<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-1548
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 12, 1998)
[LOGO] CPS
CPS GRANTOR TRUST 1998-1
$177,607,078 6.00% ASSET BACKED CERTIFICATES, CLASS A
FINANCIAL ASSET SECURITIES CORP.,
DEPOSITOR
CONSUMER PORTFOLIO SERVICES, INC.,
ORIGINATOR AND SERVICER
CPS Grantor Trust 1998-1 (the "Trust") will be formed pursuant to a Pooling
and Servicing Agreement dated as of March 1, 1998, among Financial Asset
Securities Corp., a Delaware corporation, as depositor (the "Depositor"),
Consumer Portfolio Services, Inc., a California corporation, as originator (in
such capacity, an "Originator" and together with the other Originators
identified herein, the "Originators") 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 $177,607,078.00 aggregate principal amount of 6.00% Asset Backed
Certificates, Class A (the "Class A Certificates") and $9,347,740.61 aggregate
principal amount of 10.25% 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, light trucks, vans and minivans financed thereby, certain monies
due or received thereunder after March 2, 1998, and certain other property, as
described herein.
Full and complete payment of the Class A Distributable Amount (as defined
herein) on each Distribution Date is unconditionally and irrevocably guaranteed
pursuant to a financial guaranty insurance policy issued by Financial Security
Assurance Inc. ("Financial Security").
[LOGO] FSA.
(Continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE S-15 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 13 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 Greenwich Capital Markets, Inc.
(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
$177,163,060.31, 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 March 16, 1998.
GREENWICH CAPITAL MARKETS
- --------------------------------------------------------------------------------
A DIVISION OF NATWEST MARKETS [LOGO]NWM
The date of this Prospectus Supplement is March 12, 1998.
<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 6.00% 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 10.25% 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 April 15, 1998 (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 Distribution Date in August
2003.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE ACCOMPANYING 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 (as defined herein) 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
("Exchange Act"), 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 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 financial statements of
the Certificate Insurer 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 year ended December 31, 1996;
b. Quarterly Report on Form 10-Q for the period ended March 31, 1997;
c. Quarterly Report on Form 10-Q for the period ended June 30, 1997; and
d. Quarterly Report on Form 10-Q for the period ended September 30, 1997.
S-2
<PAGE>
All financial statements of the Certificate Insurer 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.
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial conditions and results
of operations of an insurance company, for determining its solvency under the
New York Insurance Law, and for determining whether its financial condition
warrants the payment of a dividend to its stockholders. No consideration is
given by the New York State Insurance Department to financial statements
prepared in accordance with generally accepted accounting principles in making
such determinations.
The Depositor will provide without charge to each person to whom this
Prospectus Supplement and Prospectus are delivered, on 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 made to Brian
Bernard, Senior 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 the Certificate Insurer 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 the Prospectus
are 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...................... CPS Grantor Trust 1998-1, a trust to be
formed pursuant to a Pooling and Servicing
Agreement to be dated as of March 1, 1998
(the "Pooling and Servicing Agreement"),
among the Depositor, Consumer Portfolio
Services, Inc., as Servicer, and the Trustee
and Standby Servicer.
Depositor................... Financial Asset Securities Corp., a Delaware
corporation (the "Depositor"). The Depositor
is an indirect limited purpose subsidiary of
National Westminster Bank plc and an
affiliate of Greenwich Capital Markets, Inc.
See "The Depositor" in the Prospectus and
"Underwriting" herein. None of the
Depositor, National Westminster Bank plc or
any of their respective affiliates will
insure or guarantee or otherwise be
obligated with respect to the Certificates.
Originators................. Consumer Portfolio Services, Inc. ("CPS"), a
California corporation, Samco Acceptance
Corp. ("Samco"), a Delaware corporation, and
Linc Acceptance Company LLC ("Linc"), a
Delaware limited liability company (each, in
such capacity, an "Originator" and,
together, the "Originators"). CPS holds an
80% ownership interest in each of Samco and
Linc.
Servicer.................... CPS (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
Servicer.................... Association, a 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"). See
"The Certificate Insurer" herein.
The Certificates............ The Certificates consist of two classes,
entitled 6.00% Asset Backed Certificates,
Class A (the "Class A Certificates") and
10.25% 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
S-4
<PAGE>
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.
The Class A Certificates will be represented
initially by one or more certificates
registered in the name of Cede & Co., as the
nominee of The Depository Trust Company
("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 (each, a
"Receivable", and 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
March 2, 1998 (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
S-5
<PAGE>
premiums from, certain insurance policies
and extended service contracts, (vi) all
right, title and interest of the Depositor
in and to the Purchase Agreements (as
defined below), (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" herein.
The Receivables............. On the Closing Date, the Depositor will
purchase from the Originators Receivables
having an aggregate principal balance of
approximately $186,954,818.61 as of the
Cutoff Date. The Receivables will be
purchased pursuant to three purchase
agreements, each dated as of March 1, 1998
(each, a "Purchase Agreement" and, together,
the "Purchase Agreements"), between the
respective Originators and the Depositor.
The Receivables sold by CPS, Samco and Linc
(the "CPS Receivables", "Samco Receivables"
and "Linc Receivables", respectively) will
represent approximately 91.45%, 6.05% and
2.50%, respectively, of the Pool Balance (as
defined herein) as of the Cutoff Date. 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
and 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 89.55% of the
Receivables by Principal Balance represented
financing of used vehicles.
The Receivables arise from loans originated
by automobile dealers or independent finance
companies ("IFCs") for assignment to CPS or
a subsidiary of CPS pursuant to CPS's auto
loan programs. The auto loan programs target
automobile purchasers with marginal credit
ratings who are generally unable to obtain
credit from banks or other low-risk lenders.
See "CPS's Automobile Contract Portfolio--
General", "The Receivables Pool" and "Risk
Factors--Sub-Prime Obligors; Servicing"
herein.
The Receivables have been selected from
motor vehicle retail installment sale
contracts in the Originators' portfolios
S-6
<PAGE>
based on the criteria specified in the
Purchase Agreements and described in this
Prospectus Supplement. No Receivable has a
scheduled maturity date later than March 31,
2003.
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 April 15, 1998. Distributions
will be made to holders of record of the
Certificates (the "Certificateholders") as
of the 10th day of each month (each, a
"Record Date"). A "Business Day" is a day
other than a Saturday, a Sunday or day on
which banking institutions or trust
companies in The City of New York, the city
in which the corporate trust office of the
Trustee is located or the city in which the
executive offices of the Servicer or the
principal place of business of the
Certificate Insurer is located are
authorized by law, regulation or executive
order to be closed.
B. Pass-Through Rates....... Interest will accrue on the Class A
Certificates at the rate of 6.00% per annum
(the "Class A Pass-Through Rate") and on the
Class B Certificates at the rate of 10.25%
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 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 Closing Date through and
including April 14, 1998.
Principal. On each Distribution Date, the
Trustee will, to the extent that there are
funds available from the sources described
herein, distribute (a) to the Class A
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Certificateholders as of the related Record
Date, an amount equal to the Class A
Percentage of the Principal Distributable
Amount and (b) to 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 due and 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 CPS
or purchased by the Servicer 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
repurchased or purchased (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
Distribution Date in August 2003 (the "Final
Scheduled Distribution Date"), 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 March 31, 1998.
See "The 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
(as defined herein) and all unpaid
Servicing Fees from prior
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<PAGE>
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, 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 all unpaid
Trustee Fees and unpaid reasonable
expenses of the Trustee;
(iv) to the Collateral Agent (as defined
herein), 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) in the event any person other than
the Standby Servicer becomes the
Servicer, to such 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
S-9
<PAGE>
any. See "The Certificates--
Distributions on Certificates--Priority
of Distribution Amounts".
Spread Account.............. As part of the consideration for the
issuance of the Policy, an affiliate of CPS
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, 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. 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) and (vii) 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) and (vii). 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 (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., a special purpose
subsidiary of CPS ("CPS Receivables Corp."),
will be released to or at the direction of
CPS Receivables Corp. 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, the
Depositor and the Collateral Agent (but
without the consent of the
Certificateholders), Class A
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
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<PAGE>
Certificates, without the benefit of the
Policy, would be rated less than "BBB" by
Standard & Poor's 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 credit enhancement. Funds
otherwise available to pay interest on the
Class B Certificates will be applied first
to the payment of any amounts due on the
Class A Certificates 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
available to pay principal of the Class B
Certificates will be applied first to the
payment of the Class A Interest
Distributable Amount, any Class A Interest
Carryover Shortfall, 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......
CPS has made certain representations and
warranties relating to the Receivables
(including the Samco Receivables and the
Linc Receivables) to the Depositor in the
Purchase Agreement between CPS and the
Depositor (the "CPS 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 CPS under the CPS Purchase
Agreement, will be entitled to require CPS
to repurchase any Receivable (including the
Samco Receivables and the Linc Receivables)
if such Receivable is materially adversely
affected by a breach of any representation
or warranty made by CPS with respect to the
Receivable and such breach has not been
cured as of the last day of the second (or,
if CPS elects, the first) month following
discovery by the Depositor or CPS or notice
to the Depositor and CPS.
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"
herein.
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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 CPS Receivables
Corp. for the benefit of the
Certificateholders and the Certificate
Insurer (the "Post Office Box"). Bank of
America National Trust and Savings
Association, 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 National Trust and Savings
Association (the "Lock-Box Bank"), in the
name of CPS Receivables Corp. for the
benefit of the Certificateholders and the
Certificate Insurer (the "Lock-Box
Account"). Within two Business Days after
receipt of funds into the 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 March 1, 1998 among
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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 then current market rate,
not to exceed 3.00% per annum. See "Standby
Servicer".
Servicing Fee............... The Servicing Fee for each Distribution Date
shall be equal to the sum of (i) the result
of one-twelfth times 2.00% of the Pool
Balance as of the close of business on the
last day of the second preceding Collection
Period plus (ii) the result of one-twelfth
times 0.08% of the aggregate outstanding
principal balance of the Certificates 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 sum of (i) the result of one-twelfth
times 2.00% of the original Pool Balance
plus (ii) the result of one-twelfth times
0.08% of the aggregate outstanding principal
balance of the Certificates as of the
Closing Date. 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 Pool Balance is
equal to 10% or less of the original Pool
Balance, at a purchase price equal to the
aggregate of the Purchase Amounts (as
defined herein) for all Receivables in the
Trust plus the appraised value of any other
property held by the Trust; provided,
however, 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.
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.
CPS Receivables Corp. 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"
herein.
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<PAGE>
Tax Status.................. In the opinion of Brown & Wood LLP, 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 at least "AAA" by Standard & Poor's
Ratings Services, a Division of The McGraw-
Hill Companies, Inc. ("S&P"), and "Aaa" by
Moody's Investors Service, Inc. ("Moody's"
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 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 Certificateholders with liquidity of investment or that
it will continue for the life of the Certificates.
SUB-PRIME NATURE OF OBLIGORS; SERVICING. The Originators purchase loans
originated for assignment to the Originators through dealers, IFCs and Deposit
Institutions (each as defined herein). The Originators' 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.
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, the Depositor and the Certificate
Insurer (the "Insurance Agreement") has occurred.
LIMITED OBLIGATIONS OF THE DEPOSITOR AND CPS. The Certificates are
obligations of the Trust only, and neither the Depositor nor any of the
Originators is obligated to make any payments on the Certificates. In
connection with each sale of Receivables by CPS, Samco or Linc to the
Depositor, CPS will make representations and warranties with respect to the
characteristics of such Receivables. In certain circumstances as set forth
herein, CPS is required to repurchase Receivables with respect to which such
representations or warranties are not true as of the date made. Neither CPS
nor the Depositor is otherwise obligated with respect to the Certificates. If
CPS 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.
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<PAGE>
GEOGRAPHIC CONCENTRATION. As of the Cutoff Date, 20.83% of the Receivables
by Principal Balance had Obligors residing in the State of California.
Economic conditions in the State of California may affect the delinquency,
loan loss and repossession experience of the Trust with respect to the
Receivables.
RISK OF CHANGES IN DELINQUENCY AND LOAN LOSS EXPERIENCE. CPS began
purchasing Contracts from Dealers in October 1991. Although CPS has calculated
and presented herein its net loss experience with respect to its servicing
portfolio, there can be no assurance that the information presented will
reflect actual experience with respect to the Receivables. In addition, there
can be no assurance that the future delinquency or loan loss experience of the
Trust with respect to the Receivables will be better or worse than that set
forth herein with respect to CPS's servicing portfolio. See "CPS's Automobile
Contract Portfolio--Delinquency and Loss Experience" herein. Although credit
history on Samco's and Linc's originations is limited, CPS expects that the
delinquency and net credit loss and repossession experience with respect to
the Receivables originated by Samco and Linc will be similar to that of CPS's
existing portfolio.
LIMITED NATURE OF RATINGS OF THE CERTIFICATES. It is a condition to the
issuance of the Certificates that the Class A Certificates be rated at least
"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.
THE TRUST
The Depositor will establish the Trust by selling and assigning the Trust
Assets, 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 reflect the sale thereof to the Depositor
or 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 "Certain Legal Aspects of the Receivables" in
the Prospectus.
The Trust will not acquire any assets other than the Trust Assets.
CPS 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 "Certain Legal Aspects of the Receivables" in the
Prospectus.
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<PAGE>
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts on used and new
automobiles, light trucks, vans and minivans between dealers (the "Dealers"),
IFCs or Deposit Institutions (as defined herein) and retail purchasers (the
"Obligors") and, with respect to Receivables that are Rule of 78's
Receivables, certain monies due thereunder after the Cutoff Date and with
respect to Receivables that are Simple Interest Receivables, certain monies
received thereunder after the Cutoff Date. The Receivables were originated by
the Dealers, IFCs or Deposit Institutions for assignment to CPS, Samco or
Linc. Pursuant to agreements between the Dealers and CPS ("Dealer
Agreements"), between the IFCs and Samco or between Deposit Institutions and
Linc, the Receivables were purchased by CPS, Samco or Linc and, prior to the
Closing Date, evidenced financing made available by CPS, Samco or Linc 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 Pooling and Servicing Agreement, as described below;
see "The Certificates--Accounts"; (ii) the rights of the Depositor under the
Purchase Agreements; (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 the 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.
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 borrowers ("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 a servicer for loan portfolios aggregating
$16.5 million by two companies which had purchased such portfolios from the
Resolution Trust Corp. 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 December 31, 1997, CPS had purchased $1.4 billion of
Contracts from Dealers and sold $1.3 billion 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 3,100
dealerships located in [42] states of the United States. CPS purchases
Contracts from Dealers for a fee ranging from $0 to $1,195. 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. CPS
also purchases Contracts from third parties that have been originated by
others. Contracts have been sold by CPS to institutional investors as bulk
sales or as private placements or as public offerings 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
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<PAGE>
entitled to certain late fees, prepayment charges and other administrative
fees and similar charges as excess servicing fees. 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.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Samco employees call on IFCs primarily in the southeastern United States and
present them with financing programs that are essentially identical to those
which CPS markets directly to Dealers through its marketing representatives.
CPS believes that a typical rural IFC has relationships with many local
automobile purchasers as well as Dealers but, because of limitations of
financial resources or capital structure, such IFCs generally are unable to
provide 36, 48 or 60 month financing for an automobile. IFCs may offer Samco's
financing programs to borrowers directly or indirectly through local dealers.
Samco purchases contracts from the IFCs after its credit personnel have
performed all of the same underwriting and verification procedures and have
applied all the same credit criteria that CPS performs and applies for
Contracts that CPS purchases from Dealers. Samco purchases Contracts at a
discount ranging from 0% to 8% of the total amount financed under such
Contracts. In addition, Samco generally charges IFCs an acquisition fee to
defray the direct administrative costs associated with the processing of
Contracts that are ultimately purchased by Samco. Servicing and collection
procedures on Contracts owned by Samco are performed by CPS at its
headquarters in Irvine, California. For the year ended December 31, 1997,
Samco purchased 2,306 Contracts with original balances of $26.2 million.
In May 1996, CPS formed Linc Acceptance Company LLC ("Linc"), an 80 percent-
owned subsidiary based in Norwalk, Connecticut. Linc's business plan is to
provide CPS's sub-prime auto finance products to deposit institutions such as
banks, thrifts and credit unions ("Deposit Institutions"). CPS believes that
such Deposit Institutions do not generally make loans to sub-prime borrowers
even though they may have relationships with automobile dealers who sell
vehicles to sub-prime borrowers and may have sub-prime borrowers as deposit
customers.
Linc's employees call on various Deposit Institutions and present them with
a financing program that is similar to CPS's Alpha Program (as defined below).
The Linc program is intended to result in a slightly more creditworthy
borrower than CPS's Standard Program by requiring slightly higher income and
lower debt-to-income ratios than CPS requires under its Standard Program.
Linc's customers may offer its financing program to borrowers directly or to
local Dealers. Linc typically purchases Contracts at par, without a fee to the
Deposit Institution. Servicing and collection procedures on Contracts are
performed entirely by CPS using the same personnel, procedures and systems as
CPS uses for its own programs. For the year ended December 31, 1997, Linc
purchased 678 Contracts with original balances of $8.9 million.
UNDERWRITING
CPS markets its services to Dealers under five programs: the CPS Standard
Program (the "Standard Program"), the CPS First Time Buyer Program (the "First
Time Buyer Program"), the CPS Alpha Program (the "Alpha Program"), the CPS
Delta Program (the "Delta Program") and the CPS Super Alpha Program (the
"Super Alpha 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. The First Time
Buyer Program guidelines are designed to accommodate applicants who have not
previously financed an automobile; such applicants must meet all the
requirements of the Standard Program, as well as slightly higher income and
down payment requirements. The Super Alpha Program guidelines are more
stringent than any other CPS program in categories such as advance rate, age
of collateral,
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credit history and stability. CPS uses the degree of the applicant's
creditworthiness and the collateral value of the financed vehicle as the basic
criteria 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 an 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
conditions to his or her approval of a credit application based on many
factors such as the applicant's residential situation, down payment, 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, references are checked,
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 it
receives and ultimately purchases approximately 11% of the received
applications.
CPS has purchased portfolios of Contracts in bulk from other companies that
had previously purchased the Contracts from Dealers. From July 1, 1994 to July
31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase
price accordingly. The credit profiles of the Contracts in each of the
portfolios purchased are consistent with the underwriting standards used by
CPS in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
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, 115% 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 a 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 to the computerized records. In the event that a policy
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reaches its expiration date without a renewal, or if CPS receives a notice
that the policy has been canceled 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 refuses 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 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.
Samco offers financing programs to IFCs which are essentially identical to
those offered by CPS. The IFCs may offer Samco's financing programs to
borrowers directly or indirectly through local Dealers. Upon submission of
applications to Samco, Samco credit personnel, who have been trained by CPS,
use CPS's proprietary systems to evaluate the borrower and the proposed
Contract terms. Samco purchases Contracts from the IFCs after its credit
personnel have performed all of the underwriting and verification procedures
and have applied all the same credit criteria that CPS performs and applies
for Contracts it purchases from Dealers. Prior to CPS purchasing a Contract
from Samco, CPS personnel perform procedures intended to verify that such
Contract has been underwritten and originated in conformity with the
requirements applied by CPS with respect to Contracts acquired by it directly
from Dealers.
Linc offers to Deposit Institutions financing programs which are similar to
CPS's Alpha Program. Unlike Samco, which has employees who evaluate
applications and make decisions to purchase Contracts, applications for
Contracts to be purchased by Linc are submitted by the Deposit Institution
directly to CPS, where the approval, underwriting and purchase procedures are
performed by CPS staff who work with Linc as well as with the Dealers to which
CPS markets its programs.
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 other receivables
owned or originated by third parties, consist of collecting, accounting for
and posting of all payments received with respect to such Contracts or other
receivables, 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 other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and
other receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS's services,
CPS mails to borrowers monthly billing statements directing them to mail
payments on the Contracts or other receivables 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 deposit to the investor or portfolio owner's
account of each 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 other
receivables.
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
S-20
<PAGE>
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 the 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 90 days of
delinquency or three unfulfilled promises to make the overdue payment. Other
than granting such limited extensions as are described under the heading "The
Certificates--Servicing Procedures", CPS does not modify or rewrite delinquent
Contracts.
On April 1, 1997 CPS established a satellite collection facility in
Chesapeake, Virginia. The 16,000 square foot facility was opened with 35 staff
dedicated solely to collections. As of December 31, 1997 the Chesapeake
facility had more than 100 collectors. The Chesapeake facility is on-line with
CPS's automated collection system at its headquarters in Irvine, California.
Chesapeake staff have been trained by Irvine collection management personnel
at both the Chesapeake facility and at CPS's headquarters. Irvine collection
management has the ability to allocate the collection workload between the two
facilities as well as monitor the effectiveness of the collection effort by
office and individual collector. CPS expects to add resources to both
collection locations as its servicing portfolio grows.
Servicing and collection procedures on Contracts owned by Samco and Linc are
performed by CPS at its headquarters in Irvine, California and at its
Chesapeake, Virginia collection facility. However, Samco may solicit aid from
the related IFC in collecting past due accounts with respect to which
repossession may be considered.
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. Contracts 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 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. CPS has purchased Contracts representing financing
for first-time purchasers of automobiles since the inception of its Contract
purchasing activities in 1991. Prior to the establishment of the First Time
Buyer Program in July 1996, CPS purchased such Contracts under its Standard
Program guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by Samco in March 1996 and by Linc in November
1996. Although credit history on Samco's and Linc's originations is limited,
CPS expects that the delinquency and net credit loss and repossession
experience with respect to the Receivables originated by Samco and Linc will
be similar to that of CPS's existing portfolio. There can be no assurance,
however, that the delinquency and net credit loss and repossession experience
on the Receivables or any other isolated group of receivables from the CPS
portfolio would be comparable to CPS's experience as shown in the following
tables. In particular, the information in the tables has not been adjusted to
eliminate the effect of the significant growth in the size of CPS's loan
portfolio during the periods shown.
S-21
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1994 1995 1996 1997
-------------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio(1)............ 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000 83,414 $1,031,573,000
Period of delinquency(2)
31-60.................. 243 3,539,000 909 11,520,000 1,801 22,099,000 3,092 36,609,000
61-90.................. 68 1,091,000 203 2,654,000 724 9,068,000 1,243 15,303,000
91+.................... 56 876,000 272 3,899,000 768 9,906,000 1,393 17,868,000
------ ------------ ------ ------------ ------ ------------ ------ --------------
Total delinquencies..... 367 5,506,000 1,384 18,073,000 3,293 41,073,000 5,728 69,781,000
Amount in
repossession(3)........ 271 3,759,000 834 10,151,000 1,168 14,563,000 1,977 24,463,000
------ ------------ ------ ------------ ------ ------------ ------ --------------
Total delinquencies and
amount in
repossession(4)........ 638 $ 9,265,000 2,218 $ 28,224,000 4,461 $ 55,636,000 7,705 $ 94,244,000
====== ============ ====== ============ ====== ============ ====== ==============
Delinquencies as a
percent
of the portfolio....... 2.58% 2.70% 5.10% 5.08% 6.98% 6.80% 6.87% 6.76%
Repo Inventory as a
percent
of the portfolio....... 1.90 1.84 3.08 2.85 2.48 2.41 2.37 2.37
------ ------------ ------ ------------ ------ ------------ ------ --------------
Total delinquencies and
amount in repossession
as a percent of
portfolio.............. 4.48% 4.54% 8.18% 7.93% 9.45% 9.21% 9.24% 9.14%
====== ============ ====== ============ ====== ============ ====== ==============
</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 were less than 31 days
delinquent.
S-22
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
NET CREDIT LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average amount
outstanding during
the period(1).......... $98,916,991 $221,926,489 $395,404,669 $703,100,136
Average number of loans
outstanding during the
period................. 9,171 20,809 36,998 65,189
Number of
repossessions.......... 669 2,018 3,145 6,007
Gross charge-offs(2).... $ 3,166,408 $ 11,658,461 $ 23,296,775 $ 46,649,521
Recoveries(3)........... $ 347,519 $ 1,028,378 $ 2,969,143 $ 5,534,823
Net losses.............. $ 2,818,889 $ 10,630,083 $ 20,327,632 $ 41,114,698
Annualized repossessions
as a percentage of
average number of loans
outstanding............ 7.29% 9.70% 8.50% 9.21%
Annualized net losses as
a percentage of average
amount outstanding..... 2.85% 4.79% 5.14% 5.85%
</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.
S-23
<PAGE>
RECENT DEVELOPMENTS
On June 30, 1997, CPS was served with summons and counterclaim in the
bankruptcy court for the Northern District of Illinois in connection with the
Chapter 13 bankruptcy of obligors Madeline and Darryl Brownlee of Chicago,
Illinois. The obligors seek class-action treatment of their allegation that
the cost of an extended service contract on the automobile they purchased was
inadequately disclosed by Joe Cotton Ford of Carol Stream, Illinois, the
automobile dealer who sold them their car. The disclosure is alleged to be
violative of the Federal Truth in Lending Act and of Illinois consumer
protection statutes. The obligors' claim is directed against both the dealer
for making the allegedly improper disclosures and against CPS as holder of the
purchase contract. The relief sought is damages in an unspecified amount, plus
costs of suit and attorney's fees. The court has not yet ruled on the
obligors' request for class-action treatment.
In another proceeding, arising out of efforts to collect a deficiency
balance from Joseph Barrios of Chicago, Illinois, the debtor has brought suit
against CPS alleging defects in the notice given upon repossession of the
vehicle. This lawsuit was filed on February 18, 1998 in the circuit court of
Cook County, Illinois. Barrios, represented by the same law firm as the
Brownlee obligors, seeks class-action treatment of his allegation that notice
of a fifteen day period to reinstate his Contract was misleading, in that it
did not refer to an alleged right to redeem collateral up to the date of sale.
The relief sought is damages in an unspecified amount, plus costs of suit and
attorney's fees. As of the date of this filing, CPS has not been required to
respond to this litigation and has not yet done so.
Although the receivables relating to the above litigation matters are not
included in the Trust, if the request for class action status is granted in
either case, Receivables in the Trust could become subject to the litigation.
Furthermore, the existence of such litigation, or an adverse decision in such
litigation, could encourage similar actions to be brought involving
Receivables in the Trust. If an Obligor has a claim against the Trust as a
result of a violation of law relating to a Receivable and such claim
materially and adversely affects the Trust's interest in such Receivable, such
a violation would constitute a breach of the representations and warranties of
CPS and would create an obligation of CPS to repurchase such Receivable unless
the breach is cured. In addition, CPS will be required to indemnify the
Trustee, the Certificate Insurer, the Trust and the Certificateholders against
all costs, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel which may be asserted against or incurred by any of
them as a result of a third-party claim arising out of events or facts giving
rise to such breach. See "The Certificates--Sale and Assignment of
Receivables" herein.
CPS intends to dispute the above-described litigation vigorously and
believes that it has meritorious defenses to each claim made by those
obligors. Nevertheless, the outcome of any litigation is uncertain, and there
is the possibility that damages could be assessed against CPS in amounts that
could be material. It is management's opinion that the above-described
litigation will not have a material adverse effect on CPS's consolidated
financial position, results of operations or liquidity.
THE RECEIVABLES POOL
The pool of Receivables existing as of the Cutoff Date consists of Contracts
selected from CPS's portfolio by 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 $27,074.05 as of the Cutoff Date, is not more than 30 days past due as of
the Cutoff Date and has an annual percentage rate ("APR") of not less than
15.90%. 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
S-24
<PAGE>
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 March
31, 2003.
As of the Cutoff Date, approximately 89.55% of the Receivables by Principal
Balance, constituting 91.71% of the number of Contracts, represent financing
of used vehicles; the remainder of the Receivables represent financing of new
vehicles. As of the Cutoff Date, approximately 9.24% of the Receivables by
Principal Balance were originated under the Delta Program, approximately
48.43% of the Receivables by Principal Balance were originated under the Alpha
Program, approximately 10.52% of the Receivables by Principal Balance were
originated under the First Time Buyer Program, approximately 28.65% of the
Receivables by Principal Balance represent financing under the Standard
Program, and approximately 0.67% of the Receivables by Principal Balance
represent financing under the Super Alpha Program. As of the Cutoff Date,
approximately 6.05% of the Receivables by Principal Balance were Samco
Receivables and 2.50% of the Receivables by Principal Balance were Linc
Receivables. The composition, geographic distribution, distribution by APR,
distribution by remaining term, distribution by date of origination,
distribution by original term, distribution by model year and distribution by
original principal balance of the Receivables as of the Cutoff Date are set
forth in the following tables.
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AGGREGATE NUMBER OF AVERAGE WEIGHTED AVERAGE
AVERAGE APR PRINCIPAL RECEIVABLES PRINCIPAL AVERAGE ORIGINAL
OF RECEIVABLES BALANCE IN POOL BALANCE REMAINING TERM TERM
- -------------- --------------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
20.40% $186,954,818.61 14,936 $12,517.06 55.69 mos. 57.10 mos.
</TABLE>
S-25
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE PERCENT OF NUMBER OF NUMBER OF
STATE(1) PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- -------- ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Alabama............... $ 10,101,918.36 5.40% 831 5.56%
California............ 38,945,508.96 20.83 2,930 19.62
Florida............... 13,501,191.08 7.22 1,071 7.17
Georgia............... 5,847,442.10 3.13 484 3.24
Hawaii................ 4,494,630.22 2.40 353 2.36
Illinois.............. 8,352,865.20 4.47 719 4.81
Indiana............... 2,769,176.29 1.48 234 1.57
Kentucky.............. 2,470,844.82 1.32 208 1.39
Louisiana............. 8,905,516.31 4.76 698 4.67
Maryland.............. 4,071,668.78 2.18 324 2.17
Michigan.............. 9,113,630.39 4.87 730 4.89
Minnesota............. 2,118,937.55 1.13 177 1.19
Mississippi........... 2,886,877.49 1.54 226 1.51
Nevada................ 3,208,723.11 1.72 269 1.80
New Jersey............ 3,119,126.53 1.67 253 1.69
New York.............. 5,824,554.92 3.12 496 3.32
North Carolina........ 12,771,534.58 6.83 993 6.65
Ohio.................. 3,225,439.33 1.73 282 1.89
Pennsylvania.......... 8,763,948.93 4.69 716 4.79
South Carolina........ 4,536,092.81 2.43 373 2.50
Tennessee............. 6,825,768.04 3.65 558 3.74
Texas................. 10,712,984.90 5.73 814 5.45
Virginia.............. 2,793,709.40 1.49 230 1.54
Washington............ 2,003,635.83 1.07 156 1.04
All others(2)......... 9,589,092.68 5.13 811 5.43
--------------- ------ ------ ------
Total............... $186,954,818.61 100.00%(3) 14,936 100.00%(3)
=============== ====== ====== ======
</TABLE>
- --------
(1) Based on billing address of Obligor.
(2) No other State represents a percentage of the Pool Balance as of the Cutoff
Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
S-26
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE PERCENT OF NUMBER OF NUMBER OF
APR RANGE PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- --------- ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
15.90% - 15.99%....... $ 57,346.73 0.03% 3 0.02%
16.00% - 16.99%....... 202,352.78 0.11 14 0.09
17.00% - 17.99%....... 4,783,937.21 2.56 323 2.16
18.00% - 18.99%....... 38,087,745.95 20.37 2,790 18.68
19.00% - 19.99%....... 28,490,428.91 15.24 2,094 14.02
20.00% - 20.99%....... 39,743,377.62 21.26 3,004 20.11
21.00% - 21.99%....... 39,856,024.09 21.32 3,360 22.50
22.00% - 22.99%....... 5,612,803.58 3.00 484 3.24
23.00% - 23.99%....... 12,990,350.71 6.95 1,185 7.93
24.00% - 24.99%....... 16,131,712.18 8.63 1,561 10.45
25.00% - 25.99%....... 831,363.49 0.44 96 0.64
26.00% and over....... 167,375.36 0.09 22 0.15
--------------- ------ ------ ------
Total............... $186,954,818.61 100.00%(1) 14,936 100.00%(1)
=============== ====== ====== ======
</TABLE>
- --------
(1) Percentages may not add up to 100% because of rounding.
DISTRIBUTION OF RECEIVABLES BY REMAINING TERM TO
SCHEDULED MATURITY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENT OF
REMAINING TERM TO AGGREGATE PERCENT OF NUMBER OF NUMBER OF
SCHEDULED MATURITY PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- ------------------ ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
21 - 25 Months........ $ 536,193.34 0.29% 94 0.63%
26 - 30 Months........ 778,179.09 0.42 108 0.72
31 - 35 Months........ 3,947,823.64 2.11 503 3.37
36 - 40 Months........ 2,970,375.16 1.59 337 2.26
41 - 45 Months........ 5,121,013.46 2.74 521 3.49
46 - 50 Months........ 15,216,747.85 8.14 1,477 9.89
51 - 55 Months........ 15,794,048.75 8.45 1,323 8.86
56 - 60 Months........ 142,590,437.32 76.27 10,573 70.79
--------------- ------ ------ ------
Total............... $186,954,818.61 100.00%(1) 14,936 100.00%(1)
=============== ====== ====== ======
</TABLE>
- --------
(1) Percentages may not add up to 100% because of rounding.
S-27
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY
DATE OF ORIGINATION AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE PERCENT OF NUMBER OF NUMBER OF
DATE OF ORIGINATION PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- ------------------- ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
06/01/96 - 06/30/96..... $ 9,112.49 0.00% 1 0.01%
09/01/96 - 09/30/96..... 10,923.29 0.01 1 0.01
02/01/97 - 02/28/97..... 9,953.78 0.01 1 0.01
03/01/97 - 03/31/97..... 40,019.32 0.02 3 0.02
04/01/97 - 04/30/97..... 31,250.42 0.02 3 0.02
05/01/97 - 05/31/97..... 10,673.14 0.01 1 0.01
06/01/97 - 06/30/97..... 50,068.17 0.03 4 0.03
07/01/97 - 07/31/97..... 111,197.94 0.06 10 0.07
08/01/97 - 08/31/97..... 153,090.99 0.08 12 0.08
09/01/97 - 09/30/97..... 296,837.18 0.16 26 0.17
10/01/97 - 10/31/97..... 2,184,520.43 1.17 180 1.21
11/01/97 - 11/30/97..... 34,816,786.91 18.62 2,793 18.70
12/01/97 - 12/31/97..... 56,148,758.45 30.03 4,455 29.83%
01/01/98 - Cutoff Date.. 93,081,626.10 49.79 7,446 49.85%
--------------- ------ ------ ------
Total................. $186,954,818.61 100.00%(1) 14,936 100.00%(1)
=============== ====== ====== ======
</TABLE>
- --------
(1) Percentages may not add up to 100% because of rounding.
DISTRIBUTION OF RECEIVABLES BY ORIGINAL TERM TO
SCHEDULED MATURITY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENT OF
ORIGINAL TERM TO AGGREGATE PERCENT OF NUMBER OF NUMBER OF
SCHEDULED MATURITY PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- ------------------ ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Fewer than 25 Months.... $ 530,066.03 0.28% 93 0.62%
26 - 30 Months.......... 784,306.40 0.42 109 0.73
36 - 40 Months.......... 4,975,251.86 2.66 634 4.24
41 - 45 Months.......... 3,857,815.76 2.06 410 2.75
46 - 50 Months.......... 18,183,901.20 9.73 1,773 11.87
51 - 55 Months.......... 15,529,057.68 8.31 1,304 8.73
56 - 60 Months.......... 143,094,419.68 76.54 10,613 71.06
--------------- ------ ------ ------
Total................. $186,954,818.61 100.00%(1) 14,936 100.00%(1)
=============== ====== ====== ======
</TABLE>
- --------
(1) Percentages may not add up to 100% because of rounding.
S-28
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY MODEL YEAR OF FINANCED VEHICLE AS OF THE
CUTOFF DATE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE PERCENT OF NUMBER OF NUMBER OF
MODEL YEAR PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- ---------- ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Prior to 1990......... $ 376,082.82 0.20% 54 0.36%
1990.................. 1,217,555.52 0.65 166 1.11
1991.................. 2,605,533.32 1.39 319 2.14
1992.................. 5,496,898.64 2.94 597 4.00
1993.................. 12,840,058.74 6.87 1,262 8.45
1994.................. 26,569,321.83 14.21 2,318 15.52
1995.................. 50,797,206.94 27.17 4,019 26.91
1996.................. 40,598,168.24 21.72 3,071 20.56
1997.................. 35,536,254.04 19.01 2,477 16.58
1998.................. 10,917,738.52 5.84 653 4.37
--------------- ------ ------ ------
Total............... $186,954,818.61 100.00%(1) 14,936 100.00%(1)
=============== ====== ====== ======
</TABLE>
- --------
(1) Percentages may not add up to 100% because of rounding.
DISTRIBUTION OF RECEIVABLES BY ORIGINAL PRINCIPAL BALANCE AS OF THE CUTOFF
DATE
<TABLE>
<CAPTION>
PERCENT OF
RANGE OF ORIGINAL AGGREGATE PERCENT OF NUMBER OF NUMBER OF
PRINCIPAL BALANCES PRINCIPAL BALANCE POOL BALANCE RECEIVABLES RECEIVABLES
- ------------------ ----------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
$0-4,999.............. $ 349,189.66 0.19% 82 0.55%
5,000-9,999........... 26,965,564.71 14.42 3,278 21.95
10,000-14,999......... 103,008,214.24 55.10 8,353 55.93
15,000-19,999......... 45,322,269.64 24.24 2,709 18.14
20,000-24,999......... 10,194,726.14 5.45 470 3.15
25,000 and over....... 1,114,854.22 0.60 44 0.29
--------------- ------ ------ ------
Total............... $186,954,818.61 100.00%(1) 14,936 100.00%(1)
=============== ====== ====== ======
</TABLE>
- --------
(1) Percentages may not add up to 100% because of rounding.
As of the Cutoff Date, approximately 24.29% of the Receivables by Principal
Balance 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"), and approximately 75.71% of the Receivables by
Principal Balance provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for 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". 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
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<PAGE>
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, instead of receiving 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 Receivables 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 through and including April 14, 1998. 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 Pool Balance is less than or equal to 10% of the Pool Balance as of the
Cutoff Date.
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<PAGE>
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 CPS or the Servicer, 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.
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
Originators. The Originators 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.
THE ORIGINATORS
In March 1996, CPS formed Samco, an 80 percent-owned subsidiary based in
Dallas, Texas. Samco's business plan is to provide CPS's sub-prime auto
finance products to rural areas through IFCs. CPS believes that many rural
areas are not adequately served by other industry participants due to their
distance from large metropolitan areas where a Dealer marketing representative
is most likely to be based. The principal executive offices of Samco are
located at 8150 N. Central Expressway, Dallas, Texas 75206; telephone (800)
544-8802. In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based
in Norwalk, Connecticut. Linc's business plan is to provide sub-prime auto
finance products to deposit institutions such as banks, thrifts and credit
unions. CPS believes that such institutions do not generally make loans to
sub-prime borrowers even though they may have relationships with automobile
dealers who sell vehicles to sub-prime borrowers and may have sub-prime
borrowers as deposit customers. The principal executive offices of Linc are
located at One Selleck Street, Norwalk, Connecticut 06855; telephone (203)
831-8300.
For information regarding CPS, see "CPS's Automobile Contract Portfolio".
S-31
<PAGE>
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 paid to the Standby
Servicer from the Servicing Fee otherwise 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 market rate for
servicing receivables similar to the Receivables, 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 6.00% Asset Backed
Certificates, Class A (the "Class A Certificates"), and one entitled 10.25%
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".
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 available to make payments on the Class B Certificates as
credit enhancement. Funds otherwise available to pay interest on the Class B
Certificates 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 available to pay
principal of the Class B Certificates will be applied first to the payment of
the Class A Interest Distributable Amount, any Class A Interest Carryover
Shortfall, 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 10th day of the current calendar month (each,
a "Record Date"), except that the Record Date for the first Distribution Date
will be the Closing Date.
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<PAGE>
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date, the Originators will sell and assign to the
Depositor, without recourse, except as provided in the related Purchase
Agreement, their respective interests in the Receivables, together with their
security interests in the Financed Vehicles, pursuant to the Purchase
Agreements. 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 CPS Purchase Agreement, CPS will represent and warrant to the
Depositor, among other things, that (i) the information provided in the CPS
Purchase Agreement with respect to the Receivables (including, without
limitation, the Samco Receivables and the Linc Receivables) is correct in all
material respects; (ii) at the date of origination of each Receivable,
physical damage insurance covering the related Financed Vehicle was in effect
in accordance with the normal requirements of CPS, Samco or Linc, as
applicable; (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, IFCs or Deposit
Institutions 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 related Financed Vehicle in favor
of CPS, Samco or Linc; 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 CPS elects, the
first) month following the discovery by or notice to the Depositor and CPS of
a breach of any representation or warranty that materially and adversely
affects the interest of the Trust, the Trustee or the Certificate Insurer,
unless the breach is cured, CPS 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 or the
Trustee for any such uncured breach; provided, however, that CPS will be
required to indemnify the Trustee, the Certificate Insurer, the Trust and the
Certificateholders against all costs, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel, which may be asserted
against or incurred by any of them, as a result of third party claims arising
out of events or facts giving rise to such 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, the accounting records and computer
systems of each Originator 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" herein and "Certain Legal Aspects of the Receivables" in the
Prospectus.
ACCOUNTS
A segregated lock-box account will be established and maintained with Bank
of America National Trust and Savings Association in the name of CPS
Receivables Corp. 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 after the receipt of funds
therein (collectively, 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
S-33
<PAGE>
Insurer will be made (collectively, 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 (collectively 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 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.
S-34
<PAGE>
SERVICING COMPENSATION
The Servicing Fee for each Distribution Date shall be equal to the sum of
(i) the result of one-twelfth times 2.00% of the Pool Balance as of the close
of business on the last day of the second preceding Collection Period plus
(ii) the result of one-twelfth time 0.08% of the aggregate outstanding
principal balance of the Certificates 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 sum of (i) the result of one-twelfth
times 2.0% of the original Pool Balance plus (ii) the result of one-twelfth
times 0.08% of the aggregate outstanding principal balance of the Certificates
as of the Closing Date. 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 market rate for servicing receivables similar to the Receivables, 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.
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.
S-35
<PAGE>
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 Obligors on such Liquidated Receivables ("Liquidation
Proceeds") in accordance with the Servicer's customary servicing procedures;
(iii) proceeds from Recoveries with respect to Liquidated Receivables; and
(iv) the Purchase Amount of each Receivable that was repurchased by CPS 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 the related 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 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 sum 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 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 sum of the following:
(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
such Collection Period (including amounts withdrawn from the Payahead
Account but excluding amounts deposited into the Payahead Account and
excluding Recoveries);
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(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 (without duplication of
amounts included in clauses (a) or (d));
(c) the Principal Balance of each Receivable that was repurchased by
CPS 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 (without duplication of
amounts included in (a) and (b) above);
(d) the Principal Balance of each Receivable which became a
Liquidated Receivable during the preceding Collection Period (without
duplication of amounts 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 Closing Date through and including
April 14, 1998.
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 Closing Date through and including
April 14, 1998.
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
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(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 (plus interest on such Class A Interest
Carryover Shortfall, to the extent permitted by law, at the Class A Pass-
Through Rate through the current 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 (plus interest on such Class B
Interest Carryover Shortfall, to the extent permitted by law, at the Class
B Pass-Through Rate through the current Distribution Date);
(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 with respect to such Distribution Date; and any Class
A Principal Carryover Shortfall as of the close of the preceding
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) in the event any person other than the Standby Servicer becomes the
Servicer, to such 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
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pursuant to the Pooling and Servicing Agreement, to the extent not paid
pursuant to clause (ii) above, or in the case of the Standby Servicer,
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
with respect to such Distribution Date 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, 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, 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.
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. 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
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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) and
(viii) 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) and
(viii).
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 or at the
direction of CPS Receivables Corp. 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 as of March 1, 1998, 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
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 (including the Standby Fee) 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;
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(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 CPS 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, 1999, 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 Cutoff Date to
June 30, 1999).
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, 1999 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, 1999). 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
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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 failure 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 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 not 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 of CPS or the Servicer, or, so long as CPS is Servicer,
with respect to 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
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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 Norwest) shall in no event be greater than the
servicing compensation to be paid to CPS under the Pooling and Servicing
Agreement. See "Standby Servicer". The Servicing Fee to be paid to the Standby
Servicer if it becomes the successor Servicer will be determined in accordance
with then current market rates, up to a maximum rate of 3.00% per annum.
"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 or to comply with the Code; provided that such action will not, in
the opinion of counsel satisfactory to the Trustee and, under certain
circumstances, 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 a majority of the principal balance of the Class A
Certificates which are not held by the Depositor or any affiliate thereof and
the holders of Class B Certificates evidencing not less than a majority 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 principal balance of the Class A
Certificates 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
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Date. Upon written request by three or more Class A Certificateholders or by
Class A Certificateholders evidencing not less than 25% of the principal
balance of the Class A Certificates, 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, the Standby Servicer 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 plus the appraised value of any
other property held by the Trust. Exercise of such right will effect early
retirement of the Certificates. The Trustee will give written notice of
termination to each Certificateholder of record on the most recent Record
Date. 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.
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
S-44
<PAGE>
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 to 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 a majority of the principal balance of
the Class A Certificates; 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 a
majority 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 a majority of the principal
balance of the Class B Certificates. 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 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. Additionally, the Depositor and the Certificateholders will
indemnify the Trustee to the extent set forth in the Pooling and Servicing
Agreement.
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.
S-45
<PAGE>
"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 portion of a Class A Interest Distributable
Amount due to Class A Certificateholders because a notice and certificate in
proper form as required was not timely Received by Financial Security, or any
portion of a Class A Interest Distributable Amount due to Class A
Certificateholders representing interest on any Class A Interest Carryover
Shortfall accrued from and including the date of payment of the amount of such
Class A Interest Carryover Shortfall. The Class A Guaranteed Distribution
Amount shall not include any amounts due in respect of the Class A
Certificates attributable to any increase in interest rate, penalty or other
sum payable by the Trust by reason of any default or event of default in
respect of the Class A Certificates, or by reason of any deterioration of the
credit worthiness of the Trust, nor shall the Class A Guaranteed Distribution
Amount include, nor shall coverage be provided under the Policy in respect of,
any taxes, withholding or other charge with respect to any Class A
Certificateholder imposed by any governmental authority due in connection with
any payments to a Class A Certificateholder under the Policy.
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 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 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
S-46
<PAGE>
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, or such other location of any successor
Trustee or successor Collateral Agent 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 Assurance Inc. (the "Certificate Insurer" and, for
purposes of this Section, "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.
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
S-47
<PAGE>
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 Enterprise
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
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, Fitch
IBCA, Inc., 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" herein.
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 September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
Deferred premium revenue (net of prepaid reinsurance
premiums)............................................ $ 402,891
Shareholder's equity:
Common stock........................................ 15,000
Additional paid-in capital.......................... 646,620
Unrealized gain on investments (net of deferred
income taxes)...................................... 20,808
Accumulated earnings................................ 212,033
----------
Total shareholder's equity........................ 894,461
----------
Total deferred premium revenue and shareholder's
equity........................................... $1,297,352
==========
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security Assurance Inc., 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.
S-48
<PAGE>
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.
The Policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
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 or by
persons investing on behalf of, or with the assets of a Plan, unless the
conditions set forth in "Erisa Considerations--Subordinate Certificates" in
the Prospectus have been met.
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 sell to the Underwriter, and the Underwriter has
agreed to purchase, the Class A 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.
S-49
<PAGE>
The Trust may, from time to time, invest the funds in the Collection Account
and the Payahead Account in Eligible Investments (as such term is defined in
the Pooling and Servicing Agreement) 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 and the Depositor by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1996 and 1995 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, 1996, 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-50
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Actuarial Receivables................................................ S-31
aggregate risks...................................................... S-51
Alpha Program........................................................ S-19
APR.................................................................. S-25
Business Day......................................................... S-7
Certificate Account.................................................. S-35
Certificate Insurer.................................................. S-4
Certificate Insurer Default.......................................... S-45
Certificate Insurer Optional Deposit................................. S-39
Certificateholders................................................... S-7
Certificates......................................................... S-1
Class A Certificateholders........................................... S-7
Class A Certificates................................................. S-1
Class A Distributable Amount......................................... S-38
Class A Guaranteed Distribution Amount............................... S-11, S-48
Class A Interest Carryover Shortfall................................. S-41
Class A Interest Distributable Amount................................ S-39
Class A Pass-Through Rate............................................ S-7
Class A Pool Factor.................................................. S-32
Class A Principal Carryover Shortfall................................ S-41
Class A Principal Distributable Amount............................... S-38
Class B Certificateholders........................................... S-7
Class B Certificates................................................. S-1
Class B Deficiency Amount............................................ S-10
Class B Distributable Amount......................................... S-39
Class B Interest Carryover Shortfall................................. S-41
Class B Interest Distributable Amount................................ S-39
Class B Pass-Through Rate............................................ S-7
Class B Pool Factor.................................................. S-32
Class B Principal Carryover Shortfall................................ S-41
Class B Principal Distributable Amount............................... S-39
Code................................................................. S-51
Collateral Agent..................................................... S-41
Collection Account................................................... S-35
Collection Period.................................................... S-8
Commission........................................................... S-2
Company.............................................................. S-2
Contracts............................................................ S-17
CPS.................................................................. S-4
CPS Receivables Corp. ............................................... S-10
Cram Down Loss....................................................... S-38
Cutoff Date.......................................................... S-6
Dealer Agreements.................................................... S-17
Dealers.............................................................. S-17
Delta Program........................................................ S-19
Deposit Institutions................................................. S-18
Depositor............................................................ S-4
Determination Date................................................... S-37
Distribution Date.................................................... S-7
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ERISA................................................................. S-14
Events of Default..................................................... S-44
Exchange Act.......................................................... S-2
Financial Security.................................................... S-49
First Time Buyer Program.............................................. S-19
IFCs.................................................................. S-6
Insurance Agreement................................................... S-15
Linc.................................................................. S-18
Liquidated Receivable................................................. S-37
Liquidation Proceeds.................................................. S-37
Lock-Box Account...................................................... S-12
Lock-Box Bank......................................................... S-12
Lock-Box Processor.................................................... S-12
Obligors.............................................................. S-17
Payahead Account...................................................... S-35
Payaheads............................................................. S-36
Paying Agent.......................................................... S-34
Plan.................................................................. S-51
Pool Balance.......................................................... S-32
Pooling and Servicing Agreement....................................... S-4
Post Office Box....................................................... S-12
Principal Balance..................................................... S-37
Principal Distributable Amount........................................ S-38
Purchase Agreement.................................................... S-6
Purchase Amount....................................................... S-37
Rating Agencies....................................................... S-14
Receivables........................................................... S-5
Record Date........................................................... S-7
Recoveries............................................................ S-38
Requisite Amount...................................................... S-9
Rule of 78's Receivables.............................................. S-31
Scheduled Payment..................................................... S-38
Servicer.............................................................. S-4
Servicing Assumption Agreement........................................ S-12
Servicing Fee......................................................... S-36
Servicing Fee Rate.................................................... S-13
Simple Interest Receivables........................................... S-31
Spread Account........................................................ S-41
Standard Program...................................................... S-19
Standby Fee........................................................... S-12
Standby Servicer...................................................... S-4, S-33
Sub-Prime Borrowers................................................... S-17
Total Distribution Amount............................................. S-37
Trust................................................................. S-1
Trust Accounts........................................................ S-13
Trustee............................................................... S-4
Trustee Fee........................................................... S-40
UCC................................................................... S-35
Underwriter........................................................... S-51
Underwriting Agreement................................................ S-51
</TABLE>
S-52
<PAGE>
PROSPECTUS
AUTO RECEIVABLES 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 13 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 REPRESENTATION 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
March 12, 1998
<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. In addition, the Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission. 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
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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 in writing to: Paul D. Stevelman, Assistant
Secretary, Financial Asset Securities Corp., 600 Steamboat Road, Greenwich,
Connecticut 06830, telephone number (203) 625-2756.
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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 servicing 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
Originators (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
Supplement (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 corporation and an indirect limited
purpose finance subsidiary of National
Westminster Bank plc and an affiliate of
Greenwich Capital Markets, 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 Master 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,
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, or an affiliate of such an
entity. The Receivables will be either (i)
originated by the related Originator, (ii)
originated by various dealers ("DEALERS")
and assigned to the Originator or (iii)
acquired by the related Originator from
other originators or owners of receivables.
Trustee...................... With respect to each Owner Trust and each
Grantor Trust, the trustee specified in the
related Prospectus 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 "INDENTURE
TRUSTEE").
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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 issued pursuant to an indenture (each, an
"INDENTURE") between the related Owner Trust
and the Indenture Trustee specified in the
related Prospectus Supplement. Each class of
Certificates will be issued 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 Certificates 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 Prospectus
Supplement. Each class of Notes may have a
different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate
or any combination 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, allocations 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 Receivables Pool.
If specified in the related Prospectus
Supplement, one or more classes of Notes
("STRIP NOTES") may be entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments. See
"Description of the Notes--Distributions of
Principal and Interest".
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples thereof and
will be available in book-entry form only.
Noteholders will be able to receive
Definitive Notes only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--
Definitive Securities".
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<PAGE>
If the Master Servicer 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 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 Account or Collateral.
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 additional Receivables in the manner
and to the extent specified in the related
Prospectus Supplement.
The Certificates............. Each class of Certificates will have a
stated certificate 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 foregoing. The related
Prospectus Supplement will specify the Pass-
Through Rate, or the method for determining
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, allocations 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 specified events or on the
basis of collections from designated
portions of the related Receivables Pool. If
specified in the related Prospectus
Supplement, one or more classes of
Certificates ("Strip Certificates") may be
entitled to (i) principal distributions with
disproportionate, nominal or no interest
distributions or (ii) interest distributions
with disproportionate, nominal or no
principal distributions. See "Description of
the Certificates--Distributions of Principal
and Interest". If a Series of Securities
issued by an Owner Trust includes one or
more classes of Notes, distributions in
respect of the Certificates may be
subordinated in priority of
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payment to payments on the Notes to the
extent specified in the related Prospectus
Supplement.
Unless otherwise specified in the related
Prospectus 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
Definitive Certificates only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--
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
received), 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 of a
Trust will include a Pre-Funding Account or
Collateral Reinvestment Account that will be
used to purchase additional Receivables
after the Closing 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 vehicle installment sale
contracts or motor vehicle installment loans
secured by new and used automobiles, vans
and light duty trucks (the "Receivables"),
including the right to receive payments
received or due on or with respect to such
Receivables 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
policies. On the date of issuance of a
Series of Securities specified in the
related Prospectus Supplement (the "Closing
Date"), the Depositor will convey
Receivables having the aggregate principal
balance 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 Servicing
Agreement")
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among the Depositor, the Master Servicer,
such Trust and, if so specified in the
related Prospectus Supplement, one or more
Originators 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
Account, any Collateral Reinvestment Account
and any other account identified in the
applicable Prospectus 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 initially 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 Receivables")
to the related Trust, subject only to the
availability thereof, having an aggregate
principal balance approximately equal to the
amount deposited to the Pre-Funding Account
on the Closing Date (the "Pre-Funded
Amount"), and the Trust will be obligated to
purchase such Subsequent Receivables
(subject to the satisfaction of certain
conditions set forth in such Sale and
Servicing Agreement 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
Subsequent Receivables conveyed to a Trust
will have been acquired by the Depositor,
directly or indirectly, from the same
Originator or Originators from which the
Depositor acquired the Receivables conveyed
to such Trust on the related Closing Date
(the "Initial Receivables") and will meet
all of the credit and other criteria set
forth herein and in the related Prospectus
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
Prospectus Supplement, in lieu of a Funding
Period, during the period (the "Revolving
Period") from the Closing Date until the
first to occur of (i) such event or events
as are described in the related Prospectus
Supplement (each, an "Early Amortization
Event") or (ii) the last day of the
Collection Period 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
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<PAGE>
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 related Prospectus
Supplement (which will be deposited out of
the net proceeds of the sale of the related
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 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 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 Subsequent
Receivables transferred to such Trust during
the related Funding Period or Revolving
Period, if any.
Amounts on deposit in any Pre-Funding
Account during 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 related 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
related Prospectus Supplement. Any funds
remaining in a Pre-Funding Account at the
end of the related Funding Period or in a
Collateral Reinvestment Account at the end
of the related Revolving Period will be
distributed as a prepayment or early
distribution of principal to holders of one
or more classes of the Notes and/or
Certificates of the related 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
"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 If and to the extent specified in the
Enhancement................. related Prospectus Supplement, credit
enhancement with respect to a Trust or any
class or classes of Securities may include
any one or
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<PAGE>
more of the following: subordination of one
or more other classes of Securities of the
same Series, reserve funds, spread accounts,
surety bonds, insurance policies, letters of
credit, credit or liquidity facilities, cash
collateral accounts, over-collateralization,
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 other
arrangements. To the extent specified in the
related Prospectus Supplement, a form of
credit enhancement with respect to a Trust
or a class or classes of Securities may be
subject to certain limitations and
exclusions from coverage thereunder.
Transfer and Servicing The Depositor will sell the related
Agreements.................. 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 related Indenture Trustee as
collateral for such Notes pursuant to the
Indenture. The Master Servicer will agree
with each Trust to be responsible 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 scheduled 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 Advance from subsequent payments
on or with respect to such Receivable or
from other Precomputed Receivables. If so
provided in the related Prospectus
Supplement, with respect to Simple Interest
Receivables, the Master Servicer will
advance any interest shortfall (a "Simple
Interest Advance"). As used herein,
"Advance" means any Precomputed Advance or
Simple Interest Advance. The Master Servicer
will be entitled to reimbursement of
Advances 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
Prospectus 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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Receivables Pool, plus certain late fees,
prepayment charges and other administrative
fees or similar charges. Fees payable to any
Subservicer as compensation for performing
certain servicing functions with respect to
all or a portion of the Receivables in a
Receivables Pool will be the responsibility
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 related 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 association 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
"Noteholder"), 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
Certificate 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. Alternative
characterizations of such Trust and any such
Certificates are possible, but would not
result in materially adverse tax
consequences to Certificateholders.
If a Prospectus Supplement specifies that
the related Trust will be a Grantor Trust,
upon the issuance 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 related Trust will issue one or more
classes of Certificates treated as debt,
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) unless
provided otherwise in the Prospectus
Supplement, any Certificates of such Series
will be characterized as debt and (ii) such
Trust will not be characterized as an
association or a publicly traded
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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 Certificateholder,
by the acceptance of a Certificate of such
Series, will agree to treat such Certificate
as indebtedness. Alternative
characterizations of such Trust and such
Certificates are possible, but would not
result in materially adverse tax
consequences to Certificateholders.
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 Department
of Labor requirements are eligible for
purchase by employee benefit plans.
Unless otherwise specified in the related
Prospectus Supplement, the Certificates of
any Series that are subordinated to any
other Security of that Series may not be
acquired by any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended, or by any
individual 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 organization.
A rating is not a recommendation to
purchase, hold or sell Securities inasmuch
as such rating does not comment as to market
price or suitability for a particular
investor. Ratings of Securities 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 future so warrant. For
more detailed information regarding the
ratings assigned to any class of a
particular Series of Securities, see
"Summary of Terms-- Rating of the
Securities" and "Risk Factors--Ratings of
the Securities" in the related Prospectus
Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
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; (iii) as of
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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.
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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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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
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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".
Delinquent Receivables. If so specified in the related Prospectus
Supplement, a Trust may include Receivables which are delinquent as of the
Cutoff Date for such Trust, provided that no more than 10% by principal
balance of the Receivables in a Trust may be more than 30 days delinquent as
of such Cutoff Date. A Receivable is "delinquent" if payment on such
Receivable is contractually past due and the period of delinquency of a
Receivable is the number of calendar days such Receivable is contractually
past due. Investors should consider the risk that inclusion of delinquent
Receivables in a Trust may affect the rate of prepayment or losses on such
Receivables.
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
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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 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.
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The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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
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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 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
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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 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".
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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 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 National Westminster
Bank plc and an affiliate of Greenwich Capital Markets, Inc. 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
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,
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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 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;
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(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 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
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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 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
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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 the identity of the Calculation Agent for
each such class of Floating Rate Securities of a given series, which may
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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
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
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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:
<TABLE>
<S> <C> <C> <C>
Money Market = D - 360 - 100
Yield 360 - (D - M)
</TABLE>
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 primary United States government
securities dealers selected by such Calculation Agent for the issue of
Treasury
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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.
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
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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.
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
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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 which the related Indenture Trustee or the related Owner Trustee or
any of their respective affiliates is investment
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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, 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.
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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 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
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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 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
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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 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
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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
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
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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 the
unanimous prior approval of all related Certificateholders (including the
Company) and the delivery to such
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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 federal tax liens over the lien of a secured party. The laws of
certain states and federal law permit the confiscation
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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 Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of
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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 LLP, 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.
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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 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
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, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of
a Note issued with a de minimis amount of OID 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
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would, in general, be required to report interest income as interest is paid
(or, if earlier, upon the taxable disposition of the Short-Term Note).
However, a cash basis holder of a Short-Term Note reporting interest income as
it is paid may be required to defer a portion of any interest expense
otherwise deductible on indebtedness incurred to purchase or carry the Short-
Term Note until the taxable disposition of the Short-Term Note. A cash basis
taxpayer may elect under Section 1281 of the Code to accrue interest income on
all nongovernment debt obligations with a term of one year or less, in which
case the taxpayer would include interest on the Short-Term Note in income as
it accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. Certain special rules apply if a Short-
Term Note is purchased for more or less than its principal amount.
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. The Taxpayer Relief Act of 1997 (the
"Act") reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as
of the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who
meet specified conditions). The capital gains rate for capital assets held by
individual taxpayers for more than twelve months but less than eighteen months
was not changed by the Act. The Act does not change the capital gain rates for
corporations. Prospective investors should consult their own tax advisors
concerning these tax law changes.
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
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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 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
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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 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 U.S. 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. Pursuant to final Treasury regulations issued on May 9, 1997, if
such a termination occurs, the Trust will be considered to have contributed
the assets of the Trust (the "Old Partnership") to a new partnership (the "New
Partnership") in exchange for interests in the New Partnership. Such interests
would
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be deemed distributed to the partners of the Old Partnership in liquidation
thereof, which would not constitute a sale or exchange.
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 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
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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 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.
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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.
New Withholding Regulations. On October 6, 1997, the Treasury Department
issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New Regulations will generally
be effective for payments made after December 31, 1998, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
FASIT Legislation. During 1996, President Clinton signed into law the "Small
Business Job Protection Act of 1996" (the "1996 Act"). The 1996 Act creates a
new type of entity for federal income tax purposes called a "financial asset
securitization investment trust" or "FASIT." Beginning in September of 1997,
the 1996 Act generally enables certain arrangements similar to a trust that is
treated as a partnership to elect to be treated as a FASIT. Under the 1996
Act, a FASIT generally would avoid federal income taxation and could issue
securities substantially similar to the Notes and those securities would be
treated as debt for federal income tax purposes. If so provided in the related
Prospectus Supplement, the Trust Agreement or the Pooling and Servicing
Agreement, as applicable, will permit the Depositor or the Trustee to take the
appropriate action, or will set forth certain conditions which, if satisfied,
will permit the Depositor to amend such Trust Agreement or Pooling and
Servicing Agreement, 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 or Pooling and
Servicing Agreement as may be permitted by reason of the making of such an
election. However, there can be no assurance that the Depositor or the Trustee
will or will not cause any permissible FASIT election to be made with respect
to a Trust or amend the related Trust Agreement or Pooling and Servicing
Agreement in connection with any election. Transition rules provided for by
the FASIT legislation contemplate that the entities in existence on August 31,
1997 may elect to be taxed under the FASIT rules. However, how such an
election would be made and how outstanding interests of such entity are to be
treated subsequent to the election is not explained in the FASIT legislation.
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, subchapter J, Chapter 1 of Subtitle A 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,
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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 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.
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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 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
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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 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
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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 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
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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).
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, an estate the income of
which is subject to U.S. federal income tax regardless of its source, or a
trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
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.
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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
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 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
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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 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
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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 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.
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 ISSUED BY TRUST THAT DOES NOT ISSUE NOTES
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
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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);
(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.
SUBORDINATE CERTIFICATES
The Exemption does not apply to the initial purchase, the holding or the
subsequent resale of the Subordinate Certificates because the Subordinate
Certificates are subordinate to certain other Classes of Certificates.
Consequently, transfers of the Subordinate Certificates will not be registered
by the Trustee unless the Trustee receives: (i) a representation from the
transferee of such Certificates, acceptable to and in form and
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substance satisfactory to the Trustee, to the effect that such transferee is
not an employee benefit plan subject to Section 406 of ERISA or a plan or
arrangement subject to Section 4975 of the Code, nor a person acting on behalf
of any such plan or arrangement nor using the assets of any such plan or
arrangement to effect the transfer; (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such Certificates are covered under Sections I and III of PTCE 95-
60; or (iii) an opinion of counsel satisfactory to the Trustee that the
purchase or holding of such Certificate by a Plan, any person acting on behalf
of a Plan or using such Plan's assets, will not result in the assets of the
Trust being deemed to be "plan assets" and subject to the prohibited
transaction requirements of ERISA and the Code and will not subject the
Trustee to any obligation in addition to those undertaken in the Agreement.
Such representation as described above shall be deemed to have been made to
the Trustee by the transferee's acceptance of a Book-Entry Certificate that is
a Subordinate Certificate. In the event that such representation is violated,
or any attempt to transfer to a Plan or person acting on behalf of a Plan or
using such Plan's assets is attempted without such opinion of counsel, such
attempted transfer or acquisition shall be void and of no effect.
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.
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.
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 LLP, New
York, New York.
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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>
1996 Act................................................................... 55
Act........................................................................ 50
Actuarial Receivables...................................................... 19
Administration Agreement................................................... 44
Administrator.............................................................. 44
Advance.................................................................... 10
APR........................................................................ 20
Balloon Payment Receivables................................................ 19
Base Rate.................................................................. 28
Benefit Plan............................................................... 63
Calculation Agent.......................................................... 28
Calculation Date........................................................... 29
Cash sale differential..................................................... 47
CD Rate.................................................................... 29
CD Rate Determination Date................................................. 29
CD Rate Security........................................................... 28
Cede....................................................................... 17
Certificate Balance........................................................ 6
Certificate Distribution Account........................................... 37
Certificate Pool Factor.................................................... 21
Certificateholder.......................................................... 11
Certificates............................................................... 1
Closing Date............................................................... 7
Code....................................................................... 48
Collateral Reinvestment Account............................................ 8
Collection Account......................................................... 36
Collection Period.......................................................... 39
Commercial Paper Rate...................................................... 29
Commercial Paper Rate Determination Date................................... 29
Commercial Paper Rate Security............................................. 28
Commission................................................................. 2
Company.................................................................... 4
Composite Quotations....................................................... 28
Contracts.................................................................. 20
Cutoff Date................................................................ 7
Dealers.................................................................... 4
Definitive Certificates.................................................... 33
Definitive Notes........................................................... 33
Definitive Securities...................................................... 33
Depositor.................................................................. 1
Depository................................................................. 22
Distribution Date.......................................................... 27
DTC........................................................................ 17
Early Amortization Event................................................... 8
Eligible Deposit Account................................................... 38
Eligible Institution....................................................... 38
Eligible Investments....................................................... 37
ERISA...................................................................... 63
Events of Default.......................................................... 23
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
Exemption............................................................... 64
FASIT................................................................... 55
Federal Funds Rate...................................................... 30
Federal Funds Rate Determination Date................................... 30
Federal Funds Rate Security............................................. 28
Federal Tax Counsel..................................................... 48
Financed Vehicles....................................................... 7
Fixed Rate Securities................................................... 28
Floating Rate Securities................................................ 28
foreign person.......................................................... 50, 62
FTC Rule................................................................ 47
Funding Period.......................................................... 8
GCM..................................................................... 65
Grantor Trust........................................................... 4
Grantor Trust Certificateholders........................................ 55
Grantor Trust Certificates.............................................. 55
H.15(5-19).............................................................. 28
Indenture............................................................... 5
Indenture Trustee....................................................... 4
Index Maturity.......................................................... 28
Indirect Participants................................................... 32
Initial Receivables..................................................... 8
Insolvency Event........................................................ 42
Interest Rate........................................................... 5
Interest Reset Date..................................................... 28
Interest Reset Period................................................... 28
Investment Income....................................................... 9
IRS..................................................................... 48
LIBOR................................................................... 31
LIBOR Determination Date................................................ 31
LIBOR Security.......................................................... 28
London Banking Day...................................................... 31
Master Servicer......................................................... 4
Money Market Yield...................................................... 30
New Partnership......................................................... 52
New Regulations......................................................... 55
Note Distribution Account............................................... 36
Note Pool Factor........................................................ 21
Noteholder.............................................................. 11
Notes................................................................... 1
OID..................................................................... 49, 61
OID regulations......................................................... 49, 61
Old Partnership......................................................... 52
Originator.............................................................. 1, 4
Owner Trust............................................................. 4
Participants............................................................ 32
Pass-Through Rate....................................................... 6
Payahead Account........................................................ 37
Payaheads............................................................... 39
Plan Assets Regulation.................................................. 63
Pooling and Servicing Agreement......................................... 4
Pre-Funded Amount....................................................... 8
Pre-Funding Account..................................................... 8
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
Precomputed Advance..................................................... 10
Precomputed Receivables................................................. 19
Prospectus Supplement................................................... 1
Purchase Agreement...................................................... 34
Receivables............................................................. 1, 7
Receivables Pool........................................................ 17
Registration Statement.................................................. 2
Related Documents....................................................... 25
Repurchase Amount....................................................... 35
Restricted Group........................................................ 64
Reuters Screen LIBO Page................................................ 31
Revolving Period........................................................ 8
Rule of 78's Receivables................................................ 19
Rules................................................................... 32
Sale and Servicing Agreement............................................ 7
Section 1286 Treasury Regulations....................................... 56
Securities.............................................................. 1
Securities Act.......................................................... 2
Security Owners......................................................... 32
Securityholders......................................................... 13
Senior Certificates..................................................... 58, 63
Series.................................................................. 1
Servicer Default........................................................ 41
Servicing Fee........................................................... 39
Servicing Fee Rate...................................................... 39
Shortfall Amount........................................................ 59
Short-Term Certificate.................................................. 61
Short-Term Note......................................................... 49
Simple Interest Advance................................................. 10
Simple Interest Receivables............................................. 19
Special Federal Tax Counsel............................................. 48
Spread.................................................................. 28
Spread Multiplier....................................................... 28
Strip Certificates...................................................... 6
Strip Notes............................................................. 5
Subordinate Certificates................................................ 58
Subordinate Class Percentage............................................ 59
Subsequent Receivables.................................................. 8
Subsequent Transfer Date................................................ 13
Subservicer............................................................. 4
Transfer and Servicing Agreements....................................... 34
Treasury bills.......................................................... 31
Treasury Rate........................................................... 31
Treasury Rate Determination Date........................................ 32
Treasury Rate Security.................................................. 28
Trust................................................................... 1
Trust Accounts.......................................................... 37
Trust Agreement......................................................... 4
Trust Stripped Bond..................................................... 58
Trust Stripped Coupon................................................... 59
Trustee................................................................. 4
UCC..................................................................... 32
US Person............................................................... 60
</TABLE>
68
<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-15
The Trust.................................................................. S-16
The Trust Assets........................................................... S-17
CPS's Automobile Contract Portfolio........................................ S-17
The Receivables Pool....................................................... S-24
Yield Considerations....................................................... S-30
Pool Factors and Other Information......................................... S-31
Use of Proceeds............................................................ S-31
The Depositor.............................................................. S-31
The Originators............................................................ S-31
Standby Servicer........................................................... S-32
The Certificates........................................................... S-32
The Policy................................................................. S-45
The Certificate Insurer.................................................... S-47
ERISA Considerations....................................................... S-49
Underwriting............................................................... S-49
Legal Matters.............................................................. S-50
Experts.................................................................... S-50
Index of Terms............................................................. S-51
PROSPECTUS
Available Information...................................................... 2
Reports to Securityholders................................................. 2
Incorporation of Certain Documents by Reference............................ 2
Summary of Terms........................................................... 4
Risk Factors............................................................... 13
The Trusts................................................................. 17
The Receivables Pools...................................................... 19
Weighted Average Life of the Securities.................................... 20
Pool Factors and Trading Information....................................... 21
Use of Proceeds............................................................ 22
The Depositor.............................................................. 22
The Originators............................................................ 22
Description of the Notes................................................... 22
Description of the Certificates............................................ 27
Certain Information Regarding the Securities............................... 28
Description of the Transfer and Servicing Agreements....................... 34
Certain Legal Aspects of the Receivables................................... 45
Material Federal Income Tax Consequences................................... 48
ERISA Considerations....................................................... 63
Plan of Distribution....................................................... 65
Legal Matters.............................................................. 65
Index of Principal Terms................................................... 66
</TABLE>
--------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS EF-
FECTING TRANSACTIONS IN THE CLASS A CERTIFICATES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
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[LOGO] CPS
CPS GRANTOR TRUST
1998-1
$177,607,078
6.00% ASSET BACKED CERTIFICATES, CLASS A
FINANCIAL ASSET SECURITIES CORP.
DEPOSITOR
CONSUMER PORTFOLIO SERVICES, INC.
ORIGINATOR AND SERVICER
--------------
PROSPECTUS SUPPLEMENT
--------------
GREENWICH CAPITAL MARKETS
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A DIVISION OF NATWEST MARKETS [LOGO]NWM
MARCH 12, 1998
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