securities. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if
any, specified in such Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)". In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Federal Funds Rate
Determination Date, the "Federal Funds Rate" for such Interest Reset Period
shall be the rate on such Federal Funds Rate Determination Date as published
in Composite Quotations under the heading "Federal Funds/Effective Rate". If
by 3:00 p.m., New York City time, on such Calculation Date such rate is not
yet published in either H.15(519) or Composite Quotations, then the "Federal
Funds Rate" for such Interest Reset Period shall be the rate on such Federal
Funds Rate Determination Date made publicly available by the Federal Reserve
Bank of New York which is equivalent to the rate which appears in H.15(519)
under the heading "Federal Funds (Effective)"; provided, however, that if such
rate is not made publicly available by the Federal Reserve Bank of New York by
3:00 p.m., New York City time, on such Calculation Date, the "Federal Funds
Rate" for such Interest Reset Period will be the same as the Federal Funds
Rate in effect for the immediately preceding Interest Reset Period. In the
case of a Federal Funds Rate Security that resets daily, the interest rate on
such Security for the period from and including a Monday to but excluding the
succeeding Monday will be reset by the Calculation Agent for such Security on
such second Monday (or, if not a business day, on the next succeeding business
day) to a rate equal to the average of the Federal Funds Rates in effect with
respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding business day.
LIBOR Securities. Each LIBOR Security will bear interest for each Interest
Reset Period at the interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
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With respect to LIBOR indexed to the offered rates for U.S. dollar deposits,
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset Date for
such Interest Reset Period (a "LIBOR Determination Date"), the Calculation
Agent for such LIBOR Security will determine the arithmetic mean of the
offered rates for deposits in U.S. dollars for the period of the Index
Maturity specified in the applicable Prospectus Supplement, commencing on
such Interest Reset Date, which appear on the Reuters Screen LIBO Page at
approximately 11:00 a.m., London time, on such LIBOR Determination Date.
For purposes of calculating LIBOR, "London Banking Day" means any business
day on which dealings in deposits in United States dollars are transacted
in the London interbank market and "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks). If at least two such offered rates appear on the Reuters Screen
LIBO Page, "LIBOR" for such Interest Reset Period will be the arithmetic
mean of such offered rates as determined by the Calculation Agent for such
LIBOR Security.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Security will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, "LIBOR" for such Interest Reset Period will
be the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Security at
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks, for the period of
the specified Index Maturity, commencing on such Interest Reset Date, and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by such
Calculation Agent are not quoting rates as mentioned in this sentence,
"LIBOR" for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
Treasury Rate Securities. Each Treasury Rate Security will bear interest for
each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in
such Security and in the applicable Prospectus Supplement.
The "Treasury Rate" for each Interest Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for
such Interest Reset Period of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading "U.S. Government Securities--Treasury bills--auction average
(investment)" or, in the event that such rate is not published prior to 3:00
p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Treasury Rate Determination Date, the auction average rate
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) on such Treasury Rate Determination
Date as otherwise announced by the United States Department of the Treasury.
In the event that the results of the auction of Treasury bills having the
specified Index Maturity are not published or reported as provided above by
3:00 p.m., New York City time, on such Calculation Date, or if no such auction
is held on such Treasury Rate Determination Date, then the "Treasury Rate" for
such Interest Reset Period shall be calculated by the Calculation Agent for
such Treasury Rate Security and shall be the yield to maturity (expressed as a
bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 p.m., New York City time, on such Treasury
Rate Determination Date, of three leading
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primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the
dealers selected as aforesaid by such Calculation Agent are not quoting bid
rates as mentioned in this sentence, then the "Treasury Rate" for such
Interest Reset Period will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest
Reset Period falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless
that day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday. If, as the result of a legal holiday, an auction is so held on the
preceding Friday, such Friday will be the Treasury Rate Determination Date
pertaining to the Interest Reset Period commencing in the next succeeding
week. If an auction date shall fall on any day that would otherwise be an
Interest Reset Date for a Treasury Rate Security, then such Interest Reset
Date shall instead be the business day immediately following such auction
date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable
Interest Reset Date.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, DTC will
act as securities depository for each class of Securities offered hereby. Each
class of Securities initially will be represented by one or more certificates
registered in the name of Cede, the nominee of DTC. As such, it is anticipated
that the only "Noteholder" and/or "Certificateholder" with respect to a Series
of Securities will be Cede, as nominee of DTC. Beneficial owners of the
Securities ("Security Owners") will not be recognized as "Noteholders" by the
related Indenture Trustee, as such term is used in each Indenture, or as
"Certificateholders" by the related Trustee, as such term is used in each
Trust Agreement and Pooling and Servicing Agreement, and Security Owners will
be permitted to exercise the rights of Noteholders or Certificateholders only
indirectly through DTC and its participating members ("Participants").
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") in effect in the
State of New York, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for the 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 certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the DTC system also is available
to banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
(the "Indirect Participants").
Security Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest
in, the Securities may do so only through Participants and Indirect
Participants. In addition, all Security Owners will receive all distributions
of principal and interest from the related Indenture Trustee or the related
Trustee, as applicable, through Participants. Under a book-entry format,
Security Owners may experience some delay in their receipt of payments, since
such payments will be forwarded by the applicable Trustee or Indenture Trustee
to DTC's nominee. DTC will then forward such payments to the Participants,
which thereafter will forward them to Indirect Participants or Security
Owners.
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Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and
to receive and transmit distributions of principal of and interest on the
Securities. Participants and Indirect Participants with which Security Owners
have accounts with respect to the Securities similarly are required to make
book-entry transfers and to receive and transmit such payments on behalf of
their respective Security Owners. Accordingly, although Security Owners will
not possess physical certificates representing the Securities, the Rules
provide a mechanism by which Participants and Indirect Participants will
receive payments and transfer interests, directly or indirectly, on behalf of
Security Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner to pledge Securities to persons or entities that do not participate in
the DTC system, or otherwise take actions with respect to such Securities, may
be limited due to the lack of a physical certificate representing such
Securities.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Security Owner under the Indenture, Trust Agreement or Pooling and
Servicing Agreement, as applicable, only at the direction of one or more
Participants to whose account with DTC the Securities 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.
Except as required by law, neither the related Administrator or the related
Indenture Trustee, if any, nor the related Trustee will have any liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests of Securities of any Series held by DTC's
nominee, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DEFINITIVE SECURITIES
Unless otherwise stated in the related Prospectus Supplement, the Notes
and/or Certificates of a given Series will be issued in fully registered,
certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and, collectively, "Definitive Securities") to Noteholders or
Certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (i) the related Trustee determines that DTC is no longer
willing or able to discharge properly its responsibilities as Depository with
respect to the related Securities and such Administrator or Trustee, as
applicable, is unable to locate a qualified successor, (ii) the Trustee
elects, at its option, to terminate the book-entry system through DTC or (iii)
after the occurrence of an Event of Default or Servicer Default, Security
Owners representing at least a majority of the outstanding principal amount of
the Notes or Certificates, as applicable, of such Series, advise the related
Trustee through DTC that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interests of the related
Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the related Trustee or Indenture Trustee, as applicable,
will be required to notify the related Security Owners, through Participants,
of the availability of Definitive Securities. Upon surrender by DTC of the
certificates representing all Securities of any affected class and the receipt
of instructions for re-registration, the Trustee will issue Definitive
Securities to the related Security Owners. Distributions on the related
Definitive Securities will be made thereafter by the related Trustee or
Indenture Trustee, as applicable, directly to the holders in whose name the
related Definitive Securities are registered at the close of business on the
applicable record date, in accordance with the procedures set forth herein and
in the related Indenture or the related Trust Agreement or Pooling and
Servicing Agreement, as applicable. Distributions will be made by check mailed
to the address of such holders as they appear on the register specified in the
related Indenture, Trust Agreement or Pooling and Servicing Agreement, as
applicable; however, the final payment on any Securities (whether Definitive
Securities or Securities registered in the name of a Depository or its
nominee) will be made only upon presentation and surrender of such Securities
at the office or agency specified in the notice of final distribution to
Securityholders.
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Definitive Securities will be transferable and exchangeable at the offices
of the related Trustee or Indenture Trustee (or any security registrar
appointed thereby), as applicable. No service charge will be imposed for any
registration of transfer or exchange, but such Trustee or Indenture Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
STATEMENTS TO SECURITYHOLDERS
With respect to each Series of Securities, on or prior to each Distribution
Date, the Master Servicer will prepare and forward, or cause to be prepared
and forwarded, to the related Indenture Trustee or Trustee to be included with
the distribution to each Securityholder of record a statement setting forth
for the related Collection Period the information specified in the related
Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting purposes
after the end of each calendar year during the term of each Trust, the related
Trustee or Indenture Trustee, as applicable, will mail to each person who at
any time during such calendar year shall have been a registered Securityholder
a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Material
Federal Income Tax Consequences".
LIST OF SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, three or
more holders of the Notes of any Series or one or more holders of such Notes
evidencing not less than 25% of the aggregate outstanding principal balance
thereof may, by written request to the related Indenture Trustee, obtain
access to the list of all Noteholders maintained by such Indenture Trustee for
the purpose of communicating with other Noteholders with respect to their
rights under the related Indenture or under such Notes. Such Indenture Trustee
may elect not to afford the requesting Noteholders access to the list of
Noteholders if it agrees to mail the desired communication or proxy, on behalf
of and at the expense of the requesting Noteholders, to all Noteholders of
such Series.
Unless otherwise specified in the related Prospectus Supplement, three or
more holders of the Certificates of any Series or one or more holders of such
Certificates evidencing not less than 25% of the Certificate Balance of such
Certificates may, by written request to the related Trustee, obtain access to
the list of all Certificateholders maintained by such Trustee for the purpose
of communicating with other Certificateholders with respect to their rights
under the related Trust Agreement or Pooling and Servicing Agreement, as
applicable, or under such Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each purchase agreement
pursuant to which the Depositor will acquire the Receivables from the
Originators (each, a "Purchase Agreement"), each Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable, pursuant to which a Trust
will purchase Receivables from the Depositor and the Master Servicer will
agree to be responsible for the servicing of such Receivables, each Trust
Agreement (or, in the case of a Grantor Trust, each Pooling and Servicing
Agreement) pursuant to which a Trust will be created and Certificates will be
issued, and each Administration Agreement pursuant to which the Master
Servicer will undertake certain administrative duties with respect to an Owner
Trust that issues Notes (collectively, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed
as exhibits to the Registration Statement of which this Prospectus forms a
part. The following summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the provisions of the
related Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
The property of each Trust will include a pool of Receivables, which will
consist of Receivables that were originated or acquired by one or more
Originators and sold by such Originator or Originators to the Depositor in the
ordinary course of business.
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The Receivables included in a Receivables Pool will be sold by the
applicable Originator, directly or indirectly, to the Depositor pursuant to a
Purchase Agreement. The related Prospectus Supplement will specify for the
Initial Receivables to be included in each Receivables Pool the weighted
average APR, the weighted average original and remaining terms to maturity,
the geographic distribution and distribution by APR, and the percentage of
such Receivables that are Precomputed Receivables or Simple Interest
Receivables. Each Prospectus Supplement will also provide information
regarding the Originator or Originators of the related Receivables.
The Originator will make certain representations and warranties in each
Purchase Agreement regarding the related Receivables. Such representations and
warranties will generally include that, immediately prior to the transfer and
assignment of the Receivables, (i) the Originator has good title to, and is
the sole owner of, the Receivables, (ii) the Receivables are subject to no
offsets, defenses or counterclaims, (iii) each Receivable complies in all
material respect with applicable state and federal laws, including usury,
equal credit opportunity and disclosure laws, (iv) each Receivable is secured
by a valid first lien on the related Financed Vehicle, (v) no Receivable is
delinquent more than 90 days (or such longer period as may be specified in the
related Prospectus Supplement) and there are no tax or mechanics' liens
against the related Financed Vehicle, (vi) the related Financed Vehicles are
covered by physical damage and loss insurance, and (vii) the information
provided by the Originator with respect to the Receivables is true and
correct.
The terms of each Purchase Agreement, including the representations and
warranties of the Originator included therein, will apply to the Initial
Receivables as well as to any Subsequent Receivables to be transferred to a
Trust.
If so specified in the related Prospectus Supplement, the representations
and warranties of the Originator will not be made as of the applicable Cutoff
Date but as of the date on which the Originator sold the Receivables to the
Depositor or one of its affiliates. Under such circumstances, a substantial
period of time may have elapsed between such date and the date of the initial
issuance of the Series of Securities to which such Receivables relate. If the
representations and warranties of an Originator do not address events that may
have occurred following the sale of the Receivables by such Originator, its
repurchase obligation described below would not arise if the relevant event
that would otherwise have given rise to such obligation with respect to a
Receivable occurs after the date of sale of such Receivable by the Originator
to the Depositor or its affiliates. However, the Depositor will not include
any Receivable in a Trust for any Series of Securities if anything has come to
the Depositor's attention that would cause it to believe that the
representations and warranties of an Originator will not be accurate and
complete in all material respects in respect of such Receivable as of the date
of issuance of the related Series of Securities. If the Master Servicer is
also an Originator with respect to a particular Series, such representations
and warranties will be in addition to the representations and warranties made
by the Master Servicer in its capacity as Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the
Originator, will promptly notify the relevant Originator of any breach of any
representation or warranty made by it in respect of a Receivable which
materially and adversely affects the interests of the Trust in such
Receivable. Unless specified in the related Prospectus Supplement, if such
Originator does not cure such breach within 90 days after notice from the
Master Servicer or the Trustee, as the case may be, then such Originator will
be obligated to repurchase such Receivable from the Trust at a price (the
"Repurchase Amount") equal to 100% of the principal balance thereof as of the
date of the repurchase plus accrued interest thereon at the applicable APR to
the first day of the month in which the Purchase Amount is to be distributed.
Except in those cases in which the Master Servicer is the Originator, the
Master Servicer will be required to enforce this obligation for the benefit of
the Trustee and the holders of the Securities. This repurchase obligation will
constitute the sole remedy available to holders of the Securities or the
Trustee for a breach of representations and warranties by an Originator.
Neither the Depositor nor the Master Servicer (unless the Master Servicer is
the Originator) will be obligated to repurchase a Receivable if an Originator
defaults on its obligation to do so, and no assurance can be given that
Originators will carry out their respective repurchase obligations with
respect to Receivables.
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On the related Closing Date, the Depositor will transfer and assign to the
related Trust, pursuant to a Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, without recourse, all of its right, title
and interest in and to the related Receivables, including its security
interests in the related Financed Vehicles. Each such Receivable will be
identified in a schedule appearing as an exhibit to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement. Concurrently with the
transfer and assignment of such Receivables to the related Trust, the related
Trustee or Indenture Trustee, as applicable, will execute, authenticate and
deliver the related Notes and/or Certificates. The net proceeds from the sale
of the Notes and/or Certificates will be applied to the purchase of the
related Receivables and, to the extent specified in the related Prospectus
Supplement, to the deposit of the Pre-Funded Amount to the Pre-Funding Account
and the initial deposit to the Collateral Reinvestment Account. Each
Prospectus Supplement will specify whether, and the terms, conditions and
manner under which, Subsequent Receivables will be sold by the Depositor to
the related Trust.
If the related Prospectus Supplement provides that the property of a Trust
will include a Pre-Funding Account or Collateral Reinvestment Account, the
applicable Originator or Originators will be obligated to sell and assign to
the Depositor pursuant to the related Purchase Agreement or Purchase
Agreements, as applicable, and the Depositor will be obligated to sell and
assign to the related Trust pursuant to the related Pooling and Servicing
Agreement or Sale and Servicing Agreement, as applicable, Subsequent
Receivables from time to time during the Funding Period or Revolving Period in
an aggregate outstanding principal amount approximately equal to the Pre-
Funded Amount or the amount on deposit in the Collateral Reinvestment Account,
as applicable. The related Trust will be obligated pursuant to the related
Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable, to purchase all such Subsequent Receivables from the Depositor
subject to the satisfaction, on or before the related Subsequent Transfer
Date, of the conditions precedent, among others, that (i) each such Subsequent
Receivable shall satisfy the eligibility criteria specified in the related
Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable, and shall not have been selected from among the eligible
Receivables in a manner that the applicable Originator or the Depositor deems
adverse to the interests of the Securityholders; (ii) as of the applicable
Cutoff Date for such Subsequent Receivables, all of the Receivables in the
related Trust, including the Subsequent Receivables to be conveyed to the
Trust as of such date, must satisfy the parameters described under "The
Receivables Pools" herein and "The Receivables Pool" in the related Prospectus
Supplement; and (iii) the applicable Originator must execute and deliver to
the Depositor, and the Depositor must execute and deliver to such Trust, a
written assignment conveying such Subsequent Receivables to the Depositor and
the related Trust, respectively. In addition, as and to the extent specified
in the related Prospectus Supplement, the conveyance of Subsequent Receivables
to a Trust is subject to the satisfaction of the condition subsequent, among
others, which must be satisfied within the applicable time period specified in
the related Prospectus Supplement, that the Depositor deliver certain opinions
of counsel to the related Trustee with respect to the validity of the
conveyance of such Subsequent Receivables to the Trust. If any such conditions
precedent or conditions subsequent are not met with respect to any Subsequent
Receivables within the time period specified in the related Prospectus
Supplement, the Originator or the Depositor, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Repurchase Amounts therefor.
TRUST ACCOUNTS
With respect to each Owner Trust that issues Notes, the Master Servicer will
establish and maintain with the related Indenture Trustee (a) one or more
accounts, in the name of the Indenture Trustee on behalf of the related
Securityholders, into which all payments made on or in respect of the related
Receivables will be deposited (the "Collection Account") and (b) an account,
in the name of the Indenture Trustee on behalf of the Noteholders, into which
amounts released from the Collection Account and any reserve account or other
form of credit enhancement for payment to such Noteholders will be deposited
and from which all distributions to such Noteholders will be made (the "Note
Distribution Account"). With respect to each Owner Trust that issues
Certificates and each Grantor Trust, the Master Servicer will establish and
maintain an account with the related Trustee, in the name of such Trustee on
behalf of the Certificateholders, into which amounts released from the
Collection Account and any reserve account or other form of credit enhancement
for distribution to such
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Certificateholders will be deposited and from which all distributions to such
Certificateholders will be made (the "Certificate Distribution Account"). With
respect to any Owner Trust that does not issue Notes or any Grantor Trust, the
Master Servicer will also establish and maintain the Collection Account and
any other Trust Account in the name of the related Trustee on behalf of the
related Certificateholders.
If so provided in the related Prospectus Supplement, the Master Servicer
will establish for each Series of Securities an additional account (the
"Payahead Account"), in the name of the related Indenture Trustee (in the case
of an Owner Trust that issues Notes) or Trustee (in the case of an Owner Trust
that does not issue Notes or a Grantor Trust), into which, to the extent
required in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, early payments made by or on behalf of Obligors on
Precomputed Receivables will be deposited until such time as such payments
become due. Until such time as payments are transferred from the Payahead
Account to the Collection Account, they will not constitute collected interest
or collected principal and will not be available for distribution to
Noteholders or Certificateholders.
Pre-Funding Account and Collateral Reinvestment Account. If so provided in
the related Prospectus Supplement, the Servicer will establish and maintain a
Pre-Funding Account, in the name of the related Trustee on behalf of the
related Securityholders, into which the Depositor will deposit the Pre-Funded
Amount on the related Closing Date. The Pre-Funded Amount will not exceed 40%
of the initial aggregate principal amount of the Notes and Certificates of the
related Series. In addition, if so provided in the related Prospectus
Supplement, the Servicer will establish and maintain a Collateral Reinvestment
Account, in the name of the related Trustee on behalf of the related
Securityholders, into which the Depositor will deposit the amount, if any,
specified in such Prospectus Supplement, and, during the Revolving Period,
principal will not be distributed on the Securities of the related Series and
principal collections, together with (if and to the extent described in the
related Prospectus Supplement) interest collections on the Receivables that
are in excess of amounts required to be distributed therefrom will be
deposited from time to time in the Collateral Reinvestment Account. The Pre-
Funded Amount and the amounts on deposit in the Collateral Reinvestment
Account will be used by the related Trustee to purchase Subsequent Receivables
from the Depositor from time to time during the Funding Period and Revolving
Period, respectively. The amounts on deposit in the Pre-Funding Account during
the Funding Period and the amount on deposit in the Collateral Reinvestment
Account will be invested by the Trustee in Eligible Investments. Any
Investment Income received on the Eligible Investments during a Collection
Period will be included in the interest distribution amount on the following
Distribution Date. The Funding Period or Revolving Period, if any, for a Trust
will begin on the related Closing Date and will end on the date specified in
the related Prospectus Supplement, which, in the case of the Funding Period,
in no event will be later than the date that is one year after the related
Closing Date. Any amounts remaining in the Pre-Funding Account at the end of
the Funding Period or in the Collateral Reinvestment Account at the end of the
Revolving Period will be distributed to the related Securityholders in the
manner and priority specified in the related Prospectus Supplement, as a
prepayment of principal of the related Securities.
Any other accounts to be established with respect to a Trust will be
described in the related Prospectus Supplement.
For each Series of Securities, funds in the Collection Account, Note
Distribution Account, Certificate Distribution Account and any Pre-Funding
Account, Collateral Reinvestment Account, reserve account or other accounts
identified as such in the related Prospectus Supplement (collectively, the
"Trust Accounts") will be invested as provided in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, in
Eligible Investments. "Eligible Investments" means book-entry securities,
negotiable instruments or securities represented by instruments in bearer or
registered form which evidence (a) direct obligations of, and obligations
fully guaranteed as to timely payment by, the United States of America; (b)
qualifying demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof (or any domestic branch of a
foreign bank) and subject to supervision and examination by Federal or State
banking or depository institution authorities; (c) qualifying commercial
paper; (d) qualifying investments in money market mutual funds (including
funds for
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which the related Indenture Trustee or the related Owner Trustee or any of
their respective affiliates is investment manager or advisor); (e) bankers'
acceptances issued by any depository institution or trust company referred to
in clause (b); (f) repurchase obligations with respect to any security that is
a direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are backed
by the full faith and credit of the United States of America, in either case
entered into with a depository institution or trust company (acting as
principal) described in clause (b); and (g) any other investment specified in
the related Prospectus Supplement or permitted by the rating agency rating the
related Series of Securities. Except as described hereafter or in the related
Prospectus Supplement, Eligible Investments will be limited to obligations or
securities that mature on or before the date of the next scheduled
distribution to Securityholders of such Series. Unless otherwise specified in
the related Prospectus Supplement, Investment Income on funds deposited in the
Trust Accounts will be deposited in the applicable Collection Account on each
Distribution Date and will 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 have
a credit rating from each rating agency rating the related Series of
Securities in one of its generic rating categories that signifies investment
grade. "Eligible Institution" means, with respect to a Trust, (a) the
corporate trust department of the related Indenture Trustee or 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) (i) that has a long-term
or short-term unsecured debt rating or a deposit rating acceptable to the
rating agency rating the related Series of Securities and (ii) whose deposits
are insured by the FDIC.
SERVICING PROCEDURES
If so specified in the related Prospectus Supplement, to assure uniform
quality in servicing the Receivables and to reduce administrative costs, the
Depositor and each Trust will designate the Master Servicer, or another
custodian specified in such Prospectus Supplement, as custodian to maintain
possession, as such Trust's agent, of the related Contracts and any other
documents relating to the Receivables. The Depositor's and the Master
Servicer's accounting records and computer systems will be marked to reflect
the sale and assignment of the related Receivables to each Trust, and UCC
financing statements reflecting such sale and assignment will be filed.
The Master Servicer, directly or through one or more Subservicers, will make
reasonable efforts to collect all payments due with respect to the Receivables
and will, consistent with the related Sale and Servicing Agreement or Pooling
and Servicing Agreement, as applicable, follow such collection procedures as
it follows with respect to comparable Contracts it services for itself and
others. Consistent with its normal procedures, the Master Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will, for purposes of any Sale and
Servicing Agreement or Pooling and Servicing Agreement, modify the original
due dates or the amount of the scheduled payments or extend the final payment
date of any Receivable beyond the Final Scheduled Maturity Date (as such term
is defined with respect to any Receivables Pool in the related Prospectus
Supplement). Some of such arrangements may result in the Master Servicer
purchasing the Receivable for the Repurchase Amount, while others may result
in the Master Servicer making Advances. The Master Servicer may sell the
related Financed Vehicle securing any Receivable at a public or private sale,
or take any other action permitted by applicable law. See "Certain Legal
Aspects of the Receivables".
If so specified in the related Prospectus Supplement, a "backup servicer"
may be appointed and assigned certain oversight servicing responsibilities
with respect to the Receivables. The identity of any backup servicer,
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as well as a description of such responsibilities, of any fees payable to such
backup servicer and the source of payment of such fees, will be included in
the related Prospectus Supplement.
COLLECTIONS
With respect to each Trust, the Master Servicer will deposit or cause to be
deposited all payments on the related Receivables (from whatever source) and
all proceeds of such Receivables collected during the period specified in the
related Prospectus Supplement (the "Collection Period") into the related
Collection Account not later than two business days after receipt thereof.
Collections on a Precomputed Receivable received during any Collection
Period will be applied first to the repayment of any outstanding Precomputed
Advances made by the Master Servicer with respect to such Receivable (as
described below), and then to the scheduled monthly payment due on such
Receivable. Any portion of such collections remaining after the scheduled
monthly payment has been made (such excess amounts, the "Payaheads") will,
unless such remaining amount is sufficient to prepay the Precomputed
Receivable in full and if so provided in the related Prospectus Supplement,
generally will be transferred to and kept in the Payahead Account until such
later Distribution Date on which such Payaheads may be applied either to the
scheduled monthly payment due during the related Collection Period or to
prepay such Receivable in full.
ADVANCES
If so provided in the related Prospectus Supplement, to the extent the
collections of interest and principal on a Precomputed Receivable for a
Collection Period fall short of the related scheduled payment, the Master
Servicer will make a Precomputed Advance of the shortfall. The Master Servicer
will be obligated to make a Precomputed Advance on a Precomputed Receivable
only to the extent that the Master Servicer, in its sole discretion, expects
to recoup such Advance from subsequent collections or recoveries on such
Receivable or other Precomputed Receivables in the related Receivables Pool.
The Master Servicer will deposit the Precomputed Advance in the applicable
Collection Account on or before the business day preceding the applicable
Distribution Date. The Master Servicer will recoup its Precomputed Advance
from subsequent payments by or on behalf of the related Obligor or from
insurance or liquidation proceeds with respect to the related Receivable and
will release its right to reimbursement in conjunction with its purchase of
the Receivable as Master Servicer or, upon determining that reimbursement from
the preceding sources is unlikely, will recoup its Precomputed Advance from
any collections made on other Precomputed Receivables in the related
Receivables Pool.
If so provided in the related Prospectus Supplement, on or before the
business day prior to each Distribution Date, the Master Servicer will deposit
into the related Collection Account as a Simple Interest Advance an amount
equal to the amount of interest that would have been due on the related Simple
Interest Receivables at their respective APRs for the related Collection
Period (assuming that such Simple Interest Receivables are paid on their
respective due dates) minus the amount of interest actually received on such
Simple Interest Receivables during the applicable Collection Period. If such
calculation results in a negative number, an amount equal to such amount shall
be paid to the Master Servicer in reimbursement of outstanding Simple Interest
Advances. In addition, in the event that a Simple Interest Receivable becomes
a Liquidated Receivable (as such term is defined in the related Prospectus
Supplement), the amount of accrued and unpaid interest thereon (but not
including interest for the then current Collection Period) will be withdrawn
from the Collection Account and paid to the Master Servicer in reimbursement
of outstanding Simple Interest Advances. If so provided in the related
Prospectus Supplement, no advances of principal will be made with respect to
Simple Interest Receivables.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Trust the Master Servicer will be entitled to receive, out of
interest collected on or in respect of the related Receivables, a fee for each
Collection Period (the "Servicing Fee") in an amount equal to the percentage
per annum specified in the
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related Prospectus Supplement (the "Servicing Fee Rate") of the Pool Balance
as of the first day of such Collection Period. If so specified in the related
Prospectus Supplement, the Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates) will be paid
solely to the extent of the Interest Distribution Amount; however, the
Servicing Fee will be paid prior to the distribution of any portion of the
Interest Distribution Amount to the holders of the Notes or Certificates of
any Series. Any fees due to any Subservicer with respect to a Receivables Pool
will be the responsibility of the related Master Servicer and will not be an
additional expense of the Trust.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will also collect and retain any late fees, prepayment charges 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 under the related Contracts and late fees and
other charges in accordance with the Master Servicer's normal practices and
procedures.
The Servicing Fee will compensate the Master Servicer for performing the
functions of a third party servicer of motor vehicle receivables as an agent
for the related Trust, including collecting and posting all payments,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment statements and reporting tax information to
Obligors, paying costs of collections and the disposition of defaulted
Receivables and policing the collateral. The Servicing Fee will also
compensate the Master Servicer for administering the related Receivables Pool,
including making Advances, accounting for collections, furnishing monthly and
annual statements to the related Indenture Trustee and/or Trustee, and
generating federal income tax information for such Trust and for the related
Noteholders and/or Certificateholders. The Servicing Fee also will reimburse
the Master Servicer for certain taxes, the fees of the related Indenture
Trustee and/or Trustee, accounting fees, outside auditor fees, data processing
costs and other costs incurred in connection with administering the applicable
Receivables Pool.
DISTRIBUTIONS
With respect to each Series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of
principal and interest (or, where applicable, of principal or interest only)
on each class of Securities entitled thereto will be made by the related
Trustee or Indenture Trustee, as applicable, to the Certificateholders and
Noteholders of such Series. The timing, calculation, allocation, order, source
and priorities of, and requirements for, all payments to the holders of each
class of Notes and/or distributions to holders of each class of Certificates
will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Distribution Date collections on or in
respect of the related Receivables will be transferred from the Collection
Account to the Note Distribution Account or Certificate Distribution Account,
as applicable, for distribution to the Noteholders and Certificateholders to
the extent provided in the related Prospectus Supplement. Credit enhancement,
such as a reserve account, will be available to cover shortfalls in the amount
available for distribution on such date to the extent specified in the related
Prospectus Supplement. If so provided in the related Prospectus Supplement,
distributions in respect of principal of a class of Securities of a Series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such Series
may be subordinate to payments in respect of the Notes, if any, of such Series
or other classes of Certificates. Distributions of principal on the Securities
of a Series may be based on the amount of principal collected or due, or the
amount of realized losses incurred, during a Collection Period.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of any credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Securities of a Series will be set forth in the related Prospectus Supplement.
To the extent provided in the related Prospectus Supplement, credit or cash
flow enhancement may be in the form of subordination of one or more classes of
Securities, reserve accounts, spread accounts, letters of
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credit, surety bonds, insurance policies, over-collateralization, credit or
liquidity facilities, guaranteed investment contracts, swaps or other interest
rate protection agreements, repurchase obligations, other agreements with
respect to third party payments or other support, cash deposits, or such other
arrangements as may be described in the related Prospectus Supplement, or any
combination of the foregoing. Unless otherwise specified in the applicable
Prospectus Supplement, credit or cash flow 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 existence of a reserve account or other form of credit enhancement for
the benefit of any class or Series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of 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. If so specified
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 all principal and interest thereon. If losses
occur that exceed the amount covered by such credit enhancement or that are
not covered by such credit enhancement, Securityholders will bear their
allocable share of such losses, 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 may be exhausted by the claims of
Securityholders of other Series.
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish annually to
the related Trust and Indenture Trustee and/or Trustee a statement as to
compliance by the Master Servicer during the preceding twelve months (or, in
the case of the first such statement, during such shorter period that shall
have elapsed since the applicable Closing Date) with certain standards
relating to the servicing of the Receivables, the Master Servicer's accounting
records and computer files with respect thereto and certain other matters.
Each Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will also provide for delivery to the related Trust and Indenture
Trustee and/or Trustee each year of a certificate signed by an officer of the
Master Servicer stating that the Master Servicer has fulfilled its obligations
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, throughout the preceding twelve months (or, in the
case of the first such certificate, during such shorter period that shall have
elapsed since the applicable Closing Date) or, if there has been a default in
the fulfillment of any such obligation, describing each such default. The
Master Servicer will agree to give each Indenture Trustee and/or Trustee, as
applicable, notice of certain Servicer Defaults under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of the foregoing statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related Trustee or
Indenture Trustee, as applicable, at the Corporate Trust Office for such
Trustee or Indenture Trustee specified in the related Prospectus Supplement.
STATEMENTS TO TRUSTEES AND THE TRUST
Prior to each Distribution Date with respect to each Series of Securities,
the Master Servicer will provide to the applicable Indenture Trustee, if any,
and the applicable Trustee as of the close of business on the last day of the
preceding 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 as described under "Certain Information
Regarding the Securities--Statements to Securityholders".
SERVICER DEFAULTS
Unless otherwise provided in the related Prospectus Supplement, a "Servicer
Default" under each Sale and Servicing Agreement and Pooling and Servicing
Agreement will consist of: (i) any failure by the Master Servicer
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to deliver or cause to be delivered to the related Trustee or Indenture
Trustee, as applicable, for deposit in any of the Trust Accounts any required
payment or to direct the related Trustee or Indenture Trustee, as applicable,
to make any required distributions therefrom, which failure continues
unremedied for five business days after discovery by an officer of the Master
Servicer or written notice of such failure is given (a) to the Master Servicer
by the related Trustee or Indenture Trustee, as applicable, or (b) to the
Master Servicer and to the related Trustee or Indenture Trustee, as
applicable, by holders of Notes, if any, evidencing not less than 25% of the
aggregate outstanding principal amount thereof or, in the event a Series of
Securities includes no Notes or if such Notes have been paid in full, by
holders of Certificates evidencing not less than 25% of the Certificate
Balance; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any covenant or agreement in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, which
failure materially and adversely affects the rights of the related
Securityholders and which continues unremedied for 60 days after written
notice of such failure is given to the Master Servicer in the same manner
described in clause (i) above; and (iii) certain events of bankruptcy,
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by the Master Servicer indicating its
insolvency, reorganization pursuant to bankruptcy proceedings or inability to
pay its obligations (each, an "Insolvency Event").
RIGHTS UPON SERVICER DEFAULT
Unless otherwise provided in the related Prospectus Supplement, in the case
of any Owner Trust that issues Notes, as long as a Servicer Default under the
related Sale and Servicing Agreement remains unremedied, the related Indenture
Trustee or holders of Notes of the related Series evidencing not less than 25%
of the aggregate principal amount of such Notes then outstanding may terminate
all the rights and obligations of the Master Servicer, whereupon such
Indenture Trustee or a successor servicer appointed by such Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Master
Servicer and will be entitled to similar compensation arrangements. In the
case of any Owner Trust that does not issue Notes or any Grantor Trust, unless
otherwise provided in the related Prospectus Supplement, as long as a Servicer
Default under the related Trust Agreement or Pooling and Servicing Agreement
remains unremedied, the related Trustee or holders of Certificates of the
related Series evidencing not less than 25% of the Certificate Balance may
terminate all the rights and obligations of the Master Servicer, whereupon
such Trustee or a successor servicer appointed by such Trustee will succeed to
all the responsibilities, duties and liabilities of the Master Servicer under
such Pooling and Servicing Agreement and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Master Servicer, and no Servicer Default
other than such appointment has occurred, such trustee or official may have
the power to prevent any Indenture Trustee or the related Noteholders or such
Trustee or the related Certificateholders from effecting a transfer of
servicing. In the event that the related Indenture Trustee, if any, or the
related Trustee is unwilling or unable to act as successor to the Master
Servicer, such Indenture Trustee or Trustee, as applicable, may appoint, or
may petition a court of competent jurisdiction to appoint, a successor with a
net worth of at least $10,000,000 (or such other amount as is specified in the
related Prospectus Supplement) and whose regular business includes the
servicing of motor vehicle receivables. The Indenture Trustee, if any, or the
Trustee may arrange for compensation to be paid to such successor master
servicer, which in no event may be greater than the servicing compensation
paid to the Master Servicer under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable.
WAIVER OF PAST DEFAULTS
Unless otherwise provided in the related Prospectus Supplement, (i) in the
case of each Owner Trust that issues Notes, holders of the related Notes
evidencing not less than a majority of the aggregate outstanding principal
amount of the Notes (or of Certificates evidencing not less than a majority of
the outstanding Certificate Balance, in the case of any default that does not
adversely affect the Indenture Trustee or Noteholders) and (ii) in the case of
each Owner Trust that does not issue Notes or each Grantor Trust, holders of
Certificates evidencing not less than a majority of the Certificate Balance
may, on behalf of all such Noteholders and Certificateholders, waive any
default by the Master Servicer in the performance of its obligations under the
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related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, and its consequences, except a default in making any required
deposits to or payments from any Trust Account or in respect of a covenant or
provision of the Master Servicer in the Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, that cannot be modified or
amended without the consent of each Securityholder (in which event the related
waiver will require the approval of holders of all of the Securities of such
Series). No such waiver will impair the Securityholders' rights with respect
to subsequent Servicer Defaults.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, each of the
Transfer and Servicing Agreements may be amended by the parties thereto,
without the consent of the related Noteholders or Certificateholders, if any,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders and
Certificateholders; provided, that any such action will not, in the opinion of
counsel satisfactory to the related Trustee or Indenture Trustee, as
applicable, materially and adversely affect the interests of any such
Noteholder or Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the
Transfer and Servicing Agreements may also be amended from time to time by the
parties thereto with the consent of the holders of Notes evidencing at least a
majority of the aggregate principal amount of the then outstanding Notes, if
any, of the related Series and the holders of Certificates evidencing at least
a majority of the aggregate principal amount of such Certificates then
outstanding, if any, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of such Transfer and
Servicing Agreements or of modifying in any manner the rights of such
Noteholders or Certificateholders, as applicable; provided, that no such
amendment may (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on or in respect of
the related Receivables or distributions that are required to be made for the
benefit of such Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the Notes or Certificates of such Series that is required to
consent to any such amendment, without the consent of the holders of all of
the outstanding Notes or Certificates, as the case may be, of such Series.
INSOLVENCY EVENT
With respect to any Owner Trust, unless otherwise provided in the related
Prospectus Supplement, if an Insolvency Event occurs with respect to the
Company, the Receivables comprising the related Receivables Pool will be
liquidated and such Trust will be terminated 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the related
Trustee shall have received written instructions from (i) holders of each
class of Certificates, if any, (excluding any Certificates held by the
Company) representing more than 50% of the aggregate outstanding principal
amount of each such class (not including the principal amount of such
Certificates held by the Company) and (ii) holders of each class of Notes, if
any, representing more than 50% of the aggregate outstanding principal amount
of each such class of Notes, to the effect that each such party disapproves of
the liquidation of such Receivables and termination of such Trust. Promptly
after the occurrence of an Insolvency Event with respect to the Company,
notice thereof is required to be given to the related Securityholders;
provided, however, that any failure to give such notice will not prevent or
delay the termination of such Trust. Upon any such termination of a Trust, the
related Trustee shall, or shall direct the related Indenture Trustee to,
promptly sell the assets of such Trust (other than the Trust Accounts) in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of the Receivables of
such Trust will be treated as collections on such Receivables and deposited in
the related Collection Account. With respect to any Trust, if the proceeds
from the liquidation of the related Receivables and any amounts on deposit in
the related Trust Accounts and any available credit enhancement are not
sufficient to pay the related Notes and Certificates in full, the amount of
principal returned to the holders thereof will be reduced and some or all of
the related Securityholders will incur a loss.
Each Pooling and Servicing Agreement and each Trust Agreement will provide
that the related Trustee shall not have the power to commence a voluntary
proceeding in bankruptcy with respect to the related Trust without
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the unanimous prior approval of all related Certificateholders (including the
Company) and the delivery to such Trustee by each such Certificateholder
(including the Company) of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
PAYMENT IN FULL OF THE NOTES
Upon the payment in full of all outstanding Notes of a given Series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such Series will succeed to all the rights of the Noteholders of such
Series under the related Sale and Servicing Agreement, except as otherwise
provided therein.
COMPANY LIABILITY
Unless otherwise provided in the related Prospectus Supplement, in the case
of an Owner Trust, the Company will agree in the related Trust Agreement to be
liable directly to any injured party for the entire amount of any losses,
claims, damages or liabilities (other than those incurred by a Securityholder
in the capacity of an investor with respect to such Owner Trust) arising out
of or based on the arrangement created by such Trust Agreement as though such
arrangement created a partnership under the Delaware Revised Uniform Limited
Partnership Act in which the Company was a general partner.
TERMINATION
Unless otherwise specified in the related Prospectus Supplement, the
obligations of the Master Servicer, any Subservicer, the Depositor, each
Originator, the related Trustee and the related Indenture Trustee, if any,
with respect to the Trust pursuant to the related Transfer and Servicing
Agreements will terminate upon the earliest to occur of (i) the maturity or
other liquidation of the last Receivable in the related Receivables Pool and
the disposition of any amounts received upon liquidation of any such remaining
Receivables, (ii) the payment to Noteholders, if any, and Certificateholders,
if any, of all amounts required to be paid to them pursuant to the Transfer
and Servicing Agreements and (iii) the occurrence of either event described
below.
Unless otherwise specified in the related Prospectus Supplement, in order to
avoid excessive administrative expenses, the Master Servicer will be
permitted, at its option, to purchase from each Trust all remaining
Receivables in the related Receivables Pool as of the end of any Collection
Period, if the then outstanding Pool Balance is 10% or less of the original
Pool Balance (as defined in the related Prospectus Supplement), at a purchase
price equal to the aggregate of the Repurchase Amounts thereof as of the end
of such Collection Period.
If and to the extent provided in the related Prospectus Supplement, the
Indenture Trustee or Trustee, as applicable, will, within the period of time
specified in such Prospectus Supplement following a Distribution Date as of
which the Pool Balance is equal to or less than the percentage of the original
Pool Balance specified in such 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
Indenture Trustee or Trustee receives satisfactory bids as described in such
Prospectus Supplement, then the Receivables remaining in such Trust will be
sold to the highest bidder.
ADMINISTRATION AGREEMENT
The Master Servicer, in its capacity as administrator (the "Administrator"),
may enter into an agreement (each, an "Administration Agreement") with an
Owner Trust that issues Notes and the related Indenture Trustee pursuant to
which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture. If so specified
in the related Prospectus Supplement, as compensation for the performance of
the Administrator's obligations under the applicable Administration Agreement
and as reimbursement for its expenses related thereto, the Administrator will
be entitled to a monthly administration fee, which fee will be paid as
specified in the related Prospectus Supplement.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN VEHICLES
In states in which retail installment sale contracts such as the Receivables
evidence the credit sale of automobiles, light duty trucks and vans by dealers
to obligors, the contracts also constitute personal property security
agreements and include grants of security interests in the vehicles under the
applicable UCC. Perfection of security interests in financed automobiles,
light duty trucks and vans generally is governed by the motor vehicle
registration laws of the state in which the vehicle is located. In all states
in which the Receivables have been originated, a security interest in
automobiles and light duty trucks is perfected by obtaining the certificate of
title to the Financed Vehicle or notation of the secured party's lien on the
vehicles' certificate of title (in addition, in Louisiana, a copy of the
installment sale contract must be filed with the appropriate governmental
recording office).
Unless otherwise specified in the related Prospectus Supplement, each
Contract will name the applicable Originator as obligee or assignee and as the
secured party. Unless otherwise specified in the related Prospectus
Supplement, such Originator will have represented and warranted that it has
taken all actions necessary under the laws of the state in which the Financed
Vehicle is located to perfect the Originator's security interest in the
Financed Vehicle, including, where applicable, having a notation of its lien
recorded on such vehicle's certificate of title. Unless otherwise specified in
the related Prospectus Supplement, the Obligors on the Contracts will not be
notified of the sale from the Originator, directly or indirectly, to the
Depositor, or the sale from the Depositor to the Trust, and no action will be
taken to record the transfer of the security interest from the Originator,
directly or indirectly, to the Depositor or from the Depositor to the Trust by
amendment of the certificates of title for the Financed Vehicles or otherwise.
The Originator will transfer and assign its security interest in the related
Financed Vehicles directly or indirectly to the Depositor, and the Depositor
will transfer and assign its security interest in such Financed Vehicles to
the related Trust pursuant to a Sale and Servicing Agreement or Pooling and
Servicing Agreement. However, because of the administrative burden and
expense, neither the Originator nor the Depositor will amend the certificates
of title of such Financed Vehicles to identify the related Trust as the new
secured party.
In most states, an assignment such as that under each Sale and Servicing
Agreement or Pooling and Servicing Agreement is an effective conveyance of a
security interest without amendment of any lien noted on a vehicle's
certificate of title, and the assignee succeeds thereby to the assignor's
rights as secured party. However, by not identifying such Trust as the secured
party on the certificate of title, the security interest of such Trust in the
vehicle could be defeated through fraud or negligence.
Under the laws of most states, the perfected security interest in a vehicle
will continue for four months after the vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the owner
thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a
vehicle. Accordingly, a secured party must surrender possession if it holds
the certificate of title to the vehicle or, in the case of a vehicle
registered in a state providing for the notation of a lien on the certificate
of title but not possession by the secured party, the secured party will
receive notice of surrender if the security interest is noted on the
certificate of title. Thus, the secured party will have the opportunity to re-
perfect its security interest in the vehicle in the state of relocation. In
states that do not require a certificate of title for registration of a motor
vehicle, re-registration could defeat perfection. Unless otherwise specified
in the related Prospectus Supplement, under each Sale and Servicing Agreement
and Pooling and Servicing Agreement, the Master Servicer will be obligated to
take appropriate steps, at the Master Servicer's expense, to maintain
perfection of security interests in the Financed Vehicles and will be
obligated to purchase the related Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected
security interest in a financed vehicle. The Code also grants priority to
certain
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federal tax liens over the lien of a secured party. The laws of certain states
and federal law permit the confiscation of vehicles by governmental
authorities under certain circumstances if used in unlawful activities, which
may result in the loss of a secured party's perfected security interest in the
confiscated vehicle.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sale contract has all the remedies of a secured
party under the UCC, except where specifically limited by other state laws.
Among the UCC remedies, the secured party has the right to perform self-help
repossession unless such act would constitute a breach of the peace. Unless
otherwise specified in the related Prospectus Supplement, self-help is the
most likely method to be used by the Master Servicer and is accomplished
simply by retaking possession of the financed vehicle. In the event of default
by the obligor, some jurisdictions require that the obligor be notified of the
default and be given a time period within which he may cure the default prior
to repossession. Generally, the right of reinstatement may be exercised on a
limited number of occasions in any one-year period. In cases where the obligor
objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate
state court, and the vehicle must then be repossessed in accordance with that
order.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the 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.
The obligor has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some states, by payment of delinquent
installments or the unpaid balance.
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. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those
states that do not prohibit or limit such judgments. 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.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in
consumer finance, including requirements regarding the adequate disclosure of
loan terms (including finance charges and deemed finance charges), and
limitations on loan terms (including the permitted finance charge or deemed
finance charge), collection practices and creditor remedies. The application
of these laws to particular circumstances is not always certain and some
courts and regulatory authorities have shown a willingness to adopt novel
interpretations of such laws. These laws include the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Procedures Act, the Magnuson-Moss
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Warranty Act, the Federal Reserve Board's Regulations B and Z, the Soldiers'
and Sailors' Civil Relief Act of 1940, the Texas Consumer Credit Code, state
adoptions of the National Consumer Act and of the Uniform Consumer Credit
Code, and state motor vehicle retail installment sales acts, retail
installment sales acts and other similar laws. Also, state laws 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 an
assignee's ability to enforce consumer finance contracts such as the
Receivables.
Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if
any, that a purchaser pays as part of the purchase price for a vehicle solely
because the purchaser is buying on credit rather than for cash (a "cash sale
differential"). If a dealer charges such a differential, applicable finance
charge ceilings could be exceeded.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting an assignee of a seller of goods in a consumer credit
transaction (and certain related creditors) to all claims and defenses that
the obligor in the transaction could assert against the seller of the goods.
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.
Most of the Receivables will be subject to the requirements of the FTC Rule.
Accordingly, each Trust, as holder of the related Receivables, will be subject
to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or defense would constitute a breach of the Originator's
warranties under the related Purchase Agreement and would create an obligation
of the Originator to repurchase the Receivable unless the breach is cured. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables".
Courts have applied general equitable principles to secured parties pursuing
repossession and 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 provided under the 14th Amendment to the Constitution of the
United States. Courts have generally upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale
by the creditor do not involve sufficient state action to afford
constitutional protection to borrowers.
Under most state vehicle dealer licensing laws, sellers of automobiles,
minivans 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 Financed Vehicle, the Obligor may be able to assert a
defense against the seller of the Financed Vehicle. If an Obligor on a
Receivable were successful in asserting any such claim or defense, the Master
Servicer would pursue on behalf of the related Trust any reasonable remedies
against the seller or the manufacturer of the vehicle, subject to certain
limitations as to the expense of any such action to be specified in the
related Transfer and Servicing Agreements.
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Under each Purchase Agreement, the Originator will have represented and
warranted that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against a Trust for
violation of any law and such claim materially and adversely affects such
Trust's interest in a Receivable, such violation would constitute a breach of
the warranties of the Originator and would create an obligation of the
Originator to repurchase the Receivable unless the breach is cured.
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 secured
party to realize upon collateral or to 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 vehicle and, as part of the
rehabilitation plan, may reduce the amount of the secured indebtedness to the
market value of the vehicle at the time of bankruptcy (as determined by the
court), leaving the creditor 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates and is based on the advice of Brown & Wood, special federal tax
counsel for the Depositor ("Federal Tax Counsel"). The summary does not
purport to deal with federal income tax consequences applicable to all
categories of holders, some of which may be subject to special rules. For
example, it does not discuss the tax treatment of Noteholders or
Certificateholders that are insurance companies, regulated investment
companies or dealers in securities. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt
and/or equity interests issued by a trust with terms similar to those of the
Notes and/or the Certificates. 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 particular to them with respect to their purchase,
ownership and disposition of the Notes and the Certificates.
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. Each Trust will be
provided with an opinion of special federal tax counsel to the Trust specified
in the related Prospectus Supplement ("Special Federal Tax Counsel") relating
to the federal income tax consequences to investors in Securities of the
related Series and to the effect that the federal income tax matters discussed
below are accurate in all material respects. An opinion of Federal Tax Counsel
or Special 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 an election is made to treat the Trust as a partnership
under the Code, whether the Trust will be treated as a grantor trust or
whether the Trust will issue one or more classes of Certificates treated as
debt for federal income tax purposes. The Prospectus Supplement for each
Series of Certificates will specify whether a partnership election will be
made, whether the Trust will be treated as a grantor trust or whether the
Trust will issue one or more classes of Certificates treated as debt for
federal income tax purposes.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE OR WHICH ISSUE NO CLASSES OF
CERTIFICATES
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel or Special Federal Tax Counsel will deliver its opinion
that a Trust for which a partnership election is made or which issues no
classes of certificates will not be an association (or publicly
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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 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
General. The following discussion only applies to a Trust which elects to be
treated as a partnership and issues one or more classes of Certificates.
Furthermore, the following discussion assumes that all payments on the
Certificates are denominated in U.S. dollars and that any such Certificates
are sold to persons other than the Company. If these conditions are not
satisfied with respect to any given series of Certificates, any additional tax
consideration with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Treatment of the Notes as Indebtedness. The Depositor 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 or Special Federal Tax
Counsel will, if so provided in the related Prospectus Supplement, advise the
Trust that the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
OID, etc. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, and that the Notes are not 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., 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.
Interest Income on the Notes. Based on the above assumptions and except as
discussed in the following paragraph, although the matter is not entirely
clear, Federal Tax Counsel is of the opinion that the Notes will not be
considered issued with OID. In such case, 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 must
include such OID in income, on a pro rata basis, as principal payments are
made on the Note. In the opinion of Federal Tax Counsel, a purchaser who buys
a Note for more or less than its principal amount will generally be subject to
the premium amortization or market discount rules, respectively, of the Code.
In the opinion of Federal Tax Counsel, 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
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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.
Sale or Other Disposition. In the opinion of Federal Tax Counsel, 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 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 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. In the opinion of Federal Tax Counsel, interest payments
made (or accrued) to a Noteholder who is a nonresident alien, foreign
corporation or other non-United States person (a "foreign person") 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 person and the foreign person (i) is not actually
or constructively a "10 percent shareholder" of the Trust or the Depositor
(including a holder of 10% of the outstanding Certificates) or a "controlled
foreign corporation" with respect to which the Trust or the Depositor is a
"related person" within the meaning of the Code and (ii) provides the 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 person and providing the foreign person'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 person 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.
In the opinion of Federal Tax Counsel, any capital 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 person
and (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.
Backup Withholding. In the opinion of Federal Tax Counsel, 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 its
status as a nonresident) will be required to provide, under penalties of
perjury, a certificate containing 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 amount withheld 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, and most likely in the view of Federal Tax Counsel, the Trust
might be treated as a publicly traded partnership that would
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not be taxable as a corporation because it would meet 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 certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income", income to foreign holders
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
Treatment of the Trust as a Partnership. The Depositor 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 (including the Company), and the
Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust, the Certificates, the Notes, the
Depositor and the Company is not clear because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Company or the Trust. Any such
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. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, none of the Certificates are 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. In the opinion of Federal Tax Counsel, 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 the opinion of Federal Tax Counsel, 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.
In the opinion of Federal Tax Counsel, 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; and (iii) 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. All remaining taxable income of the Trust will be
allocated to the Company. Based on the economic arrangement of the parties,
this approach for allocating Trust income should be permissible under
applicable Treasury regulations, although no assurance can be given 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
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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 although
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.
In the opinion of Federal Tax Counsel, all 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)
will constitute "unrelated business taxable income" generally taxable to such
a holder under the Code.
In the opinion of Federal Tax Counsel, an individual taxpayer's share of
expenses of the Trust (including fees to the Master Servicer but not interest
expense) would be miscellaneous itemized deductions. Such miscellaneous
itemized deductions are only allowed to the extent they exceed, in the
aggregate, 2% of an individual's adjusted gross income. Furthermore, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over such amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. Accordingly, 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.
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 were not 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 may be allocated to
Certificateholders.
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 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. 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, because the proper accounting for
a Section 708 termination requires the Trust to be aware of the
Certificateholders' tax basis in their respective Certificates, 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. In the opinion of Federal Tax Counsel, 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
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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).
In the opinion of Federal Tax Counsel, 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.
In the opinion of Federal Tax Counsel, 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, in the opinion of Federal
Tax Counsel, a holder purchasing Certificates may be allocated tax items
(which will affect its tax liability and tax basis) attributable to periods
before the actual transaction.
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
Company will be 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 (loss), the purchasing Certificateholder will have a
higher (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 an accrual basis and the fiscal year
of the Trust will be the calendar year. The 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-1. The Trust
will provide the Schedule K-1 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 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
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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 Company 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. 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, under certain circumstances, 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. It is not clear whether the
Trust would 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 because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of
the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements
may require the Trust to change its withholding procedures. In determining a
holder's withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9
or the holder's certification of nonforeign status signed under penalties of
perjury.
Each foreign holder might be required to file a U.S. 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. Each foreign holder must obtain a
taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard
to the income of the Trust. If these interest payments are properly
characterized as guaranteed payments, then the interest will not be considered
"portfolio interest". As a result, Certificateholders will be subject to
United States federal income tax and withholding tax at a rate of 30 percent,
unless reduced or eliminated pursuant to an applicable treaty. In such case, a
foreign holder would only be entitled to claim a refund for that portion of
the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
Backup Withholding. In the opinion of Federal Tax Counsel, 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.
PENDING LEGISLATION
During 1995, the United States Congress passed the "Seven Year Balanced
Budget Act of 1995", H.R. 2491 (the "Bill"), which was vetoed by President
Clinton. The Bill would have created a new type of entity for federal
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income tax purposes called a "financial asset securitization investment trust"
or "FASIT", and future legislation may include provisions similar to the FASIT
provisions of the Bill. If those provisions are reintroduced and enacted in
the form contained in the Bill, they generally will enable certain
arrangements similar to a Trust that is treated as a partnership to elect to
be treated as a FASIT. Under the FASIT provisions of the Bill, a FASIT
generally would avoid federal income taxation and could issue securities
substantially similar to the Certificates and Notes, and those securities
would be treated as debt for federal income tax purposes. Upon satisfying
certain conditions set forth in the related Trust Agreement and Indenture, the
Depositor will be permitted to amend such Trust Agreement and Indenture in
order to enable all or a portion of the Trust to qualify as a FASIT and to
permit a FASIT election to be made with respect thereto, and to make such
modifications to such Trust Agreement and Indenture as may be permitted by
reason of the making of such an election. However, there can be no assurance
that FASIT provisions of the Bill will be reintroduced and enacted, that they
will be enacted in their present form, or that they will permit an election to
be made with respect to all or any portion of a Trust. There also can be no
assurance that the Depositor will or will not cause any permissible FASIT
election to be made with respect to a Trust or amend the related Trust
Agreement and Indenture in connection with any election. However, any such
election will be made only if an opinion of Federal Tax Counsel or Special
Federal Tax Counsel is rendered that such election will not have material
adverse consequences to any holder of a Note or Certificate.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
If a partnership election is not made and the Trust does not issue one or
more classes of Certificates treated as debt for Federal income tax purposes,
Federal Tax Counsel or Special 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. In the opinion of Federal Tax Counsel, 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.
In the opinion of Federal Tax Counsel, 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 Master 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 Master Servicer,
provided that such amounts are reasonable compensation for services rendered
to the Trust. Grantor Trust Certificateholders that are individuals, estates
or trusts will be entitled to deduct their share of expenses only to the
extent such expenses plus all other Section 212 expenses exceed two percent of
its adjusted gross income. 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 Master 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 Master Servicer, whichever is earlier. If the servicing fees paid
to the Master Servicer are deemed to exceed reasonable servicing compensation,
the amount of such excess could be considered as an ownership interest
retained by the Master Servicer (or any person to whom the Master Servicer
assigned for value
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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 "coupon
stripping" rules of the Code discussed below.
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. In the opinion of
Federal Tax Counsel, 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 not clear 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 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 acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable 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. If a reasonable prepayment assumption is used to amortize
such premium, it appears that such a loss would be available, if at all, only
if prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear, based on
recent guidance by the IRS, in the opinion of Federal Tax Counsel, each
purchaser of a Grantor Trust Certificate will be treated as the purchaser of 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 recently issued Treasury regulations (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". Based on the preamble to the Section 1286
Treasury Regulations, Federal Tax Counsel is of the opinion that, 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 will be treated as "qualified stated
interest" within the meaning of the Section 1286 Treasury Regulations and such
income will be so treated in the Trustee's tax information reporting.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to "original issue discount" (currently Sections 1271 through 1273
and 1275) will be applicable to a Grantor Trust Certificateholder's interest
in those Receivables meeting the conditions necessary for these sections to
apply. Generally, a Grantor Trust Certificateholder that acquires an undivided
interest in a Receivable issued or acquired with OID must include in gross
income the sum of the "daily portions", as defined below, of the OID on such
Receivable for each day on which it owns a Certificate, including the date of
purchase but excluding the date of disposition. In the case of an original
Grantor Trust Certificateholder, the daily portions of OID with respect to a
Receivable generally would be determined as follows. A calculation will be
made of the portion of OID that accrues on the Receivable 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 Receivable under the prepayment
assumption used in respect of the Receivables and (ii) any payments received
during such accrual period, and subtracting from that total the "adjusted
issue price" of the Receivable at the beginning of such accrual period. No
representation is made that the Receivables
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will prepay at any prepayment assumption. The "adjusted issue price" of a
Receivable 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 Receivable 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 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 Receivables, 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 Receivables. Subsequent purchasers that purchase Receivables
at more than a de minimis discount should consult their tax advisors with
respect to the proper method to accrue such OID.
Market Discount. In the opinion of Federal Tax Counsel, 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 Grantor Trust Certificate
will be considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate'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. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis
of a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount
that accrues during any accrual period would be equal to the product of (i)
the total remaining market discount and (ii) a fraction, the numerator of
which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations
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might have on the tax treatment of a Grantor Trust Certificate purchased at a
discount or premium in the secondary market.
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 continued to purchase or
carry such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred 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.
Premium. To the extent a Grantor Trust Certificateholder is considered to
have purchased an undivided interest in a Receivable for an amount that is
greater than its stated redemption price at maturity of such Receivable, such
Grantor Trust Certificateholder will be considered to have purchased the
Receivable with "amortizable bond premium" equal in amount to such excess. In
the opinion of Federal Tax Counsel, a Grantor Trust Certificateholder (who
does not hold the Certificate for sale to customers or in inventory) may elect
under Section 171 of the Code to amortize such premium. Under the Code,
premium is allocated among the interest payments on the Receivables to which
it relates and is considered as an offset against (and thus a reduction of)
such interest payments. With certain exceptions, such an election would apply
to all debt instruments held or subsequently acquired by the electing holder.
Absent such an election, the premium will be deductible as an ordinary loss
only upon disposition of the Certificate or pro rata as principal is paid on
the Receivables.
Election to Treat All Interest as OID. In the opinion of Federal Tax
Counsel, 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.
Subordinated Certificates. In the event the Trust issues two classes of
Grantor Trust Certificates, one class being a subordinate class and the other
being a senior class (referred to herein as the "Subordinate Certificates" and
"Senior Certificates", respectively) the Trust will be deemed to have acquired
the following assets: (i) the principal portion of each Receivable plus a
portion of the interest due on each Receivable (the "Trust Stripped Bond"),
and (ii) a portion of the interest due on each Receivable equal to the
difference between the pass-through rate on the Subordinate Certificates and
the pass-through rate on the Senior Certificates, if any, which difference is
then multiplied by the Subordinate Class Percentage (the "Trust Stripped
Coupon"). The "Subordinate Class Percentage" equals the initial aggregate
principal amount of the Subordinate Certificates divided by the sum of the
initial aggregate principal amount of the Subordinate Certificates and the
Senior Certificates. The "Senior Class Percentage" equals the initial
aggregate principal amount of the Senior Certificates divided by the sum of
the initial aggregate principal amount of the Subordinate Certificates and the
Senior Certificates.
The Senior Certificateholders in the aggregate will own the Senior Class
Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The Subordinate Certificateholders in the aggregate own both the
Subordinate Class Percentage of the Trust Stripped Bond plus 100% of the Trust
Stripped Coupon, if any, and accordingly each Subordinate Certificateholder
will be treated
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as owning its pro rata share in both such assets. The Trust Stripped Bond will
be treated as a "stripped bond" and the Trust Stripped Coupon will be treated
as "stripped coupons" within the meaning of Section 1286 of the Code. Because
the purchase price paid by each Subordinate Certificateholder will be
allocated between that Certificateholder's interest in the Trust Stripped Bond
and the Trust Stripped Coupon based on the relative fair market values of each
asset on the date such Subordinate Certificate is purchased, the Trust
Stripped Bond may be issued with original issue discount.
Trust Stripped Bond. Except to the extent modified below, the income of the
Trust Stripped Bond represented by a Certificate will be reported in the same
manner as described generally above for holders of Certificates. The interest
income on the Subordinate Certificates at the Senior Certificate pass-through
rate and the portion of the Servicing Fee that does not constitute excess
servicing will be treated as qualified stated interest.
Trust Stripped Coupon. The Trust Stripped Coupon will be treated as a debt
instrument with original issued discount equal to the excess of the total
amount payable with respect to such Trust Stripped Coupon (based on the
prepayment assumption used in pricing the Certificates) over the portion of
the purchase price allocated thereto. The sum of the daily portions of
original issue discount on the Trust Stripped Coupon for each day during a
year in which the Subordinate Certificateholder holds the Trust Stripped
Coupon will be included in the Subordinate Certificateholder's income.
Effect of Subordination. If the Subordinate Certificateholders receive
distribution of less than their share of the Trust's receipts of principal or
interest (the "Shortfall Amount") because of the subordination of the
Subordinate Certificates, holders of Subordinate Certificates would probably
be treated for federal income tax purposes as if they had (i) received as
distributions their full share of such receipts, (ii) paid over to the Senior
Certificateholders an amount equal to such Shortfall Amount and (iii) retained
the right to reimbursement of such amounts to the extent such amounts are
otherwise available as a result of collections on the Receivables or amounts
available from a Reserve Account or other form of credit enhancement, if any.
Under this analysis, (a) Subordinate Certificateholders would be required to
accrue as current income any interest or OID income of the Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the Senior Certificateholders, (b) a loss would only be allowed to the
Subordinate Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that
amount will not be available from any source to reimburse such loss) and (c)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Subordinate Certificateholders because such
amount was previously included in income. Those results should not
significantly affect the inclusion of income for Subordinate
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to Subordinate Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear. Subordinate
Certificateholders are strongly urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any losses sustained
with respect to the Subordinate Certificates including any loss resulting from
the failure to recover previously accrued interest or discount income.
Sale or Exchange of a Grantor Trust Certificate. In the opinion of Federal
Tax Counsel, a 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. Such gain or loss 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).
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In the opinion of Federal Tax Counsel, 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. Generally, 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 not a U.S. Person (as
defined below) or (ii) a Grantor Trust Certificateholder holding on behalf of
an owner that is not a U.S. 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 not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Receivables issued after July 18,
1984, by natural persons 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 not a U.S. Person and providing
the name and address of such Grantor Trust Certificateholder). Additional
restrictions apply to Receivables of where the obligor is not a natural person
in order to qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States.
Information Reporting and Backup Withholding. The Master 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.
TRUSTS WHICH ISSUE ONE OR MORE CLASSES OF CERTIFICATES TREATED AS DEBT FOR
FEDERAL INCOME TAX PURPOSES
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel or Special Federal Tax Counsel will deliver its opinion
that a Trust which issues one or more classes of Certificates treated as debt
for federal income tax purposes 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 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 Certificates. Any such
corporate income tax could materially reduce cash available to make payments
on the Certificates, and Certificateholders could be liable for
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any such tax that is unpaid by the Trust. Alternative characterizations of
such Trust and such Certificates are possible, but would not result in
materially adverse tax consequences to Certificateholders.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Certificates as Indebtedness. The Depositor will agree, and
the Certificateholders will agree by their purchase of Certificates, to treat
the Certificates as debt for federal income tax purposes. Federal Tax Counsel
or Special Federal Tax Counsel will, if so provided in the related Prospectus
Supplement, advise the Trust that the Certificates will be classified as debt
for federal income tax purposes. The discussion below assumes this
characterization of the Certificates is correct.
OID, etc. The discussion below assumes that all payments on the Certificates
are denominated in U.S. dollars, and that the Certificates are not Strip
Certificates. Moreover, the discussion assumes that the interest formula for
the Certificates 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 Certificates (i.e., any excess of
the principal amount of the Certificates over their issue price) does not
exceed a de minimis amount (i.e., 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 Certificates, additional tax considerations with respect to
such Certificates will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Certificates. Based on the above assumptions and
except as discussed in the following paragraph, although the matter is not
entirely clear, Federal Tax Counsel is of the opinion that the Certificates
will not be considered issued with OID. In such case, the stated interest
thereon will be taxable to a Certificateholder as ordinary interest income
when received or accrued in accordance with such Certificateholder's method of
tax accounting. Under the OID regulations, a holder of a Certificate issued
with a de minimis amount of OID must include such OID in income, on a pro rata
basis, as principal payments are made on the Certificate. In the opinion of
Federal Tax Counsel, a purchaser who buys a Certificate for more or less than
its principal amount will generally be subject to the premium amortization or
market discount rules, respectively, of the Code.
In the opinion of Federal Tax Counsel, a holder of a Certificate that has a
fixed maturity date of not more than one year from the issue date of such
Certificate (a "Short-Term Certificate") may be subject to special rules. An
accrual basis holder of a Short-Term Certificate (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 Certificate would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Certificate). However,
a cash basis holder of a Short-Term Certificate 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 Certificate until the taxable disposition of the Short-Term Certificate.
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
Certificate 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 Certificate is purchased for more or less than its
principal amount.
Sale or Other Disposition. In the opinion of Federal Tax Counsel, if a
Certificateholder sells a Certificate, 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 Certificate. The adjusted tax basis
of a Certificate to a particular Certificateholder will equal the holder's
cost for the Certificate, increased by any market discount, acquisition
discount, OID and gain previously included by such Certificateholder in income
with respect to the Certificate and decreased by the amount of bond premium
(if any) previously amortized and by the amount of principal payments
previously received by such Certificateholder with respect to such
Certificate. Any such gain or loss
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will be capital gain or loss if the Certificate 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. In the opinion of Federal Tax Counsel, interest payments
made (or accrued) to a Certificateholder who is a nonresident alien, foreign
corporation or other non-United States person (a "foreign person") 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 person and the foreign person (i) is not actually
or constructively a "10 percent shareholder" of the Trust or the Depositor
(including a holder of 10% of the outstanding Certificates) or a "controlled
foreign corporation" with respect to which the Trust or the Depositor is a
"related person" within the meaning of the Code and (ii) provides the Trustee
or other person who is otherwise required to withhold U.S. tax with respect to
the Certificates with an appropriate statement (on Form W-8 or a similar
form), signed under penalties of perjury, certifying that the beneficial owner
of the Certificate is a foreign person and providing the foreign person's name
and address. If a Certificate 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 person that owns the
Certificate. 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.
In the opinion of Federal Tax Counsel, any capital gain realized on the
sale, redemption, retirement or other taxable disposition of a Certificate 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 person
and (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.
Backup Withholding. In the opinion of Federal Tax Counsel, each holder of a
Certificate (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 its
status as a nonresident) will be required to provide, under penalties of
perjury, a certificate containing 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 Certificateholder 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 amount withheld to
the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Certificates. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Certificates did not represent debt for federal income tax purposes,
the Certificates 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 Certificates
recharacterized as equity). Alternatively, and most likely in the view of
Federal Tax Counsel, the Trust might be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the Certificates as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) could be "unrelated business taxable
income", income to foreign holders 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.
* * *
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
60
<PAGE>
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO
THEM WITH RESPECT TO THEIR PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
61
<PAGE>
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit-
sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each a "Benefit Plan"), from
engaging in certain transactions with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to such
Benefit Plan. A violation of these "prohibited transaction" rules may result
in an excise tax or other penalties and liabilities under ERISA and the Code
for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit
Plan that purchased Notes or Certificates if assets of the Trust were deemed
to be assets of the Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of a
Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation
was 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 likely
treatment in this context of Notes and Certificates of a given Series will be
discussed in the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities of a given Series
should consult its tax and/or legal advisors regarding whether the assets of
the related Trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
SENIOR CERTIFICATES
The following discussion applies only to nonsubordinated Certificates
(referred to herein as "Senior Certificates").
The U.S. Department of Labor has granted to the lead underwriter named in
the Prospectus Supplement an exemption (the "Exemption") from certain of the
prohibited transaction rules of ERISA with respect to the initial purchase,
the holding and the subsequent resale by Benefit Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption
include motor vehicle installment sales contracts such as the Receivables. The
Exemption will apply to the acquisition, holding and resale of the Senior
Certificates by a Benefit Plan, provided that certain conditions (certain of
which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Benefit Plan is on
terms (including the price for the Senior Certificates) that are at least
as favorable to the Benefit Plan as they would be in an arm's length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Benefit Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Corporation,
Moody's Investors Service, Inc., Duff & Phelps Inc. or Fitch Investors
Service, Inc.;
(4) The Trustee is not an affiliate of any other member of the Restricted
Group (as defined below);
62
<PAGE>
(5) The sum of all payments made to the underwriters in connection with
the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior Certificates; the sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Contracts to the Trust represents not more than the fair market
value of such Contracts; and the sum of all payments made to and retained
by the Master Servicer represents not more than reasonable compensation for
the Master Servicer's services under the Agreement and reimbursement of the
Master Servicer's reasonable expenses in connection therewith; and
(6) The Benefit Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501 (a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act.
Moreover, the Exemption would provide relief from certain self-
dealing/conflict of interest or prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty (50) percent of the
Senior Certificates are acquired by persons independent of the Restricted
Group (as defined below), (ii) the Benefit Plan's investment in Senior
Certificates does not exceed twenty-five (25) percent of all of the Senior
Certificates outstanding at the time of the acquisition, and (iii) immediately
after the acquisition, no more than twenty-five (25) percent of the assets of
the Benefit Plan are invested in certificates representing an interest in one
or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Depositor, any underwriter,
the Trustee, the Master Servicer, any obligor with respect to Contracts
included in the Trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, or any affiliate of
such parties (the "Restricted Group").
The Depositor believes that the Exemption will apply to the acquisition and
holding by Benefit Plans of Senior Certificates sold by the underwriter or
underwriters named in the Prospectus Supplement and that all conditions of the
Exemption other than those within the control of the investors have been met.
In addition, as of the date hereof, no obligor with respect to Contracts
included in the Trust constitutes more than five percent of the aggregate
unamortized principal balance of the assets of the Trust.
PLAN OF DISTRIBUTION
The Securities offered hereby and by the Prospectus Supplement will be
offered in Series. The distribution of the Securities may be effected from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices to be determined at the
time of sale or at the time of commitment therefor. If so specified in the
related Prospectus Supplement, the Securities will be distributed in a firm
commitment underwriting, subject to the terms and conditions of the
underwriting agreement, by Greenwich Capital Markets, Inc. ("GCM") acting as
underwriter with the other underwriters, if any, named therein. In such event,
the related Prospectus Supplement may also specify that the underwriters will
not be obligated to pay for any Securities agreed to be purchased by
purchasers pursuant to purchase agreements acceptable to the Depositor. In
connection with the sale of the Securities, underwriters may receive
compensation from the Depositor or from purchasers of the Securities in the
form of discounts, concessions or commissions. The related Prospectus
Supplement will describe any such compensation paid by the Depositor.
Alternatively, the related Prospectus Supplement may specify that the
Securities will be distributed by GCM acting as agent or in some cases as
principal with respect to Securities that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of Securities, GCM will
receive a selling commission with respect to each Series of Securities,
depending on market conditions. The selling commission for each Series of
Securities will be disclosed in the related Prospectus Supplement. To the
extent that GCM elects to purchase Securities as principal, GCM may realize
losses or profits based upon the difference between its purchase price and the
sales price. The Prospectus Supplement with respect to any Series offered
other than through underwriters will contain information regarding the nature
of such offering and any agreements to be entered into between the Depositor
and purchasers of Securities of such Series.
63
<PAGE>
The Depositor will indemnify GCM and any underwriters against certain civil
liabilities, including liabilities under the Securities Act, or will
contribute to payments GCM and any underwriters may be required to make in
respect thereof.
In the ordinary course of business, GCM and the Depositor may engage in
various securities and financing transactions, including repurchase agreements
to provide interim financing of the Depositor's Receivables pending the sale
of such Receivables or interests therein, including the Securities.
The Depositor has undertaken that, subsequent to the issuance of the Series
of Securities offered by FASCO Auto Trust 1996-1 and prior to the issuance of
the first subsequent Series of Securities, if any, the Depositor will file
with the Commission a single post-effective amendment to the Registration
Statement applicable to such first subsequent Series of Securities and all
Series of Securities issued thereafter.
LEGAL MATTERS
Certain legal matters relating to the Securities of any Series will be
passed upon for the related Trust and the Depositor by Brown & Wood, New York,
New York.
64
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of certain of the more significant terms used in
this Prospectus and the pages on which the definitions of such terms may be
found herein.
<TABLE>
<S> <C>
Actuarial Receivables...................................................... 17
Administration Agreement................................................... 44
Administration Fee......................................................... 44
Administrator.............................................................. 44
Advance.................................................................... 8
APR........................................................................ 18
Base Rate.................................................................. 26
Benefit Plan............................................................... 58
Bill....................................................................... 53
Calculation Agent.......................................................... 26
Calculation Date........................................................... 27
CD Rate.................................................................... 27
CD Rate Determination Date................................................. 27
CD Rate Security........................................................... 28
Cede....................................................................... 15
Certificate Balance........................................................ 5
Certificate Distribution Account........................................... 36
Certificate Pool Factor.................................................... 19
Certificateholder.......................................................... 9
Certificates............................................................... 1
Closing Date............................................................... 7
Code....................................................................... 47
Collection Account......................................................... 36
Collection Period.......................................................... 38
Commercial Paper Rate...................................................... 27
Commercial Paper Rate Determination Date................................... 27
Commercial Paper Rate Security............................................. 26
Commission................................................................. 2
Company.................................................................... 4
Composite Quotations....................................................... 26
Contracts.................................................................. 18
Cutoff Date................................................................ 6
Dealers.................................................................... 4
Definitive Certificates.................................................... 32
Definitive Notes........................................................... 32
Definitive Securities...................................................... 32
Depositor.................................................................. 1
Depository................................................................. 20
Distribution Date.......................................................... 25
DTC........................................................................ 15
DTC Participants........................................................... 31
Eligible Deposit Account................................................... 37
Eligible Institution....................................................... 37
Eligible Investments....................................................... 37
ERISA...................................................................... 58
Events of Default.......................................................... 21
Exemption.................................................................. 59
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
FASIT..................................................................... 56
Federal Funds Rate........................................................ 28
Federal Funds Rate Determination Date..................................... 28
Federal Funds Rate Security............................................... 26
Federal Tax Counsel....................................................... 47
Financed Vehicles......................................................... 6
Fixed Rate Securities..................................................... 26
Floating Rate Securities.................................................. 26
foreign person............................................................ 62
FTC Rule.................................................................. 46
Funding Period............................................................ 7
GCM....................................................................... 60
Grantor Trust............................................................. 4
Grantor Trust Certificateholders.......................................... 54
Grantor Trust Certificates................................................ 54
H.15(5-19)................................................................ 26
Indenture................................................................. 4
Indenture Trustee......................................................... 4
Index Maturity............................................................ 26
Indirect Participants..................................................... 31
Initial Receivables....................................................... 7
Insolvency Event.......................................................... 41
Interest Rate............................................................. 5
Interest Reset Date....................................................... 26
Interest Reset Period..................................................... 26
Investment Income......................................................... 7
IRS....................................................................... 47
LIBOR..................................................................... 29
LIBOR Determination Date.................................................. 29
LIBOR Security............................................................ 26
London Banking Day........................................................ 29
Master Servicer........................................................... 4
Money Market Yield........................................................ 28
Note Distribution Account................................................. 36
Note Pool Factor.......................................................... 19
Noteholder................................................................ 9
Notes..................................................................... 1
OID....................................................................... 48
OID regulations........................................................... 48
Originator................................................................ 1, 4
Owner Trust............................................................... 4
Participants.............................................................. 31
Pass-Through Rate......................................................... 5
Payahead Account.......................................................... 36
Payaheads................................................................. 38
Plan Assets Regulation.................................................... 59
Pooling and Servicing Agreement........................................... 4
Pre-Funded Amount......................................................... 7
Pre-Funding Account....................................................... 7
Precomputed Advance....................................................... 8
Precomputed Receivables................................................... 17
Prospectus Supplement..................................................... 1
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
Purchase Agreement......................................................... 33
Receivables................................................................ 1, 6
Receivables Pool........................................................... 15
Registration Statement..................................................... 2
Related Documents.......................................................... 23
Repurchase Amount.......................................................... 34
Required Deposit Ratings................................................... 37
Restricted Group........................................................... 60
Reuters Screen LIBO Page................................................... 29
Rule of 78's Receivables................................................... 17
Rules...................................................................... 31
Sale and Servicing Agreement............................................... 7
Section 1286 Treasury Regulations.......................................... 55
Securities................................................................. 1
Securities Act............................................................. 2
Security Owners............................................................ 31
Securityholders............................................................ 11
Senior Certificates........................................................ 56
Series..................................................................... 1
Servicer Default........................................................... 41
Servicing Fee.............................................................. 39
Servicing Fee Rate......................................................... 39
Shortfall Amount........................................................... 57
Short-Term Note............................................................ 48
Simple Interest Advance.................................................... 8
Simple Interest Receivables................................................ 17
Special Federal Tax Counsel................................................ 46
Spread..................................................................... 26
Spread Multiplier.......................................................... 26
Strip Certificates......................................................... 6
Strip Notes................................................................ 5
Subordinate Certificates................................................... 56
Subsequent Receivables..................................................... 7
Subsequent Transfer Date................................................... 11
Subservicer................................................................ 4
Transfer and Servicing Agreements.......................................... 33
Treasury bills............................................................. 31
Treasury Rate.............................................................. 29
Treasury Rate Determination Date........................................... 30
Treasury Rate Security..................................................... 28
Trust...................................................................... 1
Trust Accounts............................................................. 36
Trust Agreement............................................................ 4
Trust Stripped Bond........................................................ 56
Trust Stripped Coupon...................................................... 56
Trustee.................................................................... 4
UCC........................................................................ 31
</TABLE>
67
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNEC-
TION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS UNAUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUP-
PLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR PROSPECTUS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Certificateholders.............................................. S-2
Incorporation of Certain Documents by Reference............................ S-2
Summary of Terms........................................................... S-4
Risk Factors............................................................... S-13
The Trust.................................................................. S-15
The Trust Assets........................................................... S-15
CPS's Automobile Contract Portfolio........................................ S-16
The Receivables Pool....................................................... S-20
Yield Considerations....................................................... S-24
Pool Factors and Other Information......................................... S-25
Use of Proceeds............................................................ S-25
The Depositor.............................................................. S-25
The Originator and Servicer................................................ S-26
Standby Servicer........................................................... S-26
The Certificates........................................................... S-26
The Policy................................................................. S-40
The Certificate Insurer.................................................... S-41
ERISA Considerations....................................................... S-44
Underwriting............................................................... S-44
Legal Matters.............................................................. S-44
Experts.................................................................... S-45
Index of Terms............................................................. S-46
PROSPECTUS
Available Information...................................................... 2
Reports to Securityholders................................................. 2
Incorporation of Certain Documents by Reference............................ 2
Summary of Terms........................................................... 3
Risk Factors............................................................... 11
The Trusts................................................................. 15
The Receivables Pools...................................................... 17
Weighted Average Life of the Securities.................................... 18
Pool Factors and Trading Information....................................... 19
Use of Proceeds............................................................ 19
The Depositor.............................................................. 20
The Originators............................................................ 20
Description of the Notes................................................... 20
Description of the Certificates............................................ 25
Certain Information Regarding the Securities............................... 26
Description of the Transfer and Servicing Agreements....................... 32
Certain Legal Aspects of the Receivables................................... 43
Material Federal Income Tax Consequences................................... 46
ERISA Considerations....................................................... 62
Plan of Distribution....................................................... 63
Legal Matters.............................................................. 64
Index of Principal Terms................................................... 66
</TABLE>
---------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS EF-
FECTING TRANSACTIONS IN THE CERTIFICATES DESCRIBED IN THIS PROSPECTUS SUPPLE-
MENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DE-
LIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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FASCO AUTO TRUST 1996-1
$84,455,712.85
% ASSET BACKED
CERTIFICATES, CLASS A
FINANCIAL ASSET
SECURITIES CORP.,
DEPOSITOR
CONSUMER PORTFOLIO SERVICES, INC
SERVICER
---------------
PROSPECTUS SUPPLEMENT
---------------
GREENWICH CAPITAL
MARKETS, INC
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