PROSPECTUS SUPPLEMENT
(To Prospectus dated December 16, 1997)
$90,000,000
[THE MONEY STORE LOGO]
THE MONEY STORE AUTO TRUST 1997-4
$17,500,000 CLASS A-1 5.90875% ASSET BACKED NOTES
$44,500,000 CLASS A-2 6.35% ASSET BACKED NOTES
$28,000,000 CLASS A-3 6.46% ASSET BACKED NOTES
The Money Store Auto Trust 1997-4 (the "Trust") will be formed
pursuant to a Trust Agreement, to be dated as of November 30, 1997 (the "Trust
Agreement"), between TMS Auto Holdings, Inc., as Seller (the "Seller") and
Bankers Trust (Delaware), as Owner Trustee (the "Owner Trustee"), and will issue
$17,500,000 aggregate principal amount of Class A-1 5.90875% Asset Backed Notes
(the "Class A-1 Notes"), $44,500,000 aggregate principal amount of Class A-2
6.35% Asset Backed Notes (the "Class A-2 Notes"), and $28,000,000 aggregate
principal amount of Class A-3 6.46% Asset Backed Notes (the "Class A-3 Notes,"
and together with the Class A-1 Notes and the Class A-2 Notes, the "Notes"). The
Notes will be issued pursuant to an Indenture, to be dated as of November 30,
1997 (the "Indenture"), between the Trust and The Chase Manhattan Bank, as
Indenture Trustee and as Indenture Collateral Agent (the "Indenture Trustee" and
the "Indenture Collateral Agent"). The Trust also will issue one or more
certificates representing the ownership interest in the Trust (the
"Certificates"). The Certificates are not being offered hereby.
The assets of the Trust will include a pool of non-prime motor vehicle
retail installment sale contracts (the "Initial Receivables") secured by new and
used automobiles, light trucks and vans financed thereby (the "Initial Financed
Vehicles"), certain amounts received under each Initial Receivable after the
later of (x) November 30, 1997 and (y) the date of its origination but in no
event later than the date of issuance of the Notes (the "Initial Cutoff Date"),
security interests in the Initial Financed Vehicles, and certain other property,
as more fully described herein. (Cover continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE NOTES, SEE "RISK FACTORS" AT PAGE S-13 HEREIN AND
AT PAGE 13 IN THE ACCOMPANYING PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN
THE SELLER, THE SERVICER, THE REPRESENTATIVE OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE NOTES 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 Underwriters have agreed to purchase the Notes at approximately
99.75% of the principal amount thereof, subject to the terms and conditions set
forth in the Underwriting Agreement referred to herein under "Underwriting." The
aggregate proceeds to the Trust, before deducting expenses payable by or on
behalf of the Trust estimated at $300,000, will be $89,775,000 plus accrued
interest on the Class A-2 Notes and the Class A-3 Notes from and including
December 20, 1997 to the Closing Date.
The Underwriters propose to offer the Notes from time to time in
negotiated transactions or otherwise, at prices determined at the time of sale.
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
The Notes are offered by the Underwriters when, as and if issued by
the Trust, delivered to and accepted by the Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Notes in book-entry form will be made through the facilities of The Depository
Trust Company ("DTC") on the Same Day Funds Settlement System and, in the case
of the Notes, Cedel Bank, societe anonyme ("Cedel") and the Euroclear System
("Euroclear") on or about December 30, 1997.
SALOMON SMITH BARNEY FIRST UNION CAPITAL MARKETS CORP.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS DECEMBER 16, 1997.
<PAGE>
(Continued from preceding page)
From time to time on or before the February 1998 Distribution Date (as
defined herein), additional non-prime motor vehicle retail installment sale
contracts (the "Subsequent Receivables," and together with the Initial
Receivables, the "Receivables") secured by new and used automobiles, light
trucks and vans financed thereby (the "Subsequent Financed Vehicles," and
together with the Initial Financed Vehicles, the "Financed Vehicles"), certain
amounts received under the Subsequent Receivables on and after the related
Subsequent Cutoff Dates (as defined herein), security interests in the
Subsequent Financed Vehicles and certain other property, as more fully described
herein, are intended to be purchased by the Trust from amounts deposited in a
pre-funding account established with the Indenture Collateral Agent (the
"Pre-Funding Account") on the date of issuance of the Notes. Subsequent
Receivables with an aggregate principal balance not to exceed approximately
$22,500,000 may be acquired by the Trust.
The Notes will be secured by the assets of the Trust pursuant to the
Indenture. Interest on the Notes will accrue at the per annum interest rates
specified above. Interest on the Class A-1 Notes will be calculated on the basis
of a 360-day year and the actual number of days elapsed in the related Interest
Period. Interest on the Class A-2 Notes and the Class A-3 Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest on the Notes will generally be payable on the twentieth day of each
month (each, a "Distribution Date"), commencing in January 1998. Principal on
the Notes will be payable on each Distribution Date to the extent described
herein, except that no principal will be paid on a Class of Notes until each
Class of Notes having a lower numerical Class designation has been paid in full.
The Certificates represent fractional undivided interests in the
Trust. The Certificates are entitled to residual income of the Trust to the
extent described herein. The Final Scheduled Distribution Date for the Class A-1
Notes will be January 8, 1999, for the Class A-2 Notes will be March 2004 and
for the Class A-3 Notes will be March 2004. However, payment in full of a Class
of Notes may occur earlier than such dates as described herein. In addition, the
Class A-3 Notes will be subject to redemption in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the aggregate
principal balance of the Receivables shall have declined to 10% or less of the
Original Pool Balance.
Full and timely payment of the Guaranteed Note Distributions in
respect of the Notes (each as defined herein) on each Distribution Date is
unconditionally and irrevocably guaranteed pursuant to a financial guaranty
insurance policy (the "Note Policy") to be issued by
[MBIA Insurance Corporation LOGO]
There currently is no secondary market for the Notes. The Underwriters
expect to make a market in the Notes but have no obligation to do so. There is
no assurance that any such market will develop or continue or that it will
provide Noteholders with sufficient liquidity of investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS
AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE NOTES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED A FINAL PROSPECTUS SUPPLEMENT AND THE FINAL PROSPECTUS.
TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH
STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL
CONTROL.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING PURCHASES OF THE NOTES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF THE NOTES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, unaudited monthly and
annual reports containing information concerning the Receivables will be sent on
behalf of the Trust to Cede & Co., as registered holder of the Notes and the
nominee of DTC. See "Certain Information Regarding the Securities -- Statements
to Securityholders" and "-- Book-Entry Registration" in the accompanying
Prospectus (the "Prospectus"). Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
None of the Seller, the Servicer, the Representative or the Insurer intends to
send any of its financial reports to Noteholders. The Servicer, on behalf of the
Trust, will file with the Securities and Exchange Commission ("the Commission")
periodic reports concerning the Trust to the extent required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Trust intends to suspend the
filing of such reports under the Exchange Act when and if the filing of such
reports is no longer statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of the Insurer, a wholly-owned subsidiary of MBIA Inc., and its
subsidiaries as of December 31, 1996 and December 31, 1995 and for the three
years ended December 31, 1996, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of MBIA Inc.
for the year ended December 31, 1996 and the consolidated financial statements
of the Insurer and its subsidiaries for the nine months ended September 30, 1997
and for the periods ending September 30, 1997 and September 30, 1996 included in
the Quarterly Report on Form 10-Q of MBIA Inc. for the period ending September
30, 1997 are hereby incorporated by reference in this Prospectus Supplement and
shall be deemed to be a part hereof. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for purposes of
this Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which is also incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Insurer and its subsidiaries included
in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference into this Prospectus Supplement
and to be a part hereof from the respective dates of filing such documents.
The Seller on behalf of the Trust hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Trust's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act and each filing of the financial statements of the Insurer included
in or as an exhibit to the annual report of Parent filed pursuant to section
13(a) or section 15(d) of the Exchange Act that is incorporated by reference in
the Registration Statement (as defined in the accompanying Prospectus) shall be
deemed to be a new registration statement relating to the Notes offered hereby,
and the offering of such Notes at that time shall be deemed to be the initial
bona fide offering thereof.
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE PROSPECTUS. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN
SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
Issuer................................ The Money Store Auto Trust 1997-4 (the
"Trust" or the "Issuer"), a Delaware
business trust to be formed pursuant
to a Trust Agreement, dated as of
November 30, 1997 (the "Trust
Agreement"), among the Seller and the
Owner Trustee.
Seller................................ TMS Auto Holdings, Inc. (the
"Seller"), a Delaware corporation and
wholly-owned subsidiary of the
Representative. See "The Seller" in
the Prospectus.
Servicer............................. The Money Store Auto Finance Inc. (in
its individual capacity, "TMS Auto
Finance" and, as servicer, the
"Servicer"), a Delaware corporation
and wholly-owned subsidiary of the
Representative. See "TMS Auto Finance"
in the Prospectus.
Representative....................... The Money Store Inc. (the
"Representative"), a New Jersey
corporation. See "The Money Store" in
the Prospectus.
Insurer.............................. MBIA Insurance Corporation (the
"Insurer"), a New York stock insurance
company. See "The Insurer" herein.
Indenture Trustee..................... The Chase Manhattan Bank (the
"Indenture Trustee"). See "The Notes
-- The Indenture Trustee" in the
Prospectus.
Owner Trustee......................... Bankers Trust (Delaware) (the "Owner
Trustee"). See "The Trusts -- The
Owner Trustee" in the Prospectus.
Initial Cutoff Date................... With respect to each Initial
Receivable, the later of (x) November
30, 1997 and (y) the date of its
origination but in no event later than
the Closing Date.
Closing Date.......................... December 30, 1997.
The Notes............................. The Trust will issue Class A-1
5.90875% Asset Backed Notes (the
"Class A-1 Notes") in the aggregate
original principal amount of
$17,500,000, Class A-2 6.35% Asset
Backed Notes (the "Class A-2 Notes")
in the aggregate original principal
amount of $44,500,000 and Class A-3
6.46% Asset Backed Notes (the "Class
A-3 Notes") in the aggregate original
principal amount of $28,000,000. The
Class A-1 Notes, the Class A-2 Notes
and the Class A-3 Notes (collectively,
the "Notes") will be issued pursuant
to an Indenture, to be dated as of
November 30, 1997, among the Issuer,
the Indenture Trustee and The Chase
Manhattan Bank, as Indenture
Collateral Agent (the "Indenture
Collateral Agent"). The Notes will be
offered for purchase in denominations
of $1,000 and integral multiples
thereof in book-entry form only.
Persons acquiring beneficial interests
in the Notes will hold their interests
through DTC in the United States or
Cedel Bank, societe anonyme ("Cedel")
or the Euroclear System ("Euroclear")
in Europe. See "Certain Information
Regarding the Notes -- Book-Entry
Registration" in the Prospectus and
Annex I thereto.
The Notes will be secured by the
assets of the Trust (other than the
Certificate Distribution Account)
pursuant to the Indenture.
The Certificates...................... The Trust will also issue one or more
certificates representing the
ownership interest in the Trust (the
"Certificates"). The Certificates will
represent fractional undivided
interests in the Trust. The
Certificates are entitled to residual
income of the Trust. The Certificates
will be issued pursuant to the Trust
Agreement. The Certificates are not
being offered hereby and any
information contained herein relating
to the Certificates is included only
to provide a better understanding of
the Notes.
Trust Property........................ Each Note will represent an obligation
of, and each Certificate will
represent a fractional undivided
interest in, the Trust. The Trust's
assets (the "Trust Property") will
include, among other things, certain
non-prime motor vehicle retail
installment sale contracts (the
"Initial Receivables"), secured by new
and used automobiles, light trucks and
vans (the "Initial Financed
Vehicles"), certain monies received
thereunder after the Initial Cutoff
Date, an assignment of the security
interests in the Initial Financed
Vehicles securing the Initial
Receivables, the related Receivables
Files, all rights to proceeds from
claims on certain physical damage,
credit life and disability insurance
policies covering the Initial Financed
Vehicles or the Obligors, as the case
may be, all rights to liquidation
proceeds with respect to the Initial
Receivables, certain proceeds from the
exercise of rights against Dealers
under agreements between TMS Auto
Finance and such Dealers, certain bank
accounts, all proceeds of the
foregoing and certain rights under the
Trust Documents. The Initial
Receivables will be purchased by the
Seller from TMS Auto Finance pursuant
to a purchase agreement (the "Purchase
Agreement") between the Seller and TMS
Auto Finance on or prior to the date
of issuance of the Notes. The Trust
Property also will include an
assignment of the Seller's rights
against TMS Auto Finance under the
Purchase Agreement upon the occurrence
of certain breaches of representations
and warranties. The Initial
Receivables transferred to the Trust
on the Closing Date will also include
certain non-prime motor vehicle retail
installment sale contracts originated
by TMS Auto Finance, some of which may
be originated after November 30, 1997
(the "Statistical Calculation Date")
but on or prior to the Closing Date.
Additional non-prime motor vehicle
retail installment sale contracts (the
"Subsequent Receivables") secured by
new or used automobiles, light trucks
and vans (the "Subsequent Financed
Vehicles"), certain monies received
thereunder on or after the applicable
Subsequent Cutoff Date (as defined
below), an assignment of the security
interests in the Subsequent Financed
Vehicles securing the Subsequent
Receivables, the related Receivables
Files, all rights to proceeds from
claims on certain physical damage,
credit life and disability insurance
policies covering the Subsequent
Financed Vehicles or the Obligors, as
the case may be, all rights to
liquidation proceeds with respect to
the Subsequent Receivables, certain
proceeds from the exercise of rights
against Dealers under agreements
between TMS Auto Finance and such
Dealers, certain bank accounts and all
proceeds of the foregoing are intended
to be purchased by the Trust from the
Seller from time to time on or before
the January Distribution Date, from
funds on deposit in the Pre-Funding
Account. The Subsequent Receivables
will be purchased by the Seller from
TMS Auto Finance pursuant to one or
more subsequent purchase agreements
(each, a "Subsequent Purchase
Agreement") between the Seller and TMS
Auto Finance. The Trust Property also
will include an assignment of the
Seller's rights against TMS Auto
Finance under each Subsequent Purchase
Agreement upon the occurrence of
certain breaches of representations
and warranties thereunder. The
purchase by the Trust of the
Subsequent Receivables is subject to
the satisfaction of certain
conditions, as described under "The
Receivables" herein. The Initial
Receivables and the Subsequent
Receivables are hereinafter referred
to as the "Receivables," and the
Initial Financed Vehicles and the
Subsequent Financed Vehicles are
hereinafter referred to as the
"Financed Vehicles."
Receivables........................... The Receivables consist of non-prime
motor vehicle retail installment sale
contracts originated by Dealers and
then acquired by TMS Auto Finance
pursuant to its Contract Acquisition
Program. Non-prime motor vehicle
retail installment sale contracts are
contracts with individuals with less
than perfect credit due to various
factors, including, among other
things, the manner in which such
individuals have handled previous
credit, the limited extent of their
prior credit history and/or their
limited financial resources. See "TMS
Auto Finance -- General" in the
Prospectus.
The statistical information presented
in this Prospectus Supplement is based
on the Initial Receivables as of the
Statistical Calculation Date. The
Initial Receivables transferred to the
Trust on the Closing Date will include
certain other non- prime motor vehicle
retail installment sale contracts,
some of which may be originated after
the Statistical Calculation Date but
on or prior to the Closing Date. While
the statistical distribution of the
final characteristics of all Initial
Receivables transferred to the Trust
on the Closing Date will vary from the
statistical information presented in
this Prospectus Supplement, the Seller
and the Representative do not believe
that the characteristics of the
Initial Receivables as of their
respective Initial Cutoff Dates will
vary materially from the information
presented herein with respect to the
Initial Receivables as of the
Statistical Calculation Date. The
Initial Receivables as of the Initial
Cutoff Date will meet certain
eligibility criteria specified herein.
See "The Receivables--Eligibility
Criteria" herein.
The Initial Receivables have, as of
the Statistical Calculation Date, a
weighted average annual percentage
rate ("APR") of approximately 18.98%,
a weighted average original maturity
of approximately 57.81 months and a
weighted average remaining maturity of
approximately 56.39 months. The
Initial Receivables have an aggregate
principal balance of $46,830,586.50 as
of the Statistical Calculation Date.
See "The Receivables." Each of the
Initial Receivables also will have a
remaining term of not more than 73
months and not less than 7 months as
of the Statistical Calculation Date.
Following the Closing Date, the Trust
will be obligated to purchase from
time to time on or before the end of
the Funding Period (as defined below),
subject to the availability thereof,
Subsequent Receivables consisting of
non-prime retail automobile
installment sale contracts acquired by
the Seller from TMS Auto Finance. The
aggregate principal balance of the
Subsequent Receivables is anticipated
by TMS Auto Finance not to exceed
approximately $22,500,000. In
connection with each purchase of
Subsequent Receivables, the Trust will
be required to pay to the Seller a
cash purchase price equal to the
principal amount thereof from the
Pre-Funding Account. Under the
Purchase Agreement, the Seller will be
obligated, subject to the satisfaction
of certain conditions described
herein, to purchase from TMS Auto
Finance Subsequent Receivables, and
under the Sale and Servicing
Agreement, dated as of November 30,
1997, among the Representative, the
Seller, the Servicer and the Owner
Trustee (the "Sale and Servicing
Agreement"), the Seller will be
obligated to sell such Subsequent
Receivables to the Trust and the Trust
will be obligated, subject to the
satisfaction of certain conditions
described herein, to purchase such
Subsequent Receivables from the
Seller. TMS Auto Finance will
designate as a cutoff date (each, a
"Subsequent Cutoff Date") (i) the last
day of the month preceding the month
in which Subsequent Receivables are
conveyed to the Seller by TMS Auto
Finance and reconveyed by the Seller
to the Trust or (ii) if any such
Subsequent Receivable is originated in
the month of conveyance, the date of
origination. Subsequent Receivables
will be conveyed to the Seller and
then reconveyed by the Seller to the
Trust on designated dates (each, a
"Subsequent Transfer Date") occurring
during the Funding Period. The Trust
may purchase the Subsequent
Receivables only from the Seller and
not from any other person, and the
Seller may purchase the Subsequent
Receivables only from TMS Auto
Finance. The Subsequent Receivables
must satisfy certain eligibility
criteria specified herein and in the
Sale and Servicing Agreement. See "The
Receivables -- Eligibility Criteria"
herein.
Terms of the Notes..................... The principal terms of the Notes
will be as described below:
A. Distribution Dates............... Payments of interest and principal on
the Notes will be made on the
twentieth day of each month or, if the
twentieth day is not a Business Day,
on the next following Business Day
(each, a "Distribution Date"),
commencing in January 1998. Each
reference to a "Payment Date" in the
accompanying Prospectus shall refer to
a Distribution Date. Payments will be
made to holders of record of the Notes
(the "Noteholders") as of the Business
Day immediately preceding such
Distribution Date (a "Record Date"). A
"Business Day" is a day other than a
Saturday, Sunday or other day on which
commercial banks located in the states
of California, Delaware, New Jersey or
New York are authorized or obligated
to be closed.
B. Interest Rates................... The Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes will
bear interest at the respective fixed
per annum rates set forth on the cover
page hereof. Each such interest rate
for a Class of Notes is referred to as
the "Interest Rate."
C. Interest......................... Interest on the principal amount of
the Class A-1 Notes will accrue at the
applicable Interest Rate from the
Closing Date. Interest on the
principal amount of the Class A-2
Notes and the Class A-3 Notes of each
Class outstanding immediately prior to
a Distribution Date will accrue at the
applicable Interest Rate from and
including the most recent Distribution
Date on which interest has been paid
(or, in the case of the first
Distribution Date, from and including
December 20, 1997) to, but excluding,
the following Distribution Date (each,
an "Interest Period"). Interest on the
Notes for any Distribution Date due
but not paid on such Distribution Date
will be due on the next Distribution
Date together with, to the extent
permitted by law, interest on such
amount at the applicable Interest
Rate. The amount of interest
distributable on the Notes on each
Distribution Date will equal interest
accrued during the related Interest
Period. Interest on the Class A-1
Notes will be calculated on the basis
of a 360- day year and the actual
number of days elapsed in the
applicable Interest Period. Interest
on the Class A-2 Notes and the Class
A-3 Notes will be calculated on the
basis of a 360-day year consisting of
twelve 30-day months. See "Description
of the Notes -- Payments of Interest"
herein.
D. Principal........................ Principal of the Notes will be payable
on each Distribution Date in an amount
equal to the Noteholders' Principal
Distributable Amount for the calendar
month (the "Monthly Period") preceding
such Distribution Date except that no
principal will be paid on a Class of
Notes until each Class of Notes having
a lower numerical Class designation
has been paid in full. With respect to
any Distribution Date, the
Noteholders' Principal Distributable
Amount will equal the lesser of (i)
the outstanding principal balance of
the Notes on such Distribution Date
prior to making any distribution
thereon, and (ii) the sum of (x) the
Noteholders' Percentage of the
Principal Distributable Amount and (y)
any unpaid portion of the amount
described in clause (x) with respect
to a prior Distribution Date. The
"Principal Distributable Amount" with
respect to any Distribution Date will
be an amount equal to the sum of the
following amounts with respect to the
related Monthly Period, computed, with
respect to Simple Interest
Receivables, in accordance with the
simple interest method, and, with
respect to Precomputed Receivables, in
accordance with the actuarial method:
(i) that portion of all collections on
Receivables allocable to principal,
including full and partial principal
prepayments, received during such
Monthly Period with respect to such
Monthly Period, (ii) the principal
balance of each Receivable that was
repurchased by the Representative, the
Seller or the Servicer as of the last
day of such Monthly Period, (iii) at
the option of the Insurer, the
outstanding principal balance of those
Receivables that were required to be
repurchased by the Seller and/or TMS
Auto Finance during such Monthly
Period but were not so repurchased,
(iv) without duplication of amounts in
clause (ii), the principal balance of
each Receivable that became a
Liquidated Receivable during such
Monthly Period and (v) the aggregate
amount of Cram Down Losses during such
Monthly Period. See "Description of
the Purchase Agreements and the Trust
Documents -- Distributions" herein.
The Noteholders' Percentage will be
100% until the Class A-3 Notes have
been paid in full and thereafter will
be zero. No principal will be paid on
a Class of Notes until the principal
of all Classes of Notes having a lower
numerical Class designation has been
paid in full. In addition, the
outstanding principal amount of the
Notes of any Class, to the extent not
previously paid, will be payable on
the respective Final Scheduled
Distribution Date for such Class.
E. Optional Redemption.............. The Class A-3 Notes, to the extent
still outstanding, may be redeemed in
whole, but not in part, on any
Distribution Date on which the
Servicer exercises its option to
purchase the Receivables, which,
subject to certain provisions in the
Sale and Servicing Agreement, can
occur after the Pool Balance declines
to 10% or less of the Original Pool
Balance (with the consent of the
Insurer, if such purchase would result
in a claim on the Note Policy or would
result in any amount owing to the
Insurer remaining unpaid), at a
redemption price equal to the unpaid
principal amount of the Notes of such
Class plus accrued and unpaid interest
thereon. See "Description of the Notes
-- Optional Redemption" herein. The
Original Pool Balance will equal the
sum of (i) the aggregate principal
balance of the Initial Receivables as
of the Initial Cutoff Date plus (ii)
the aggregate principal balances of
all Subsequent Receivables added to
the Trust as of their respective
Subsequent Cutoff Dates.
F. Mandatory Redemption............. The Notes may be redeemed in part on
the Mandatory Redemption Date (as
defined under "Pre-Funding Account"
below) in the event that any portion
of the Pre-Funded Amount remains on
deposit in the Pre-Funding Account
after giving effect to the purchase of
all Subsequent Receivables, including
any such purchase on such date (the
"Prepayment Amount"), provided that
the Prepayment Amount will be applied,
sequentially, to the Class A-1 Notes,
the Class A-2 Notes and the Class A-3
Notes, in that order, so that the
Prepayment Amount will not be applied
to redeem a Class of Notes until each
Class of Notes having a lower
numerical Class designation has been
redeemed in whole.
The Notes may be accelerated and
become subject to immediate payment at
par upon the occurrence of an Event of
Default under the Indenture. So long
as no Insurer Default shall have
occurred and be continuing, an Event
of Default under the Indenture will
occur only upon delivery by the
Insurer to the Indenture Trustee of
notice of the occurrence of certain
events of default under the Insurance
Agreement, dated as of November 30,
1997 (the "Insurance Agreement"),
among the Insurer, the Trust, the
Indenture Trustee, the Owner Trustee,
the Seller, the Servicer and the
Representative. In the case of such an
Event of Default, the Notes will
automatically be accelerated and
subject to immediate payment at par.
See "Description of the Notes --
Events of Default" herein.
G. Class A-1 Final
Scheduled Distribution Date... Notwithstanding anything to the
contrary contained herein, on January
8, 1999 (the "Class A-1 Final
Scheduled Distribution Date") holders
of record of the Class A-1 Notes as of
the Business Day preceding such date
shall be entitled to receive from
funds available therefor interest on
the outstanding principal amount of
the Class A-1 Notes immediately prior
to such date at the applicable
Interest Rate for the period (the
"Final Class A-1 Interest Period")
from and including the most recent
Distribution Date (together with
interest due but not paid on any prior
Distribution Date and, to the extent
permitted by law, interest on such
amount at the applicable Interest
Rate) on which interest has been paid
on the Class A-1 Notes to but
excluding the Class A-1 Final
Scheduled Distribution Date plus the
unpaid principal amount of the Class
A-1 Notes. Interest will be calculated
on the basis of a 360-day year and the
actual number of days elapsed in the
Final Class A-1 Interest Period.
Pre-Funding Account..................... On the Closing Date, a cash amount not
to exceed approximately $22,500,000
(the "Initial Pre-Funded Amount") will
be deposited in an account (the
"Pre-Funding Account") which will be
established with the Indenture
Collateral Agent. The Pre-Funding
Account will be an asset of the Trust
and will be pledged to the Indenture
Collateral Agent for the benefit of
the Indenture Trustee, on behalf of
the Noteholders, and the Insurer. The
"Funding Period" is the period from
the Closing Date until the earliest of
the date on which (i) the amount on
deposit in the Pre-Funding Account is
less than $200,000 (ii) a Servicer
Default occurs under the Sale and
Servicing Agreement or an Event of
Default occurs under the Indenture, or
(iii) the Distribution Date in
February 1998 occurs. The Initial Pre-
Funded Amount as reduced from time to
time during the Funding Period by the
amount thereof used to purchase
Subsequent Receivables in accordance
with the Sale and Servicing Agreement
is referred to herein as the
"Pre-Funded Amount." The Seller
expects that the Pre-Funded Amount
will be reduced to less than $200,000
on or before the end of the Funding
Period. Any Pre-Funded Amount
remaining at the end of the Funding
Period will be payable to the
Noteholders as described herein. The
"Mandatory Redemption Date" is the
Distribution Date in February 1998.
Capitalized Interest
Account.............................. On the Closing Date, a cash amount may
be deposited in an account (the
"Capitalized Interest Account") which
will be established with the Indenture
Collateral Agent. The Capitalized
Interest Account will be an asset of
the Trust, and will be pledged to the
Indenture Collateral Agent for the
benefit of the Indenture Trustee, on
behalf of the Noteholders, the Owner
Trustee, on behalf of the
Certificateholders, and the Insurer.
The amount, if any, deposited in the
Capitalized Interest Account will be
applied on the Distribution Date
occurring in January and February 1998
to fund an amount (the "Monthly
Capitalized Interest Amount") equal to
the amount of interest accrued for
such Distribution Date at the weighted
average Interest Rates on the portion
of the Notes having a principal
balance in excess of the principal
balances of the Receivables (which
portion will equal the Pre-Funded
Amount). Any amounts remaining in the
Capitalized Interest Account on the
Mandatory Redemption Date and not used
for such purposes are required to be
paid directly to the Seller on such
date. See "Description of the Purchase
Agreements and the Trust Documents --
Accounts."
The Note Policy......................... On the Closing Date, the Insurer will
issue a note guaranty insurance policy
(the "Note Policy") to the Indenture
Trustee pursuant to the Insurance
Agreement. Pursuant to the Note
Policy, the Insurer will
unconditionally and irrevocably
guarantee to the Noteholders payment
of the Note Insured Payments (as
defined herein) for each Distribution
Date. See "The Note Policy" herein.
Collection Account...................... The Servicer will establish one or
more accounts in the name of the
Indenture Collateral Agent (the
"Collection Account") for the benefit
of the Indenture Trustee, on behalf of
the Noteholders, the Owner Trustee, on
behalf of the Certificateholders, and
the Insurer. All payments from
Obligors that are received by the
Servicer on behalf of the Trust will
be deposited in the Collection Account
no later than two Business Days after
receipt thereof except under certain
conditions described herein. Pursuant
to the Sale and Servicing Agreement,
the Indenture Trustee will, on each
Distribution Date, distribute the
following amounts with respect to such
Distribution Date to the following (in
the priority indicated): (i) from the
Distribution Amount, to the Owner
Trustee and the Indenture Trustee, any
accrued and unpaid trustee fees and
expenses and any accrued and unpaid
fees and expenses of the Indenture
Collateral Agent (in each case, to the
extent such fees have not been
previously paid by the Servicer or the
Representative), (ii) from the
Distribution Amount, to the Servicer,
the Servicing Fee for the related
Monthly Period and any overdue
Servicing Fees, (iii) from the
Distribution Amount, into the Note
Distribution Account, the Noteholders'
Interest Distributable Amount, (iv)
from the Distribution Amount, into the
Note Distribution Account, the
Noteholders' Principal Distributable
Amount, (v) from the Distribution
Amount, to the Insurer any premium
owed on the Distribution Date, any
payments made by the Insurer under the
Note Policy, and any other amounts
owing and not paid under the Insurance
Agreement, plus interest thereon at
the rate set forth in the Insurance
Agreement, and (vi) from the Available
Funds, the remaining balance, if any,
to the Certificateholders or their
designees. See "Description of the
Purchase Agreements and the Trust
Documents -- Distributions" herein and
"Description of the Purchase
Agreements and Trust Documents --
Collections" in the Prospectus.
Tax Status............................. In the opinion of Stroock & Stroock &
Lavan LLP, special federal tax counsel
to the Trust, for federal income tax
purposes, the Notes will be
characterized as debt, and the Trust
will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation.
Each Noteholder, by the acceptance of
a Note, will agree to treat the Notes
as debt. See "Certain Federal Income
Tax Consequences" herein and "Federal
Income Tax Consequences" in the
Prospectus.
ERISA Considerations................... Subject to the conditions and
considerations discussed under "ERISA
Considerations," the Notes are
eligible for purchase by pension,
profit-sharing or other employee
benefit plans as well as individual
retirement accounts and certain types
of Keogh Plans (each, a "Benefit
Plan").
Legal Investment....................... The Class A-1 Notes will be eligible
securities for purchase by money
market funds under Rule 2a-7 under the
Investment Company Act of 1940, as
amended.
Ratings................................. It is a condition to issuance that the
Class A-1 Notes be rated A- 1+ by
Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies,
Inc. ("S&P"), and P-1 by Moody's
Investors Service, Inc. ("Moody's" and
together with S&P, the "Rating
Agencies"), and that the Class A-2
Notes and the Class A-3 Notes be rated
AAA by S&P and Aaa by Moody's. The
ratings by the Rating Agencies of the
Notes will be based primarily on the
Note Policy. There is no assurance
that the ratings initially assigned to
the Notes will not subsequently be
lowered or withdrawn by the Rating
Agencies. See "Risk Factors -- Ratings
on Notes" herein.
<PAGE>
RISK FACTORS
Prospective Noteholders should consider, in addition to the factors
described under "Risk Factors" in the Prospectus, the following risk factors in
connection with the purchase of the Notes.
RECENT DEVELOPMENTS
On December 3, 1997 in connection with the offering of certain
Subordinated Notes, Moody's confirmed its ratings of Ba1 for the
Representative's outstanding senior notes and Ba2 for the Representative's $1.72
Mandatory Convertible Preferred Stock, but changed its outlook from stable to
negative. In addition, on December 15, 1997, S& P placed its ratings of the
Representative's outstanding senior notes, subordinated notes and $1.72
Mandatory Convertible Preferred Stock on Credit Watch with negative
implications. While citing industry issues and specific concerns with certain of
the Representative's product lines including the asset quality of its sub-prime
auto loan portfolio, S&P did state that the placement on Credit Watch with
negative implications implies that the ratings could remain the same or be
lowered pending a detailed review with the Representative during the first
quarter of 1998. Moody's stated that continued increases in effective leverage
and delinquencies will put additional downward pressure on its ratings. As of
the date of this Prospectus Supplement, neither Moody's nor any other rating
agency has downgraded the ratings of the Representative's securities, although
no assurance can be given that any such downgrading will not occur in the
future.
On September 30, 1997, annualized net charge-offs on the Seller's auto
loan portfolio were 6.92% (as compared to 3.82% for the quarter ending June 30,
1997) and thirty day-and-over delinquencies were 9.87% (as compared to 4.25% at
June 30, 1997). The Representative believes that deterioration in the
performance of the auto loan portfolio is largely attributable to inconsistent
application of underwriting standards resulting in a diminution in the credit
quality of auto loan originations. The overall deterioration in the credit
quality of the portfolio also has put pressure on servicing resources which has
further contributed to the decline in performance. The Representative believes
that the decentralization of processing through the Seller's branch network
together with the rapid growth of the Seller's originations has led to less
control over the credit quality of loan originations. As previously announced,
in response to these developments, the Representative is implementing a number
of changes affecting the Seller including strengthening the quality of the
management team, centralizing more processing functions and consolidating its
branch structure, including ceasing its lending activities in Alabama. The
Representative has experienced and expects to continue to experience a reduction
in the rate of auto loan originations while these changes are being implemented.
The Representative does not believe, however, that the reduction in originations
will materially affect the Seller's ability to utilize the Pre-Funded Amount.
It is expected that a portion of the Receivables will have been
originated during periods prior to the full implementation of the changes
described above. Any additional prepayments on the Receivables as a result of
increased losses on the Receivables will shorten the weighted average life of
the Notes. Any reinvestment risk resulting from additional prepayments on the
Receivables will be borne by the Noteholders.
PREPAYMENT FROM THE PRE-FUNDING ACCOUNT; ABILITY TO ORIGINATE SUBSEQUENT
RECEIVABLES
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Trust by the end of the Funding
Period, Noteholders will receive a prepayment of principal on the Mandatory
Redemption Date to be applied, sequentially, to the Class A-1 Notes, the Class
A-2 Notes and the Class A-3 Notes, in that order, in an amount equal to the
Pre-Funded Amount (exclusive of investment earnings) remaining in the
Pre-Funding Account following the purchase of any Subsequent Receivables on the
last Subsequent Transfer Date in the Funding Period. Any reinvestment risk from
the prepayment of the Notes from the Pre-Funded Amount at the end of the Funding
Period will be borne by the Noteholders. See "Yield and Prepayment
Considerations" in the Prospectus.
The conveyance of Subsequent Receivables to the Trust during the
Funding Period is subject to the conditions described herein under "The
Receivables -- Eligibility Criteria." Each Subsequent Receivable must satisfy
the eligibility criteria specified herein and in the Sale and Servicing
Agreement. The ability of the Trust to invest in Subsequent Receivables is
dependent upon the ability of TMS Auto Finance to originate through Dealers a
sufficient amount of motor vehicle retail installment sales contracts that meet
the requirements in the Subsequent Purchase Agreement and in the Sale and
Servicing Agreement for transfer on a Subsequent Transfer Date. The ability of
TMS Auto Finance to originate sufficient Subsequent Receivables may be affected
by a variety of social and economic factors. Economic factors include interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions generally. Neither TMS Auto Finance nor the Seller has any
basis to predict whether or the extent to which economic or social factors will
affect the availability of Subsequent Receivables. In addition, TMS Auto Finance
commenced operations in January 1995 has limited performance history and as
described above, made a strategic decision to temporarily reduce its pace of
originations, which makes it difficult to predict the rate of its originations.
Nevertheless, although no assurances can be given, TMS Auto Finance currently
anticipates originating sufficient Receivables satisfying the criteria set forth
in the Sale and Servicing Agreement so as to require the application of the
entire Pre-Funded Amount to the purchase of Subsequent Receivables by the end of
the Funding Period. See "The Receivables" herein.
REINVESTMENT RISKS FROM PREPAYMENTS
The weighted average life of the Notes will be reduced by full and
partial prepayments on the Receivables. The Receivables are prepayable at any
time without penalty. Prepayments (or, for this purpose, equivalent payments to
the Trust) may result from payments by Obligors, liquidations due to default,
the receipt of proceeds from physical damage or credit insurance, repurchases by
the Seller or TMS Auto Finance as a result of certain uncured breaches of the
warranties made by it with respect to the Receivables, the application of the
remaining Pre-Funded Amount, if any, on the Mandatory Redemption Date to prepay
the Notes, purchases by the Servicer as a result of certain uncured breaches of
the covenants made by it in the Sale and Servicing Agreement with respect to the
Receivables, or the Servicer exercising its option to purchase all of the
remaining Receivables when the Pool Balance is less than 10% of the Original
Pool Balance.
The Servicer has limited historical experience with respect to
prepayments, has not prepared data on prepayment rates and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for retail installment sale contracts similar to the Receivables. For
these reasons, none of the Representative, the Servicer or the Seller can make
any prediction as to the actual prepayment rates that will be experienced on the
Receivables.
The amounts paid to Noteholders with respect to any Distribution Date
will include all prepayments on the Receivables received thereon during the
related Monthly Period. As a result, the Notes may be paid in full prior to
their respective Final Scheduled Distribution Dates. The Noteholders will bear
all reinvestment risk resulting from the timing of payments of principal on the
Notes. See "Yield and Prepayment Considerations" in the Prospectus.
CONCENTRATION OF RECEIVABLES
Economic conditions where Obligors reside may affect the delinquency,
loan loss and repossession experience of the Trust with respect to the
Receivables. As of the Statistical Calculation Date, Obligors with respect to
12.59% of the Initial Receivables (based on the principal balance of the Initial
Receivables and mailing addresses of the Obligors thereon as of the Statistical
Calculation Date) were located in California. Economic conditions in California
are often volatile and from time to time have been adversely affected by natural
disasters, contractions in the defense industry and declining real estate
values. The President of the United States has endorsed a list of military bases
to be closed within the next one and a half to five and a half years, which list
includes significant bases in California. These closures, which have been
approved by Congress, along with the recent general decline in defense spending,
could have an adverse effect on economic conditions in California and the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables with Obligors residing in California. No predictions, however,
can be made regarding future economic conditions in California or any other
states where Obligors reside. See "The Receivables" herein and in the
Prospectus.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables, the
Pre-Funding Account, the Capitalized Interest Account and the Note Policy.
Holders of the Notes and the Certificates must rely for repayment upon payments
on the Receivables and, if and to the extent available, amounts on deposit in
the Pre-Funding Account, the Capitalized Interest Account and payments of claims
made under the Note Policy. The Pre-Funding Account and the Capitalized Interest
Account will only be maintained until the Distribution Date on or immediately
following the last day of the Funding Period. The Pre-Funded Amount on deposit
in the Pre-Funding Account will be used solely to purchase Subsequent
Receivables and is not available to cover losses on the Receivables. The
Capitalized Interest Account is designed to cover obligations of the Trust
relating to that portion of its assets not invested in Receivables and is not
designed to provide protection against losses on the Receivables. Similarly,
although the Note Policy will be available on each Distribution Date to cover
shortfalls in distributions of the Noteholders' Distributable Amount and on such
Distribution Date, if the Insurer defaults in its obligations under the Note
Policy, the Trust will depend on current distributions on the Receivables to
make payments on the Notes. See "The Insurer" and "The Note Policy" herein.
RATINGS ON NOTES
A rating is not a recommendation to purchase, hold or sell Notes. The
ratings of the Notes address the likelihood of the payment of principal and
interest on the Notes pursuant to their terms. There is 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. In the event that any ratings initially
assigned to the Notes were subsequently lowered or withdrawn for any reason,
including by reason of a downgrading of the claims-paying ability of the
Insurer, no person or entity will be obligated to provide any additional credit
enhancement with respect to the Notes. Any reduction or withdrawal of a rating
may have an adverse effect on the liquidity and market price of the Notes.
EVENTS OF DEFAULT UNDER THE INDENTURE
So long as no Insurer Default shall have occurred and be continuing,
neither the Indenture Trustee nor the Noteholders may declare an Event of
Default under the Indenture. So long as an Insurer Default shall not have
occurred and be continuing, an Event of Default will occur only upon delivery by
the Insurer to the Indenture Trustee of notice of the occurrence of certain
events of default under the Insurance Agreement. Upon the occurrence of an Event
of Default under the Indenture (so long as an Insurer Default shall not have
occurred and be continuing), the Insurer will have the right, but not the
obligation, to cause the liquidation, in whole or in part, of the Trust
Property, which will result in redemption, in whole or in part, of the Notes.
Following the occurrence of an Event of Default, the Indenture Trustee and the
Owner Trustee will continue to submit claims under the Note Policy as necessary
to enable the Trust to continue to make payments of the Noteholders'
Distributable Amount on each Distribution Date. However, following the
occurrence of an Event of Default, the Insurer may elect to pay all or any
portion of the outstanding amount of the Notes, plus accrued interest thereon.
INSOLVENCY CONSIDERATIONS
The Trust Agreement provides that, in the event that the Seller
becomes insolvent, or is terminated or dissolved (a "Dissolution Event") and the
Owner Trustee is unable to obtain an opinion of counsel satisfactory to the
Insurer to the effect that the Trust will not thereafter be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes under the Code or for California state income tax purposes, the Trust
will terminate in 90 days and effect redemption of the Notes following the
winding-up of the affairs of the Trust, unless within such 90 days the
Certificate Owners of a majority of Voting Percentage Interest (as defined in
the Trust Agreement) agree in writing to continue the business of the Trust and
the Owner Trustee is able to obtain the opinion of counsel described above. See
"Description of the Purchase Agreements and the Trust Documents -- Termination"
in the Prospectus.
USE OF PROCEEDS
The net proceeds to be received by the Trust from the sale of the
Notes will be used to pay to the Seller, and in turn, TMS Auto Finance or a
warehouse facility, the purchase price for the Receivables, to make the deposits
of the Pre-Funded Amount into the Pre-Funding Account and to make the initial
deposits into the Capitalized Interest Account.
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Noteholders should consider, in addition to the information below,
the information under "The Trusts" in the accompanying Prospectus.
GENERAL
The Issuer, The Money Store Auto Trust 1997-4, is a business trust to
be formed under the laws of the State of Delaware pursuant to the Trust
Agreement for the transactions described in this Prospectus Supplement. After
its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Receivables and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Notes and the Certificates, (iii)
making payments on the Notes and the Certificates and (iv) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The proceeds of the initial sale of the Notes, will be used by the
Trust to purchase the Initial Receivables from the Seller pursuant to the Sale
and Servicing Agreement and to fund the deposits in the Pre-Funding Account and
the Capitalized Interest Account.
The Trust's principal offices are in Wilmington, Delaware, in care of
Bankers Trust (Delaware), as Owner Trustee, at the address listed below under
"-- The Owner Trustee."
THE OWNER TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust
Agreement, is a Delaware banking corporation and its principal offices are
located at 1011 Centre Road, Suite 200, Wilmington, Delaware 19805. The Seller,
the Representative, the Servicer and their respective affiliates may maintain
commercial banking relations with the Owner Trustee and its affiliates. The
Owner Trustee will perform limited administrative functions under the Trust
Agreement, including making distributions from the Certificate Distribution
Account. The Owner Trustee's liability in connection with the issuance and sale
of the Notes is limited solely to the express obligations of the Owner Trustee
set forth in the Trust Agreement and the Sale and Servicing Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, the following:
(a) non-prime motor vehicle retail installment sale contracts secured by new and
used vehicles, light trucks and vans; (b) all payments received thereunder after
the Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be; (c)
such amounts as from time to time may be held in the Collection Account, the
Pre-Funding Account and the Capitalized Interest Account; (d) an assignment of
the security interests of TMS Auto Finance in the Financed Vehicles; (e) certain
proceeds from the exercise of rights against Dealers under agreements between
TMS Auto Finance and such Dealers (the "Dealer Agreements"); (f) an assignment
of the right to receive proceeds from claims on certain physical damage, credit
life and disability insurance policies covering the Financed Vehicles or the
Obligors; (g) the rights of the Seller under the Purchase Agreement and any
Subsequent Purchase Agreements; (h) the Receivables Files; and (i) certain other
rights under the Trust Documents.
The Initial Receivables were, and the Subsequent Receivables were or
will be, originated by Dealers in accordance with TMS Auto Finance's
requirements under agreements with Dealers for assignment to TMS Auto Finance,
have been or will be so assigned, and evidence or will evidence the indirect
financing made available to the Obligors. Dealer Agreements may provide for
repurchase or recourse against the Dealer in the event of a default by an
Obligor, or upon repossession of the related vehicle by TMS Auto Finance.
Although TMS Auto Finance's rights under the Dealer Agreements have not been
assigned to the Trust, and the Trust will not have any rights against any
Dealer, TMS Auto Finance has assigned or will assign to the Seller, and the
Seller has assigned or will assign to the Trust, the proceeds from any
Receivable repurchased by a Dealer as a result of a breach of a representation
or warranty in the related Dealer Agreement. See "The Trusts" in the Prospectus.
The "Pool Balance" as of the end of any Monthly Period represents the
aggregate Principal Balance (as defined herein) of the Receivables (exclusive of
Liquidated Receivables) as of the end of such Monthly Period, after giving
effect to any Purchase Amounts remitted by TMS Auto Finance, the Seller or the
Representative, as the case may be, on the Determination Date following such
Monthly Period. The Pool Balance on the Closing Date (the "Original Pool
Balance") will be not less than $67,500,000. As described elsewhere herein, the
Original Pool Balance may include certain other Initial Receivables, some of
which may be originated after the Statistical Calculation Date but on or prior
to the Closing Date. In addition, prior to the Closing Date certain Initial
Receivables may be removed and additional Initial Receivables substituted
therefor. All of the Initial Receivables, however, must satisfy the eligibility
criteria set forth under "The Receivables -- Eligibility Criteria" herein.
Each Certificate will represent a fractional undivided interest in the
Trust Property. Pursuant to the Indenture, the Trust will grant a security
interest in the Trust Property (other than the Certificate Distribution Account)
in favor of the Indenture Collateral Agent for the benefit of the Indenture
Trustee on behalf of the Noteholders and for the benefit of the Insurer in
support of the obligations owing to it. Any proceeds of such security interest
in the Trust Property would be distributed according to the Indenture, as
described below under "Description of the Purchase Agreements and the Trust
Documents -- Distributions." The Insurer would be entitled to such distributions
only after payment of amounts owing to, among others, holders of the Notes.
THE RECEIVABLES
The following information supplements the information contained under
"The Receivables" in the accompanying Prospectus.
GENERAL
The Receivables were, or will be, purchased by TMS Auto Finance in the
ordinary course of business pursuant to TMS Auto Finance's Contract Acquisition
Program from Dealers. The Receivables will consist of non-prime motor vehicle
retail installment sale contracts. Non-prime motor vehicle retail installment
sale contracts are contracts with individuals with less than perfect credit due
to various factors, including, among other things, the manner in which such
individuals have handled previous credit, the limited extent of their prior
credit history and/or their limited financial resources. See "Risk Factors --
Nature of Receivables; Underwriting Process; Subjective Credit Standards and
Sufficiency of Interest Rates to Cover Losses," "TMS Auto Finance -- General"
and "-- Credit Evaluation Procedures" in the Prospectus.
ELIGIBILITY CRITERIA
The Receivables were or will be selected according to several
criteria, including those specified under "Receivables -- General" in the
accompanying Prospectus. In addition, the Initial Receivables were selected from
TMS Auto Finance's portfolio of non-prime motor vehicle retail installment
contracts based on several criteria, including the following: (i) each Initial
Receivable has an APR equal to or greater than 10.90%; (ii) each Initial
Receivable has an original term to maturity of not more than 73 months; (iii) as
of the Initial Cutoff Date, the most recent Scheduled Payment of each Initial
Receivable was made by or on behalf of the Obligor or was not contractually
delinquent more than 30 days; (iv) no Initial Financed Vehicle has been
repossessed without reinstatement as of the Initial Cutoff Date; and (v) as of
the Initial Cutoff Date, no Obligor on any Receivable was the subject of a
bankruptcy proceeding commenced following the execution of the related contract.
For purposes of clause (iii), a Receivable is considered 30 days delinquent as
of the end of the month following the date on which a second consecutive
Scheduled Payment has not been made.
The Initial Receivables as of the Initial Cutoff Date will meet the
following criteria: (i) the weighted average APR of the Initial Receivables will
not be less than approximately 18.80%; (ii) the weighted average remaining term
of the Initial Receivables will not be greater than approximately 60 months;
(iii) not more than approximately 35.0% of the aggregate principal balance of
the Initial Receivables consist of Obligors whose mailing addresses are in
California, and (iv) not more than 20.0% of the aggregate principal balance of
Initial Receivables shall have Obligors whose mailing addresses are in any one
state other than California unless an opinion of counsel with respect to the
security interest in the related Financed Vehicles is furnished by the Seller on
or prior to such Initial Cutoff Date. As to clauses (i) and (ii) in the
immediately preceding sentence, such criteria will be based on the
characteristics of the Initial Receivables on the Closing Date, and as to clause
(iii) in the immediately preceding sentence, such criteria will be based on the
mailing addresses of the Obligors of the Additional Receivables on the Closing
Date.
During the Funding Period, pursuant to the Purchase Agreement, the
Seller is obligated to purchase from TMS Auto Finance and, pursuant to the Sale
and Servicing Agreement, sell to the Trust, Subsequent Receivables. The
aggregate principal balance of the Subsequent Receivables is anticipated by TMS
Auto Finance not to exceed approximately $22,500,000. On each Subsequent
Transfer Date, TMS Auto Finance will convey the Subsequent Receivables to the
Seller pursuant to the Subsequent Purchase Agreement executed by TMS Auto
Finance and the Seller on the Subsequent Transfer Date and including as an
exhibit a schedule identifying the Subsequent Receivables transferred on such
date. The Seller will convey the Subsequent Receivables to the Trust on such
Subsequent Transfer Date pursuant to the Sale and Servicing Agreement and the
applicable Subsequent Transfer Agreement executed by the Seller and the Owner
Trustee on the Subsequent Transfer Date and including as an exhibit a schedule
identifying the Subsequent Receivables transferred on such date. In connection
with each purchase of Subsequent Receivables the Trust will be required to pay
to the Seller a cash purchase price equal to the outstanding principal balance
of the Subsequent Receivables as of their respective Subsequent Cutoff Dates,
which price the Seller will pay to TMS Auto Finance. The purchase price will be
withdrawn from the Pre-Funding Account and paid to the Seller for payment to TMS
Auto Finance.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and/or Subsequent
Financed Vehicle must satisfy the eligibility criteria specified under "The
Receivables -- General" in the Prospectus and the criteria set forth in clauses
(i) through (v) of the second preceding paragraph, in each case, as of the
respective Subsequent Cutoff Date of such Subsequent Receivable; (ii) the
Insurer (so long as no Insurer Default shall have occurred and be continuing)
shall have approved the transfer of such Subsequent Receivables to the Trust;
(iii) neither TMS Auto Finance nor the Seller will have selected such Subsequent
Receivables in a manner that either believes is adverse to the interests of the
Insurer or the Noteholders; (iv) TMS Auto Finance and the Seller will deliver
certain opinions of counsel to the Owner Trustee, the Indenture Trustee, the
Insurer and the Rating Agencies with respect to the validity and
characterization of the conveyance of such Subsequent Receivables; and (v) the
Rating Agencies shall confirm that the ratings on the Notes have not been
withdrawn or reduced as a result of the transfer of such Subsequent Receivables
to the Trust. Because the Subsequent Receivables may be originated after the
Initial Receivables, following their conveyance to the Trust the characteristics
of the Receivables, including the Subsequent Receivables, may vary from those of
the Initial Receivables.
In addition, the obligation of the Trust to purchase the Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust on such Subsequent Transfer Date, meet the following criteria: (i) the
weighted average APR of the Receivables in the Trust is not less than
approximately 18.80%; (ii) the weighted average remaining term of the
Receivables on such Subsequent Cutoff Date is not greater than approximately 60
months; (iii) not more than approximately 35.0% of the aggregate principal
balance of the Receivables consist of Obligors whose mailing addresses are in
California, and (iv) not more than 20.0% of the aggregate principal balance of
Receivables shall have Obligors whose mailing addresses are in any one state
other than California unless an opinion of counsel with respect to the security
interest in the related Financed Vehicles is furnished by the Seller on or prior
to such Subsequent Transfer Date. As to clauses (i) and (ii) in the immediately
preceding sentence, such criteria will be based on the characteristics of the
Initial Receivables on the Initial Cutoff Date and the Receivables, including
the Subsequent Receivables, on the related Subsequent Cutoff Date, and as to
clause (iii) in the immediately preceding sentence, such criteria will be based
on the mailing addresses of the Obligors of the Initial Receivables on the
Initial Cutoff Date and the Subsequent Receivables on the related Subsequent
Cutoff Dates.
Except for the criteria described in the preceding paragraphs, there
are no other required characteristics or conditions regarding the Subsequent
Receivables. Therefore, following the transfer of Subsequent Receivables to the
Trust, the aggregate characteristics of the entire pool of Receivables included
in the Trust, including the composition of the Receivables, the geographic
distribution, the distribution by remaining principal balance, the distribution
by APR, the distribution by remaining term, the distribution of Precomputed
Receivables and Simple Interest Receivables and the distribution by new and used
financed vehicles, may vary from those of the Initial Receivables.
COMPOSITION
The statistical information presented in this Prospectus Supplement,
including the summary statistical information set forth below, is based on the
Initial Receivables as of November 30, 1997 (the "Statistical Calculation
Date"). Prior to the Initial Cutoff Date, certain Initial Receivables may be
removed and additional Initial Receivables substituted therefor. Regularly
scheduled payments and prepayments of the Receivables (which are prepayable at
any time) between the Statistical Calculation Date and the Initial Cutoff Date
will affect the balances and percentages set forth below. A Current Report on
Form 8-K containing a detailed description (the "Detailed Description") of the
Initial Receivables will be available to purchasers of the Notes upon request at
the time of the initial issuance of the Notes and will be filed with the
Securities and Exchange Commission within 15 days after such issuance. The
Detailed Description will specify the information set forth below as of the
Initial Cutoff Date.
While the statistical distribution of the final characteristics of all
Initial Receivables transferred to the Trust on the Closing Date will vary from
the statistical information presented in this Prospectus Supplement, the Seller
and the Representative do not believe that the characteristics of the Initial
Receivables on the Closing Date will vary materially.
<TABLE>
<CAPTION>
COMPOSITION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL CALCULATION DATE
Weighted Aggregate Number of Weighted Weighted Average
Average Principal Receivables Average Average Principal
APR OF Balance Remaining Original Balance
Receivalbes Term Term
<S> <C> <C> <C> <C> <C>
18.98% $46,830,586.50 4,063 56.39 57.81 11,526.11
</TABLE>
The geographic distribution, the distribution by interest allocation
method, the distribution by new and used financed vehicles, the distribution by
remaining principal balance, the distribution by APR and the distribution by
remaining term, in each case of the Initial Receivables as of the Statistical
Calculation Date, are set forth below.
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL
CALCULATION DATE
Percentage of
Number of Aggregate Total
STATE(1) Receivables Principal Aggregate
Balance Principal
Balance
<S> <C> <C> <C>
Alabama....................... 9 $118,650.64 0.25%
Arizona....................... 78 848,736.85 1.81
California.................... 532 5,876,873.40 12.55
Colorado...................... 106 1,195,267.90 2.55
Connecticut................... 95 1,088,510.18 2.32
Delaware...................... 10 96,710.25 0.21
Florida....................... 201 2,259,782.64 4.83
Georgia....................... 213 2,861,366.60 6.11
Iowa.......................... 16 169,127.29 0.36
Idaho......................... 12 138,614.07 0.30
Illinois...................... 318 3,783,121.15 8.08
Indiana....................... 164 1,674,973.08 3.58
Kansas........................ 12 153,179.56 0.33
Kentucky...................... 81 858,117.78 1.83
Massachusetts................. 54 506,704.21 1.08
Maryland...................... 53 614,622.54 1.31
Maine......................... 3 23,045.62 0.05
Michigan...................... 120 1,432,920.01 3.06
Minnesota..................... 81 899,774.23 1.92
Missouri...................... 56 646,958.46 1.38
Mississippi................... 72 890,569.34 1.90
Montana....................... 5 41,853.55 0.09
North Carolina................ 120 1,609,675.05 3.44
North Dakota.................. 4 45,235.21 0.10
New Hampshire................. 21 183,958.48 0.39
New Jersey.................... 226 2,474,109.12 5.28
New Mexico.................... 28 278,442.48 0.59
Nevada........................ 78 930,807.12 1.99
Ohio.......................... 156 1,651,945.19 3.53
Oklahoma...................... 75 880,144.12 1.88
Oregon........................ 64 624,755.16 1.33
Pennsylvania.................. 111 1,283,943.66 2.74
Rhode Island.................. 22 210,121.82 0.45
South Carolina................ 110 1,213,962.64 2.59
South Dakota.................. 9 99,275.20 0.21
Tennessee..................... 74 951,601.64 2.03
Texas......................... 343 4,360,831.00 9.31
Utah.......................... 93 1,093,519.63 2.34
Virginia...................... 99 1,174,694.87 2.51
Vermont....................... 4 28,742.77 0.06
Washington.................... 103 1,225,491.11 2.62
Wisconsin..................... 22 218,991.02 0.47
Wyoming....................... 10 110,859.86 0.24
----- ----------------- -------
Total................... 4,063 $46,830,586.50 100.00%
===== ============== =======
(1) Based on mailing addresses of the Obligors as of the Statistical
Calculation Date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY INTEREST ALLOCATION METHOD OF THE INITIAL RECEIVABLES AS OF
THE STATISTICAL CALCULATION DATE
Percentage of
Number Aggregate Total Aggregate
INTEREST ALLOCATION METHOD of Principal Balance Principal
Receivables Balance
<S> <C> <C> <C>
Pre Computed Receivables(1).......... 1,141 $12,497,878.51 26.69%
Simple Interest Receivables.......... 2,922 34,332,707.99 73.31%
----- --------------- -------
Total.......... 4,063 $46,830,586.50 100.00%
===== ============= =======
- --------------------
(1) All of the Precomputed Receivables are Rule of 78s Receivables.
</TABLE>
DISTRIBUTION BY NEW AND USED FINANCED VEHICLES OF THE INITIAL
RECEIVABLES AS OF THE STATISTICAL CALCULATION DATE
Percentage
Number of Aggregate of
LOAN TYPE Receivables Principal Total
Balance Aggregate Principal
Balance
NEW......................... 450 $7,314,174.47 15.62%
USED........................ 3,613 39,516,412.03 84.38%
----- -------------- -------
Total.................. 4,063 $46,830,58.50 100.00%
===== ============= =======
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
Percentage
Number of Aggregate of
RANGE OF REMAINING PRINCIPAL Receivables Principal Total
BALANCE Balance Aggregate
Principal
Balance
<S> <C> <C> <C>
$0.00 - $2,499.99..................................... 7 $13,852.47 0.03%
$2,500.00 - $4,999.99................................. 134 551,293.65 1.18%
$5,000.00 - $7,499.99................................. 510 3,267,013.88 6.98%
$7,500.00 - $9,999.99................................. 928 8,214,545.59 17.54%
$10,000.00 - $12,499.99............................... 995 11,151,492.28 23.81%
$12,500.00 - $14,999.99............................... 758 10,378,658.11 22.16%
$15,000.00 - $17,499.99............................... 382 6,158,094.89 13.15%
$17,500.00 - $19,999.99 215 4,024,947.93 8.59%
$20,000.00 - $22,499.99............................... 74 1,557,921.80 3.33%
$22,500.00 - $24,999.99............................... 37 869,087.24 1.86%
$25,000.00 - $27,499.99............................... 14 366,200.64 0.78%
$27,500.00 - $29,999.99............................... 3 86,857.57 0.19%
$30,000.00 - $32,499.99............................... 4 122,726.05 0.26%
$32,500.00 - $34,999.99............................... 2 67,894.40 0.14%
----- -------------- -------
Total............................................ 4,063 $46,830,586.50 100.00%
===== ============== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE INITIAL RECEIVABLES
AS OF THE STATISTICAL CALCULATION DATE
Percentage
Number of Aggregate of
ANNUAL PERCENTAGE RATE RANGE RECEIVABLES PRINCIPAL Total
BALANCE Aggregate
PRINCIPAL
BALANCE (1)
<S> <C> <C> <C>
12.000% - 12.999%..................................... 1 $30,056.10 0.06%
13.000% - 13.999%..................................... 5 89,417.36 0.19%
14.000% - 14.999%..................................... 46 754,972.31 1.61%
15.000% - 15.999%..................................... 96 1,494,786.98 3.19%
16.000% - 16.999%..................................... 366 5,260,640.03 11.23%
17.000% - 17.999%..................................... 537 7,193,603.92 15.36%
18.000% - 18.999%..................................... 874 10,641,373.34 22.72%
19.000% - 19.999%..................................... 633 7,251,224.86 15.48%
20.000% - 20.999%..................................... 580 6,035,170.90 12.89%
21.000% - 21.999%..................................... 469 4,351,153.93 9.29%
22.000% - 22.999%..................................... 216 1,865,358.47 3.98%
23.000% - 23.999%..................................... 109 871,700.78 1.86%
24.000% - 24.999%..................................... 66 507,492.55 1.08%
25.000% - 25.999%..................................... 33 261,502.18 0.56%
26.000% - 26.999%..................................... 18 122,304.98 0.26%
27.000% - 27.999%..................................... 4 34,434.61 0.07%
28.000% - 28.999%..................................... 6 43,869.65 0.09%
29.000% - 29.999%..................................... 4 21,523.55 0.05%
----- ---------------- -------
Total............................................ 4,063 $46,830,586.50 100.00%
===== ============== =======
- --------------------
(1) Percentages do not add to 100% as a result of rounding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING TERM OF THE INITIAL RECEIVABLES AS OF
THE STATISTICAL CALCULATION DATE
Percentage
Number of Aggregate of
REMAINING TERM RECEIVABLES PRINCIPAL BALANCE Total
Aggregate
PRINCIPAL
BALANCE(1)
<S> <C> <C> <C>
13 Months to 18 Months................. 2 $4,097.57 0.01%
19 Months to 24 Months................. 45 185,816.96 0.40%
25 Months to 30 Months................. 47 243,760.16 0.52%
31 Months to 36 Months................. 287 1,870,957.97 4.00%
37 Months to 42 Months................. 278 2,222,368.89 4.75%
43 Months to 48 Months................. 573 5,312,414.24 11.34%
49 Months to 54 Months................. 586 6,423,797.93 13.72%
55 Months to 60 Months................. 1,610 20,539,591.65 43.86%
61 Months to 66 Months................. 452 6,544,691.08 13.98%
67 Months to 73 Months................. 183 3,483,090.05 7.44%
Total............................. 4,063 $46,830,586.50 100.00%
===== ============== =======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ORIGINAL TERM OF THE INITIAL RECEIVABLES AS OF
THE STATISTICAL CALCULATION DATE
Percentage of
Number of Aggregate Total
ORIGINAL TERM RECEIVABLES PRINCIPAL Aggregate
BALANCE PRINCIPAL
BALANCE(1)
<S> <C> <C> <C>
13 Months to 18 Months 1 $1,379.35 0.00%
19 Months to 24 Months 45 185,816.96 0.40%
25 Months to 30 Months 47 243,760.16 0.52%
31 Months to 36 Months 2 13,321.60 0.03%
37 Months to 42 Months 286 1,874,670.19 4.00%
43 Months to 48 Months 281 2,243,194.51 4.79%
49 Months to 54 Months 608 5,668,358.23 12.10%
55 Months to 60 Months 582 6,431,692.54 13.73%
61 Months to 66 Months 1,838 23,581,443.33 50.35%
67 Months to 73 Months 373 6,586,949.63 14.07%
-----
Total........................... 4,063 $46,830,586.50 100.00%
===== ============== =======
- ---------------------------
(1) Percentages do not add to 100.00% because of rounding.
</TABLE>
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
TMS Auto Finance began operations in January 1995. The table below
sets forth, as of the end of the quarterly periods indicated, the delinquency
and loss experience of TMS Auto Finance pertaining to new and used automobile,
light truck and van receivables, including those previously sold which TMS Auto
Finance continues to service. The information set forth in the following table
may be affected by the size, rapid growth and relative lack of seasoning of the
receivables. Accordingly, no assurances can be given that the delinquency and
loss experience presented in the tables below will be indicative of such
experience on the Receivables. See "Risk Factors-Recent Developments".
<TABLE>
<CAPTION>
THE MONEY STORE AUTO FINANCE, INC.
HISTORICAL DELINQUENCY AND LOSS EXPERIENCE
(DOLLAR AMOUNTS IN THOUSANDS)
1995 1996 1997
March 31, June 30, September 30, December 31, March 31, June 31, September 30,
---------- -------- ------------- ------------ --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Amount $179,986 $262,860 $364,496 $475,533 $604,101 $710,886 $775,556
Outstanding
Average Principal
Amount Outstanding $148,613 $221,423 $313,678 $420,014 $539,817 $657,494 $743,221
For the Quarter Ended
Number of Loans 19,271 28,401 39,504 51,480 65,849 78,177 85,956
Outstanding
Average Number of 15,835 28,836 33,953 45,492 58,665 72,013 82,067
Loans Outstanding
Number of Repossessions 219 373 726 1,024 1,068 1,513 1,541
For the Quarter Ended
Principal Amount
of Repossessions $2,202 $3,375 $6,646 $9,666 $10,164 $14,916 $14,489
For the Quarter Ended
Number of Repossessions as a
Percent of 1.38% 1.56% 2.14% 2.25% 1.82% 2.10% 1.88%
Average Number of Loans
Outstanding Principal Amount
of Repossessions
as a Percent of 1.48% 1.52% 2.12% 2.30% 1.88% 2.27% 1.95%
Average Principal
Amount Outstanding
Net Losses
For the Quarter Ended $1,245 $952 $1,790 $3,487 $4,671 $6,762 $13,422
Net Losses as a Percent of
Principal 2.77% 1.45% 1.96% 2.93% 3.09% 3.80% 6.92%
Amount Outstanding (Annualized)
Delinquencies
31-60 Days $3,575 1.99% $5,733 2.19% $8,300 2.28% $10,159 2.15% $14,980 2.48% $20,876 2.94% $55,399 7.14%
61-90 Days $807 0.45% $990 0.38% $2,080 0.57% $2,247 0.47% $3,754 0.62% $6,054 0.85% $15,677 2.02%
Over 90 Days $217 0.12% $672 0.26% $1,229 0.34% $1,939 0.41% $2,006 0.33% $3,280 0.46% $5,476 0.71%
</TABLE>
<PAGE>
The following information under the heading "The Insurer" has not been
verified by the Seller, the Representative or the Underwriters. No
representations or warranty is made by the Seller, the Representative or the
Underwriters with respect thereto.
THE INSURER
The following information has been supplied by MBIA Insurance
Corporation (the "Insurer") for inclusion in this Prospectus Supplement.
The Insurer is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts
of or claims against the Insurer. The Insurer is domiciled in the State of New
York and licensed to do business in and is subject to regulation under the laws
of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payments of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1996 and
December 31, 1995 and for the three years ended December 31, 1996, prepared in
accordance with generally accepted accounting principles, included in the Annual
Report on Form 10-K of MBIA Inc. for the year ended December 31, 1996, and the
consolidated financial statements of the Insurer and its subsidiaries for the
nine months ended September 30, 1997 and for the periods ending September 30,
1997 and September 30, 1996 included in the Quarterly Report on Form 10-Q of
MBIA Inc. for the period ending September 30, 1997, are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein, or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
On November 14, 1997, MBIA Inc. announced the signing of a definitive
agreement to merge with CapMAC Holdings Inc. ("CHI"), the parent company of
Capital Markets Assurance Corporation ("CapMAC"), in a stock-for-stock
transaction valued at $607 million. The announcement also stated that all
outstanding policies issued by CapMAC will be backed by the full financial
resources of MBIA Inc., and that the agreement is subject to regulatory
approvals and approval by CHI shareholders.
All financial statements of the Insurer and its subsidiaries included
in the documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Notes and shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
SAP
-------------------------------------------------------
December 31, 1996 September 30, 1997
(Audited) (Unaudited)
-------------------------------------------------------
(IN MILLIONS)
Admitted Assets......... $4,476 $5,165
Liabilities............. 3,009 3,457
Capital and Surplus..... 1,467 1,708
GAAP
---------------------------------------------------------
December 31, 1996 September 30, 1997
(Audited) (Unaudited)
---------------------------------------------------------
(IN MILLIONS)
Assets............... $5,066 $5,819
Liabilities.......... 2,262 2,594
Shareholder's Equity. 2,804 3,225
Copies of the financial statements of the Insurer incorporated by
reference herein and copies of the Insurer's 1996 year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from the Insurer. The address of the Insurer is 113
King Street, Armonk, New York 10504. The telephone number of the Insurer is
(914) 273-4545.
The Insurer 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 the Note Policy and the Insurer set forth under the
headings "The Note Policy" and "The Insurer." Additionally, the Insurer makes no
representation regarding the Notes or the advisability of investing in the
Notes.
Moody's rates the claims paying ability of the Insurer "Aaa."
S&P rates the claims paying ability of the Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the claims paying ability of the Insurer "AAA."
Each rating of the Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Notes and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of any of the above
ratings may have an adverse effect on the market price of the Notes. The Insurer
does not guaranty the market price of the Notes nor does it guaranty that the
ratings on the Notes will not be revised or withdrawn.
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a
form of which has been filed as an exhibit to the Registration Statement. The
following summary describes certain terms of the Notes and the Indenture. The
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the accompanying
Prospectus, to which description reference is hereby made.
The Notes will be offered for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. Persons acquiring beneficial
interests in the Notes will hold their interests through DTC in the United
States or Cedel or Euroclear in Europe. See "Certain Information Regarding the
Securities -- Book-Entry Registration" in the Prospectus and Annex I thereto.
PAYMENTS OF INTEREST
Interest on the principal amount of each Class of Notes will accrue at
the applicable Interest Rate and will be payable to the Noteholders of such
Class monthly on each Distribution Date, commencing on the January 1998
Distribution Date. Interest will accrue from and including the most recent
Distribution Date on which interest has been paid (or, in the case of the first
Distribution Date, from and including December 20, 1997) to but excluding the
following Distribution Date (each, an "Interest Period"). Interest on the Class
A-1 Notes will be calculated on the basis of a 360-day year and the actual
number of days elapsed in the related interest period. Interest on the Class A-2
Notes and the Class A-3 Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest accrued as of any Distribution Date
but not paid on such Distribution Date will be due on the next Distribution
Date, together with, to the extent permitted by law, interest on such amount at
the applicable Interest Rate. Interest payments on the Notes will be made from
the Distribution Amount (as defined herein) after payment of accrued and unpaid
trustees' fees and other administrative fees of the Trust and payment of the
Servicing Fee. See "Description of the Purchase Agreements and the Trust
Documents -- Distributions" herein.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each
Distribution Date in an amount equal to the Noteholders' Principal Distributable
Amount for the calendar month (the "Monthly Period") preceding such Distribution
Date. The Noteholders' Principal Distributable Amount will equal the lesser of
(i) the outstanding principal balance of the Notes on such Distribution Date
prior to making any distribution thereon and (ii) the sum of (x) the
Noteholders' Percentage of the Principal Distributable Amount and (y) any unpaid
portion of the amount described in clause (x) with respect to a prior
Distribution Date. The "Principal Distributable Amount" with respect to any
Distribution Date will be an amount equal to the sum of the following amounts
with respect to the related Monthly Period, computed, with respect to Simple
Interest Receivables, in accordance with the simple interest method, and, with
respect to Precomputed Receivables, in accordance with the actuarial method: (i)
that portion of all collections on Receivables allocable to principal, including
full and partial principal prepayments, received during such Monthly Period with
respect to such Monthly Period, (ii) the principal balance of each Receivable
that was repurchased by the Representative, the Seller or the Servicer as of the
last day of such Monthly Period, (iii) at the option of the Insurer, the
outstanding principal balance of those Receivables that were required to be
repurchased by the Seller and/or TMS Auto Finance during such Monthly Period but
were not so repurchased, (iv) without duplication of amounts in clause (ii), the
principal balance of each Receivable that became a Liquidated Receivable during
such Monthly Period, and (v) the aggregate amount of Cram Down Losses during
such Monthly Period. Principal payments on the Notes will be made from the
Distribution Amount after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and after
distribution of the Noteholders' Interest Distributable Amount. See "Description
of the Purchase Agreements and the Trust Documents -- Distributions" herein.
The Noteholders' Percentage will be 100% until the Class A-3 Notes
have been paid in full and thereafter will be zero. Principal payments on the
Notes will be applied on each Distribution Date sequentially, to the Class A-1
Notes, the Class A-2 Notes and the Class A-3 Notes, in that order, until the
respective principal amount of each such Class of Notes has been paid in full so
that no principal will be paid on a Class of Notes until the principal of all
Classes of Notes having a lower numerical Class designation has been paid in
full. In addition, the outstanding principal amount of the Notes of any Class,
to the extent not previously paid, will be payable on the respective Final
Scheduled Distribution Date for such Class. The actual date on which the
aggregate outstanding principal amount of any Class of Notes is paid may be
earlier than the Final Scheduled Distribution Date for such Class, depending on
a variety of factors.
MANDATORY REDEMPTION
The Notes will be redeemed in part on the Mandatory Redemption Date in
the event that any portion of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on such date (the "Prepayment Amount"),
provided that the Prepayment Amount will be applied sequentially, to the Class
A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, in that order, so that
the Prepayment Amount will not be applied to redeem a Class of Notes until each
Class of Notes having a lower numerical Class designation has been redeemed in
whole.
OPTIONAL REDEMPTION
The Class A-3 Notes may be redeemed in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the Pool Balance has
declined to 10% or less of the Original Pool Balance (with the consent of the
Insurer, if such purchase would result in a claim on the Note Policy or would
result in any amount owing to the Insurer remaining unpaid), as described in the
accompanying Prospectus under "Description of the Purchase Agreements and the
Trust Documents -- Termination." Such redemption will effect early retirement of
the Notes of such Class. The redemption price will be equal to the unpaid
principal amount of the Notes of such Class, plus accrued and unpaid interest
thereon (the "Redemption Price").
CLASS A-1 FINAL SCHEDULED DISTRIBUTION DATE
Notwithstanding anything to the contrary contained herein, on January
8, 1999 (the "Class A-1 Final Scheduled Distribution Date") holders of record of
the Class A-1 Notes as of the Business Day preceding such date shall be entitled
to receive from funds available therefor interest on the outstanding principal
amount of the Class A-1 Notes immediately prior to such date at the applicable
Interest Rate (the "Final Class A-1 Interest Period") from and including the
most recent Distribution Date on which interest has been paid on the Class A-1
Notes to but excluding the Class A-1 Final Scheduled Distribution Date (together
with interest due but not paid on any prior Distribution Date and, to the extent
permitted by law, interest on such amount at the applicable Interest Rate) plus
the unpaid principal amount of the Class A-1 Notes. Interest will be calculated
for the Final Class A-1 Interest Period on the basis of a 360-day year and the
actual number of days elapsed in the Final Class A-1 Interest Period.
EVENTS OF DEFAULT
Unless an Insurer Default shall have occurred and be continuing,
"Events of Default" under the Indenture will consist of those events defined in
the Insurance Agreement as Insurance Agreement Events of Default, and will
constitute an Event of Default under the Indenture only if the Insurer shall
have delivered to the Indenture Trustee, and not rescinded, a written notice
specifying that any such Insurance Agreement Event of Default constitutes an
Event of Default under the Indenture. "Insurance Agreement Events of Default"
consist of: (i) a demand for payment being made under the Note Policy; (ii)
certain events of bankruptcy, insolvency, receivership or liquidation of the
Trust; (iii) the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;
(iv) on any Distribution Date, the Available Funds with respect to such
Distribution Date being less than the sum of the amounts described in clauses 1
through 6 under "Description of the Purchase Agreements and the Trust Documents
- -- Distributions" herein; and (v) any failure to observe or perform in any
material respect any other covenants or agreements in the Indenture, or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect when made, and
such failure continuing or not being cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, for 30 days after the giving of written
notice of such failure or incorrect representation or warranty to the Trust and
the Indenture Trustee by the Insurer.
Upon the occurrence of an Event of Default, so long as an Insurer
Default shall not have occurred and be continuing, the Insurer will have the
right, but not the obligation, to cause the Indenture Collateral Agent to
liquidate the Trust Property in whole or in part, on any date or dates following
the acceleration of the Notes due to such Event of Default as the Insurer, in
its sole discretion, shall elect, and to deliver the proceeds of such
liquidation to the Indenture Trustee for distribution in accordance with the
terms of the Indenture. The Insurer may not, however, cause the Indenture
Collateral Agent to liquidate the Trust Property in whole or in part if the
proceeds of such liquidation would not be sufficient to pay all outstanding
principal of and accrued interest on the Notes, unless such Event of Default
arose from a claim being made on the Note Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. Following the
occurrence of any Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Note Policy for any shortfalls in the
Note Insured Payments on the Notes. Following any Event of Default under the
Indenture, the Insurer may elect to pay all or any portion of the outstanding
amount of the Notes, plus accrued interest thereon. See "The Note Policy"
herein.
If an Insurer Default has occurred and is continuing, "Events of
Default" under the Indenture will consist of the Events of Default described in
the accompanying Prospectus under "The Notes -- The Indenture," and the
Indenture Trustee will have the rights under the Indenture described therein.
WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes will depend on
the rate of payment (including prepayments) of the principal balance of the
Receivables. As a result, final payment of any Class of Notes could occur
significantly earlier than the Final Scheduled Distribution Date for such Class
of Notes. Reinvestment risk associated with early payment of the Notes will be
borne exclusively by the Noteholders.
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
The table captioned "Percent of Initial Note Principal Balance at
Various ABS Percentages" (the "ABS Table") has been prepared on the basis of the
following assumptions: (i) the Trust includes three pools of Receivables with
the characteristics set forth in the following table; (ii) the Receivables
prepay in full at the specified constant percentage of ABS monthly, (iii) each
scheduled monthly payment on the Receivables is made on the last day of each
month and each month has 30 days; (iv) the initial principal amount of each
Class of Notes are as set forth on the cover page hereof; (v) interest accrues
during each Interest Period at the applicable Interest Rate; (vi) payments on
the Notes are made on the 20th day of each month whether or not a Business Day;
(vii) the Notes are purchased on the Closing Date; (viii) the scheduled monthly
payment for each Receivables has been calculated on the basis of the assumed
characteristics in the following table such that each Receivable will amortize
in amounts sufficient to repay the principal balance of such Receivable by its
indicated remaining term to maturity; (ix) the first due date for each
Receivable is in the month after the assumed cutoff date for such Receivable as
set forth in the following table; (x) the entire Pre-Funded Amount is used to
purchase Subsequent Receivables; and (xi) the Servicer does not exercise its
option to purchase the Receivables.
<TABLE>
<CAPTION>
Original Remaining
Aggregate Assumed Term to Term to
POOL Principal APR Cutoff Maturity Maturity
Balance DATE (IN (IN
MONTHS) MONTHS)
<S> <C> <C> <C> <C> <C>
1 $46,830,586.50 18.98% 12/1/97 57 56
2 23,169,413.50 18.98% 12/30/97 57 57
3 20,000,000.00 18.98% 1/20/98 57 57
-------------
Total $90,000,000.00 18.98%
==============
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each Class of Notes that would be
outstanding after each of the Distribution Dates shown at various percentages of
ABS and the corresponding weighted average lives of such Notes. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables could produce
slower or faster principal distributions than indicated in the ABS Table at the
various constant percentages of ABS specified, even if the original and
remaining terms to maturity of the Receivables are as assumed. Any difference
between such assumptions and the actual characteristics and performance of the
Receivables, or actual prepayment experience, will affect the percentages of
initial balances outstanding over time and the weighted average lives of each
Class of Notes.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE
AT VARIOUS ABS PERCENTAGES
Class A-1 Notes(1) Class A-2 Notes
Distribution 0.50% 1.00% 1.70% 2.50% 0.50% 1.00% 1.70% 2.50%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Date Closing Date... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
1/20/98 95.66% 94.32% 92.42% 90.21% 100.00% 100.00% 100.00% 100.00%
2/20/98 89.21% 85.90% 81.22% 75.81% 100.00% 100.00% 100.00% 100.00%
3/20/98 80.91% 75.12% 66.94% 57.49% 100.00% 100.00% 100.00% 100.00%
4/20/98 72.59% 64.36% 52.77% 39.38% 100.00% 100.00% 100.00% 100.00%
5/20/98 64.23% 53.64% 38.71% 21.49% 100.00% 100.00% 100.00% 100.00%
6/20/98 55.83% 42.95% 24.78% 3.83% 100.00% 100.00% 100.00% 100.00%
7/20/98 47.41% 32.29% 10.97% 0.00% 100.00% 100.00% 100.00% 94.65%
8/20/98 38.95% 21.66% 0.00% 0.00% 100.00% 100.00% 98.93% 87.88%
9/20/98 30.46% 11.07% 0.00% 0.00% 100.00% 100.00% 93.60% 81.21%
10/20/98 21.94% 0.52% 0.00% 0.00% 100.00% 100.00% 88.33% 74.64%
11/20/98 13.39% 0.00% 0.00% 0.00% 100.00% 96.07% 83.10% 68.16%
12/20/98 4.80% 0.00% 0.00% 0.00% 100.00% 91.95% 77.94% 61.79%
1/20/99 0.00% 0.00% 0.00% 0.00% 98.50% 87.84% 72.83% 55.52%
2/20/99 0.00% 0.00% 0.00% 0.00% 95.10% 83.76% 67.78% 49.36%
3/20/99 0.00% 0.00% 0.00% 0.00% 91.68% 79.69% 62.79% 43.31%
4/20/99 0.00% 0.00% 0.00% 0.00% 88.25% 75.64% 57.86% 37.38%
5/20/99 0.00% 0.00% 0.00% 0.00% 84.82% 71.61% 53.00% 31.56%
6/20/99 0.00% 0.00% 0.00% 0.00% 81.36% 67.60% 48.21% 25.86%
7/20/99 0.00% 0.00% 0.00% 0.00% 77.90% 63.61% 43.48% 20.28%
8/20/99 0.00% 0.00% 0.00% 0.00% 74.42% 59.64% 38.82% 14.83%
9/20/99 0.00% 0.00% 0.00% 0.00% 70.93% 55.70% 34.24% 9.51%
10/20/99 0.00% 0.00% 0.00% 0.00% 67.43% 51.78% 29.73% 4.32%
11/20/99 0.00% 0.00% 0.00% 0.00% 63.91% 47.88% 25.29% 0.00%
12/20/99 0.00% 0.00% 0.00% 0.00% 60.39% 44.01% 20.93% 0.00%
1/20/2000 0.00% 0.00% 0.00% 0.00% 56.85% 40.16% 16.65% 0.00%
2/20/2000 0.00% 0.00% 0.00% 0.00% 53.29% 36.34% 12.46% 0.00%
3/20/2000 0.00% 0.00% 0.00% 0.00% 49.73% 32.55% 8.34% 0.00%
4/20/2000 0.00% 0.00% 0.00% 0.00% 46.15% 28.79% 4.32% 0.00%
5/20/2000 0.00% 0.00% 0.00% 0.00% 42.57% 25.05% 0.38% 0.00%
6/20/2000 0.00% 0.00% 0.00% 0.00% 38.97% 21.35% 0.00% 0.00%
7/20/2000 0.00% 0.00% 0.00% 0.00% 35.35% 17.68% 0.00% 0.00%
8/20/2000 0.00% 0.00% 0.00% 0.00% 31.73% 14.04% 0.00% 0.00%
9/20/2000 0.00% 0.00% 0.00% 0.00% 28.10% 10.44% 0.00% 0.00%
10/20/2000 0.00% 0.00% 0.00% 0.00% 24.45% 6.87% 0.00% 0.00%
11/20/2000 0.00% 0.00% 0.00% 0.00% 20.79% 3.34% 0.00% 0.00%
12/20/2000 0.00% 0.00% 0.00% 0.00% 17.12% 0.00% 0.00% 0.00%
1/20/2001 0.00% 0.00% 0.00% 0.00% 13.44% 0.00% 0.00% 0.00%
2/20/2001 0.00% 0.00% 0.00% 0.00% 9.75% 0.00% 0.00% 0.00%
3/20/2001 0.00% 0.00% 0.00% 0.00% 6.05% 0.00% 0.00% 0.00%
4/20/2001 0.00% 0.00% 0.00% 0.00% 2.33% 0.00% 0.00% 0.00%
5/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
6/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
7/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
8/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
9/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
10/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
11/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
12/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
4/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
5/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
6/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
7/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
8/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
9/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
10/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
11/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
12/20/2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg. Life 0.568 0.457 0.362 0.296 2.248 1.900 1.505 1.189
(years)(2)
- ----------------------
(1) The Class A-1 Final Scheduled Distribution Date is January 8, 1999; payment
in full of the Class A-1 Notes on such date is guaranteed by the Note Policy to
the extent described herein.
(2) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment on a Note by the number of years from the date
of the issuance of the Note to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the related initial principal amount of
the Note.
</TABLE>
<PAGE>
<TABLE>
c
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE
AT VARIOUS ABS PERCENTAGES
CLASS A-3 NOTES
Distribution Date 0.50% 1.00% 1.70% 2.50%
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
1/20/98 100.00% 100.00% 100.00% 100.00%
2/20/98 100.00% 100.00% 100.00% 100.00%
3/20/98 100.00% 100.00% 100.00% 100.00%
4/20/98 100.00% 100.00% 100.00% 100.00%
5/20/98 100.00% 100.00% 100.00% 100.00%
6/20/98 100.00% 100.00% 100.00% 100.00%
7/20/98 100.00% 100.00% 100.00% 100.00%
8/20/98 100.00% 100.00% 100.00% 100.00%
9/20/98 100.00% 100.00% 100.00% 100.00%
10/20/98 100.00% 100.00% 100.00% 100.00%
11/20/98 100.00% 100.00% 100.00% 100.00%
12/20/98 100.00% 100.00% 100.00% 100.00%
1/20/99 100.00% 100.00% 100.00% 100.00%
2/20/99 100.00% 100.00% 100.00% 100.00%
3/20/99 100.00% 100.00% 100.00% 100.00%
4/20/99 100.00% 100.00% 100.00% 100.00%
5/20/99 100.00% 100.00% 100.00% 100.00%
6/20/99 100.00% 100.00% 100.00% 100.00%
7/20/99 100.00% 100.00% 100.00% 100.00%
8/20/99 100.00% 100.00% 100.00% 100.00%
9/20/99 100.00% 100.00% 100.00% 100.00%
10/20/99 100.00% 100.00% 100.00% 100.00%
11/20/99 100.00% 100.00% 100.00% 98.82%
12/20/99 100.00% 100.00% 100.00% 91.01%
1/20/2000 100.00% 100.00% 100.00% 83.42%
2/20/2000 100.00% 100.00% 100.00% 76.06%
3/20/2000 100.00% 100.00% 100.00% 68.94%
4/20/2000 100.00% 100.00% 100.00% 62.06%
5/20/2000 100.00% 100.00% 100.00% 55.43%
6/20/2000 100.00% 100.00% 94.49% 49.05%
7/20/2000 100.00% 100.00% 88.53% 42.94%
8/20/2000 100.00% 100.00% 82.72% 37.10%
9/20/2000 100.00% 100.00% 77.06% 31.52%
10/20/2000 100.00% 100.00% 71.57% 26.24%
11/20/2000 100.00% 100.00% 66.24% 21.23%
12/20/2000 100.00% 99.76% 61.08% 16.53%
1/20/2001 100.00% 94.26% 56.09% 12.12%
2/20/2001 100.00% 88.83% 51.28% 8.02%
3/20/2001 100.00% 83.47% 46.65% 4.25%
4/20/2001 100.00% 78.18% 42.21% 2.42%
5/20/2001 97.79% 72.95% 37.96% 0.74%
6/20/2001 91.85% 67.80% 33.91% 0.00%
7/20/2001 85.90% 62.71% 30.06% 0.00%
8/20/2001 79.93% 57.71% 26.41% 0.00%
9/20/2001 73.95% 52.78% 22.98% 0.00%
10/20/2001 67.95% 47.94% 19.76% 0.00%
11/20/2001 61.94% 43.18% 16.76% 0.00%
12/20/2001 55.91% 38.50% 14.00% 0.00%
1/20/2002 49.87% 33.92% 11.46% 0.00%
2/20/2002 43.81% 29.42% 9.16% 0.00%
3/20/2002 37.74% 25.02% 7.11% 0.00%
4/20/2002 31.65% 20.71% 5.31% 0.00%
5/20/2002 25.56% 16.50% 3.77% 0.00%
6/20/2002 19.45% 12.40% 2.49% 0.00%
7/20/2002 13.32% 8.40% 1.47% 0.00%
8/20/2002 7.19% 4.50% 0.74% 0.00%
9/20/2002 4.28% 2.64% 0.35% 0.00%
10/20/2002 1.35% 0.83% 0.09% 0.00%
11/20/2002 0.00% 0.00% 0.00% 0.00%
12/20/2002 0.00% 0.00% 0.00% 0.00%
Avg. Life years (1) 4.097 3.841 3.290 2.545
----------------------
(1) The weighted average life of a Note is determined by (i) multiplying
the amount of each principal payment on a Note by the number of years
from the date of the issuance of the Note to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the related
initial principal amount of the Note.
</TABLE>
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreement and
any Subsequent Purchase Agreement (together, the "Purchase Agreements"), and the
Sale and Servicing Agreement, any Subsequent Transfer Agreement and the Trust
Agreement (together, the "Trust Documents"). Forms of the Purchase Agreements
and the Trust Documents have been filed as exhibits to the Registration
Statement. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Purchase
Agreements and the Trust Documents. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the Purchase Agreements and the Trust Documents (as such terms
are used in the Prospectus) set forth in the Prospectus, to which description
reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the sale of the Initial Receivables by
TMS Auto Finance to the Seller pursuant to the Purchase Agreements and the
conveyance of the Initial Receivables from the Seller to the Trust on the
Closing Date pursuant to the Sale and Servicing Agreement is set forth under
"Description of the Purchase Agreements and the Trust Documents -- Sale and
Assignment of Receivables" in the accompanying Prospectus. In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance not to exceed approximately $22,500,000 to the
extent that such Subsequent Receivables are available.
During the Funding Period, on each Subsequent Transfer Date, subject to the
conditions described under "The Receivables -- Eligibility Criteria," the Seller
will sell and assign to the Trust, without recourse, the Seller's entire
interest in the Subsequent Receivables designated by the Seller as of the
related Subsequent Cutoff Date and identified in a schedule attached to a
Subsequent Transfer Agreement relating to such Subsequent Receivables executed
on such date by the Seller. Upon the conveyance of Subsequent Receivables to the
Trust on a Subsequent Transfer Date, (i) the Pool Balance will increase in an
amount equal to the aggregate principal balances of the Subsequent Receivables
and (ii) an amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or upon
the order of the Seller.
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer, into which all payments made on or with
respect to the Receivables will be deposited (the "Collection Account"). The
Servicer will be required to remit collections to the Collection Account within
two Business Days of receipt thereof. Such collections may be remitted less any
payments owed thereon to the Servicer. However, at any time that and for so long
as (i) TMS Auto Finance is the Servicer, (ii) there exists no Event of Servicer
Termination, (iii) there exists no Insurer Default and the Insurer has furnished
its prior written consent, and (iv) each other condition to making deposits less
frequently than every two Business Days as may be specified by the Rating
Agencies is satisfied, the Servicer will not be required to deposit such amounts
into the Collection Account until on or before the Determination Date
immediately preceding the applicable Distribution Date or the Class A-1 Final
Scheduled Distribution Date. Pending deposit into the Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds.
The Servicer will also establish and maintain an account, in the name of
the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, and the Insurer in which amounts released from the
Collection Account for distribution to Noteholders will be deposited and from
which all distributions to Noteholders will be made (the "Note Distribution
Account"). The Servicer will also establish and maintain an account, in the name
of the Indenture Collateral Agent, for the benefit of the Owner Trustee, on
behalf of the Certificateholders, and the Insurer in which amounts released from
the Collection Account for distribution to Certificateholders will be deposited
and from which all distributions to Certificateholders will be made (the
"Certificate Distribution Account").
On the Closing Date, a cash amount not to exceed approximately $22,500,000
(the "Initial Pre- Funded Amount") will be deposited in an account (the
"Pre-Funding Account") which will be established with the Indenture Collateral
Agent. The Pre-Funding Account will be an asset of the Trust and will be pledged
to the Indenture Collateral Agent for the benefit of the Indenture Trustee, on
behalf of the Noteholders, and the Insurer. The "Funding Period" is the period
from the Closing Date until the earliest of the date on which (i) the amount on
deposit in the Pre- Funding Account is less than $200,000, (ii) a Servicer
Default occurs under the Sale and Servicing Agreement or an Event of Default
occurs under the Indenture, or (iii) the Distribution Date in February 1998
occurs. The Initial Pre- Funded Amount as reduced from time to time during the
Funding Period by the amount thereof used to purchase Subsequent Receivables in
accordance with the Sale and Servicing Agreement is referred to herein as the
"Pre-Funded Amount." The Seller expects that the Pre-Funded Amount will be
reduced to less than $200,000 on or before the end of the Funding Period. Any
Pre-Funded Amount remaining at the end of the Funding Period will be payable to
the Noteholders as described herein. The "Mandatory Redemption Date" is the
Distribution Date in February 1998.
On the Closing Date, a cash amount may be deposited in an account (the
"Capitalized Interest Account") which will be established with the Indenture
Collateral Agent. The Capitalized Interest Account will be an asset of the
Trust, and will be pledged to the Indenture Collateral Agent for the benefit of
the Indenture Trustee, on behalf of the Noteholders and the Insurer. The amount,
if any, deposited in the Capitalized Interest Account will be applied on the
Distribution Date occurring in January and February of 1998 to fund an amount
(the "Monthly Capitalized Interest Amount") equal to the amount of interest
accrued for such Distribution Date at the weighted average Interest Rates and
Certificate Rate on the portion of the Notes having a principal balance in
excess of the principal balances of the Receivables (which portion will equal
the Pre-Funded Amount). Any amounts remaining in the Capitalized Interest
Account on the Mandatory Redemption Date and not used for such purposes are
required to be paid directly to the Seller on such date. See "Description of the
Purchase Agreements and the Trust Documents -- Accounts."
All such Accounts shall be Eligible Accounts (as defined in the Prospectus)
acceptable to the Insurer (so long as no Insurer Default has occurred and is
continuing).
SERVICING COMPENSATION AND TRUSTEES' FEES
The Servicer is entitled under the Sale and Servicing Agreement on each
Distribution Date to a servicing fee (the "Servicing Fee") for the related
Monthly Period equal to the sum of (i) one-twelfth of 1.50% (the "Servicing Fee
Rate") multiplied by the Pool Balance as of the first day of such Monthly Period
the "Base Servicing Fee") and (ii) the investment earnings (net of losses) on
the Collection Account. The Servicer may retain the Base Servicing Fee from
collections on the Receivables. The Servicer will retain from collections a
supplemental servicing fee (the "Supplemental Servicing Fee") for each Monthly
Period equal to any late fees, prepayment fees, rebates and other administrative
fees and expenses collected during the Monthly Period plus reinvestment proceeds
on any payments received in respect of Receivables.
On each Distribution Date under the Agreement, the Indenture Trustee is
entitled to a fee for its services as Indenture Trustee and Indenture Collateral
Agent during the prior Monthly Period equal to an amount agreed upon by the
Indenture Trustee and the Representative. On each Distribution Date under the
Agreement, the Owner Trustee is entitled to a fee for its services as Owner
Trustee during the prior Monthly Period equal to an amount agreed upon by the
Owner Trustee and the Representative.
CERTAIN ALLOCATIONS
On or about the fifth Business Day immediately preceding each Distribution
Date or, in the case of the Class A-1 Final Scheduled Distribution Date and the
succeeding Distribution Date, if any distributions are required to be made on
the Class A-1 Final Scheduled Distribution Date, the fifth Business Day
immediately preceding such Class A-1 Final Scheduled Distribution Date (in each
case, the "Determination Date"), the Servicer will be required to deliver the
Servicer's Certificate to the Indenture Trustee, the Owner Trustee and the
Insurer specifying, among other things, the amount of aggregate collections on
the Receivables and the aggregate Purchase Amount of Receivables to be purchased
by the Seller, the Servicer or the Representative, all with respect to the
preceding Monthly Period.
On the fourth Business Day immediately preceding each Distribution Date (or
in the case of the Class A-1 Final Scheduled Distribution Date, preceding such
date) (the "Deficiency Claim Date") the Indenture Trustee will (based solely on
the information contained in the Servicer's Certificate delivered on the related
Determination Date) deliver to the Indenture Collateral Agent, the Insurer or
its fiscal agent and the Servicer a Deficiency Notice specifying the Deficiency
Claim Amount, if any, or the Class A-1 Deficiency Claim Amount, if any, for such
Distribution Date or Class A-1 Final Scheduled Distribution Date, as applicable.
In the event that funds on deposit in the Collection Account at 12:00 noon
New York City time on the second Business Day prior to any Distribution Date,
(or the Class A-1 Final Scheduled Distribution Date, as applicable) are
insufficient to cover the amounts described in the definition of "Note Insured
Payment" on such Distribution Date, (or the Class A-1 Final Scheduled
Distribution Date, as applicable) the Indenture Trustee shall furnish to the
Insurer notice of claim in accordance with the terms of the Note Policy. Amounts
shall be paid by the Insurer pursuant to any such notice of claim in accordance
with the terms of the Note Policy.
On each Distribution Date, the Indenture Trustee will (based solely on the
information contained in the Servicer's Certificate delivered on the related
Determination Date) cause to be made the following transfers and distributions
in the amounts set forth in the Servicer's Certificate for such Distribution
Date:
(i) during the Funding Period, from the Capitalized Interest
Account (a) to the Collection Account, in immediately available funds,
the Monthly Capitalized Interest Amount for such Distribution Date and
(b) to the Seller, in immediately available funds, all investment
earnings on funds in the Capitalized Interest Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Capitalized
Interest Account after distributions of interest on Notes on such date;
and
(ii) during the Funding Period, from the Pre-Funding Account
(a) if such Distribution Date is the Mandatory Redemption Date, to the
Collection Account, in immediately available funds, the Pre-Funded
Amount (exclusive of investment earnings), after giving effect to the
purchase of Subsequent Receivables if any, on the Mandatory Redemption
Date and (b) to the Seller, in immediately available funds, all
investment earnings on funds in the Pre-Funding Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Pre-Funding
Account over and above the Pre-Funded Amount.
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the following amounts in the following order of
priority:
1. From the Distribution Amount, to the Indenture
Trustee and the Owner Trustee, any accrued and unpaid
trustees' fees and any accrued and unpaid fees of the
Indenture Collateral Agent (in each case, to the
extent such fees have not been previously paid by the
Servicer or the Representative).
2. From the Distribution Amount, to the Servicer, the
Servicing Fee for the related Monthly Period, any
Supplemental Servicing Fees for such month and
certain other amounts relating to mistaken deposits,
postings or checks returned for insufficient funds to
the extent the Servicer has not reimbursed itself in
respect of such amount to the extent not retained by
the Servicer.
3. From the Distribution Amount, to the Note
Distribution Account, the Noteholders' Interest
Distributable Amount.
4. From the Distribution Amount, to the Note
Distribution Account, the Noteholders' Principal
Distributable Amount, to be distributed as described
under "Description of the Notes -- Payments of
Principal."
5. From the Distribution Amount, to the Insurer, any
premium owed to the Insurer on such Distribution Date
any payment made by the Insurer under the Note
Policy, and any other amounts owing to the Insurer
under the Insurance Agreement and not paid, plus
interest thereon at the rate set forth in the
Insurance Agreement.
6. From the Available Funds, to the Certificate
Distribution Account for distribution to the
Certificateholders or their designees, any remaining
funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
On the Class A-1 Final Scheduled Distribution Date, the Servicer is
required to instruct the Indenture Trustee to distribute the Class A-1
Distribution Amount in the following order of priority:
A. To the Note Distribution Account, the sum of (x) the Noteholders'
Monthly Interest Distributable Amount for the Class A-1 Notes (calculated as if
the Class A-1 Final Scheduled Distribution Date were a Distribution Date) and
(y) the Noteholders' Interest Carryover Shortfall for the Class A-1 Notes
(calculated as if the Class A-1 Final Scheduled Distribution Date were a
Distribution Date).
B. To the Note Distribution Account, the Noteholders' Principal
Distributable Amount for the Class A-1 Notes.
In the event that there are any distributions made on the Class A-1 Final
Scheduled Distribution Date, the Distribution Amount for the Distribution Date
following the Class A-1 Final Scheduled Distribution Date will be reduced by the
amount thereof applied on the Class A-1 Final Scheduled Distribution Date in
accordance with the Sale and Servicing Agreement.
For the purposes hereof, the following terms shall have the following
meanings:
"AMOUNT FINANCED" means, with respect to a Receivable, the aggregate amount
advanced under such Receivable toward the purchase price of the Financed Vehicle
and related costs, including amounts advanced in respect of accessories,
insurance premiums, service, car club and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts or
promissory notes, and related costs.
"AVAILABLE FUNDS" means, with respect to any Determination Date, the sum of
(i) the Collected Funds for such Determination Date, plus (ii) all Purchase
Amounts deposited in the Collection Account during the related Monthly Period,
plus (iii) the Monthly Capitalized Interest Amount, if any, with respect to the
related Distribution Date.
"CLASS A-1 DEFICIENCY CLAIM AMOUNT" means, with respect to the
Determination Date relating to the Class A-1 Final Scheduled Distribution Date,
the excess, if any, of (i) the sum of the amounts payable on the Class A-1 Final
Scheduled Distribution Date pursuant to clauses A and B above over (ii) the
Available Funds for such Determination Date.
"CLASS A-1 DISTRIBUTION AMOUNT" means, with respect to the Class A-1 Final
Scheduled Distribution Date, the sum of (i) the Available Funds for the
immediately preceding Determination Date plus (ii) the Class A-1 Deficiency
Claim Amount, if any, received and deposited in the Collection Account (from an
Insurer Optional Deposit or otherwise other than from draws under the Note
Policy).
"COLLECTED FUNDS" means, with respect to any Determination Date, the amount
of funds in or to be deposited in the Collection Account representing
collections on the Receivables during the related Monthly Period, including all
Net Liquidation Proceeds collected during the related Monthly Period (but
excluding any Purchase Amounts).
"CRAM DOWN LOSS" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to (i) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so reduced
and/or (ii) if such court shall have issued an order reducing the effective rate
of interest on such Receivable, the net present value of the reduction (using as
the discount rate the higher of the APR on such Receivable or the rate of
interest, if any, specified by the court in such order) of the scheduled
payments as so modified or restructured. A "Cram Down Loss" shall be deemed to
have occurred on the date of issuance of such order.
"DEFICIENCY CLAIM AMOUNT" means, with respect to any Determination Date,
the excess, if any, of the sum of the amounts payable on the related
Distribution Date pursuant to clauses 1 through 5 set forth above over the
amount of Available Funds with respect to such Determination Date.
"DEFICIENCY NOTICE" means a written notice delivered by the Indenture
Trustee to the Insurer, the Servicer and any other person required under the
Sale and Servicing Agreement, specifying the Deficiency Claim Amount for such
Distribution Date or the Class A-1 Deficiency Claim Amount for the Class A-1
Final Scheduled Distribution Date.
"DISTRIBUTION AMOUNT" means, with respect to any Distribution Date the sum
of (i) the Available Funds for the immediately preceding Determination Date plus
(ii) the Deficiency Claim Amount, if any, received (from an Insurer Optional
Deposit or otherwise other than from draws under the Note Policy) by the
Indenture Trustee with respect to such Distribution Date.
"INSURER OPTIONAL DEPOSIT" means, with respect to any Distribution Date, an
amount delivered by or on behalf of the Insurer, at its sole option, other than
under the Note Policy, to the Indenture Collateral Agent for deposit into the
Collection Account for any of the following purposes: (i) to provide funds in
respect of the payment of fees or expenses of any provider of services to the
Trust with respect to such Distribution Date; or (ii) to include such amount as
part of the Distribution Amount or Class A-1 Final Scheduled Distribution Amount
for such Distribution Date or Class A-1 Final Scheduled Distribution Date to the
extent that without such amount a draw would be required to be made on a Policy.
"LIQUIDATED RECEIVABLE" means, with respect to any Determination Date, a
Receivable as to which, as of the last day of the related Monthly Period, (i) 90
days have elapsed since the Servicer repossessed the Financed Vehicle, (ii) the
Servicer has determined in good faith that all amounts it expects to recover
have been received, (iii) 10% or more of a scheduled payment shall have become
150 or more days delinquent, or (iv) the Financed Vehicle has been sold and the
proceeds received.
"NET LIQUIDATION PROCEEDS" means, with respect to Liquidated Receivables,
(i) proceeds from the disposition of the underlying automobile securing the
Liquidated Receivables, less reasonable Servicer out-of-pocket costs, including
repair, repossession and resale expenses not already deducted from such
proceeds, and any amounts required by law to be remitted to the Obligor, (ii)
any insurance proceeds, or (iii) other monies received from the Obligor or
otherwise.
"NOTE POOL FACTOR" for each Class of Notes as of the close of business on a
Distribution Date means a seven-digit decimal figure equal to the outstanding
principal amount of such Class of Notes as of such Distribution Date after
giving effect to principal distributions on such date divided by the original
outstanding principal amount of such Class of Notes.
"NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date and a Class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such Class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such Class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such Class on the preceding Distribution Date, to the extent permitted by law,
at the Interest Rate borne by such Class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for each Class of Notes for such Distribution Date and the Noteholders'
Interest Carryover Shortfall for each Class of Notes for such Distribution Date.
Notwithstanding the foregoing, the Noteholders' Interest Distributable Amount
with respect to the Class A-1 Notes on the Distribution Date following the Class
A-1 Final Scheduled Distribution Date will only include amounts in respect
thereof due but unpaid on the Class A-1 Final Scheduled Distribution Date
together with interest thereon, to the extent permitted by law, at the Interest
Rate.
"NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date and any Class of Notes, interest accrued during the
applicable Interest Period at the Interest Rate borne by such Class of Notes on
the outstanding principal amount of such Class immediately prior to such
Distribution Date, calculated on the basis of a 360-day year and (a) the actual
number of days elapsed, in the case of the Class A-1 Notes and (b) twelve 30-
day months, in the case of the Class A-2 Notes and the Class A-3 Notes.
"NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the Noteholders' Percentage of the Principal
Distributable Amount.
"NOTEHOLDERS' PERCENTAGE" means (i) for each Distribution Date prior to the
Distribution Date on which the Class A-3 Notes are paid in full, 100%, (ii) on
the Distribution Date on which the Class A-3 Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the outstanding
principal amount of the Class A- 3 Notes immediately prior to such Distribution
Date, and the denominator of which is the Principal Distributable Amount for
such Distribution Date, and (iii) for any Distribution Date thereafter, zero.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the Noteholders' Principal Distributable Amount
for the preceding Distribution Date over the amount in respect of principal that
was actually deposited in the Note Distribution Account on such preceding
Distribution Date.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date for any
Class of Notes), the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date. The Noteholders'
Principal Distributable Amount on the Final Scheduled Distribution Date for any
Class of Notes will equal the sum of (i) the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date, (ii) the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date, and
(iii) the excess of the outstanding principal amount of such Class of Notes, if
any, over the amounts described in clauses (i) and (ii). Notwithstanding the
foregoing, the Noteholders' Principal Distributable Amount with respect to the
Class A-1 Notes on the Distribution Date following the Class A-1 Final Scheduled
Distribution Date will only include the amount thereof due but unpaid on the
Class A-1 Certificates on the Class A-1 Final Scheduled Distribution Date.
"PRINCIPAL BALANCE" means, with respect to any Receivable, as of any date,
the Amount Financed minus (i) that portion of all amounts received on or prior
to such date and allocable to principal in accordance with the terms of the
Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
"PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the amount equal to the sum of the following amounts with respect to the
related Monthly Period, computed, with respect to Simple Interest Receivables,
in accordance with the simple interest method, and, with respect to Precomputed
Receivables, in accordance with the actuarial method: (i) that portion of all
collections on Receivables allocable to principal, including full and partial
principal prepayments, received during such Monthly Period with respect to such
Monthly Period, (ii) the principal balance of each Receivable that was
repurchased by the Representative, the Seller or the Servicer as of the last day
of such Monthly Period, (iii) at the option of the Insurer, the outstanding
principal balance of those Receivables that were required to be repurchased by
the Seller and/or TMS Auto Finance during such Monthly Period but were not so
repurchased, (iv) without duplication of amounts in clause (ii), the principal
balance of each Receivable that became a Liquidated Receivable during such
Monthly Period and (v) the aggregate amount of Cram Down Losses during such
Monthly Period.
"PURCHASE AMOUNT" means, with respect to a Receivable, the Principal
Balance and accrued interest on the Receivable (including one month's interest
thereon, in the month of payment, at the APR less, so long as TMS Auto Finance
is the Servicer, the Servicing Fee), after giving effect to the receipt of any
moneys collected (from whatever source) on such Receivable, if any.
STATEMENTS TO NOTEHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders and the Insurer on such
Distribution Date. Such statements will be based on the information in the
related Servicer's Certificate setting forth certain information required under
the Trust Documents. Each such statement to be delivered to Noteholders will
include the following information as to the Notes, with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to interest on or with
respect to the Notes;
(ii) the amount of the distribution allocable to principal with
respect to the Notes;
(iii) the amount of the distribution payable pursuant to a claim on
the Note Policy;
(iv) the aggregate outstanding principal amount and the Note Pool
Factor for each Class of Notes after giving effect to all payments reported
under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall and the Noteholders'
Principal Carryover Shortfall, if any, and the change in such amounts from
the preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period;
(vii) for each such date during the Funding Period, the remaining
Pre-Funded Amount, the amount in the Pre-Funding Account and the amount
remaining in the Capitalized Interest Account; and
(viii) for the final Subsequent Transfer Date, the amount of any
remaining Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of principal
of the Notes.
Each amount set forth pursuant to subclauses (i), (ii), (iii), (v), (vii)
and (viii) with respect to Notes will be expressed as a dollar amount per $1,000
of the initial principal amount of the Notes, as applicable.
Unless and until Definitive Notes are issued, such reports will be sent on
behalf of the Trust to Cede & Co., as registered holder of the Notes and the
nominee of DTC. See "Reports to Securityholders" and "Certain Information
Regarding the Securities in the Prospectus.
Within the required period of time after the end of each calendar year, the
Indenture Trustee will furnish to each person who at any time during such
calendar year was a Noteholder a statement as to the aggregate amounts of
interest and principal paid to such Noteholder, information regarding the amount
of servicing compensation received by the Servicer and such other information as
the Seller deems necessary to enable such Noteholder to prepare its tax returns.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement will
consist of (i) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for five Business Days after written notice from
the Owner Trustee or the Indenture Trustee or the Insurer is received by the
Servicer or after discovery of such failure by the Servicer, (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in the Sale and Servicing Agreement or other transaction
documents which failure materially and adversely affects the rights of
Noteholders and which continues unremedied for 60 days after the giving of
written notice of such failure (1) to the Servicer by the Owner Trustee or the
Indenture Trustee or the Insurer or (2) to the Servicer and to the Owner Trustee
and the Indenture Trustee by holders of Notes evidencing not less than 25% in
aggregate principal amount of the outstanding Notes, respectively (or such
longer period, not in excess of 120 days, as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 120
days or less and the Servicer delivers an officer's certificate to the Owner
Trustee, the Indenture Trustee and the Insurer to such effect and to the effect
that the Servicer has commenced, or will promptly commence, and diligently
pursue all reasonable efforts to remedy such default), (iii) certain events of
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings with respect to the Servicer or the Seller and certain
actions by the Servicer or the Seller indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations, and
(iv) unless an Insurer Default has occurred and is continuing, certain defaults
under the Insurance Agreement.
As long as a Servicer Default under the Sale and Servicing Agreement
remains unremedied, the Insurer or, if an Insurer Default exists, either the
Indenture Trustee or the Noteholders holding not less than a majority of the
principal amount of Notes outstanding may terminate all of the rights and
obligations of the Servicer under the Sale and Servicing Agreement. All
authority, power, obligations and responsibilities of the Servicer under the
Sale and Servicing Agreement automatically then pass to the Indenture Trustee,
as backup servicer, or a successor servicer appointed by the Insurer in
accordance with the Sale and Servicing Agreement.
"Insurer Default" shall mean the occurrence and continuance of any of the
following events:
(a) the Insurer shall have failed to make a payment required
under the Note Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United
States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its
creditors, or (iii) had an order for relief entered against it under
the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York
Department of Insurance or other competent regulatory authority shall
have entered a final and nonappealable order, judgment or decree (i)
appointing a custodian, trustee, agent or receiver for the Insurer or
for all or any material portion of its property or (ii) authorizing the
taking of possession by a custodian, trustee, agent or receiver of the
Insurer (or the taking of possession of all or any material portion of
the property of the Insurer).
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults" in
the Prospectus, the Insurer may, on behalf of all holders of Notes, waive any
default by the Servicer in the performance of its obligations under the Sale and
Servicing Agreement and its consequences. No such waiver will impair the
Noteholders' rights with respect to subsequent defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreement and the Trust Documents -- Amendment" in the Prospectus,
the Agreement may be amended by the Representative, the Seller, the Servicer and
the Owner Trustee with the consent of the Indenture Trustee, (which consent may
not be unreasonably withheld) and with the consent of the Insurer (so long as no
Insurer Default has occurred and is continuing), but without the consent of the
Noteholders, to cure any ambiguity, or to correct or supplement any provision
therein which may be inconsistent with any other provision therein; provided
that such action shall not adversely affect in any material respect the
interests of any Noteholder; provided, further, that if an Insurer Default has
occurred and is continuing, such action shall not materially adversely affect
the interests of the Insurer. The Representative, the Seller, the Servicer and
the Owner Trustee may also amend the Sale and Servicing Agreement with the
consent of the Insurer, the consent of the Indenture Trustee, the consent of
Noteholders holding a majority of the principal amount of the Notes to add,
change or eliminate any other provisions with respect to matters or questions
arising under such Agreement or affecting the rights of the Noteholders;
provided that such action will not (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Receivables or distributions that are required to be made for the benefit of the
Noteholders or (ii) reduce the aforesaid percentage of the Noteholders required
to consent to any such amendment, without, in either case, the consent of the
holders of all Notes outstanding; provided, further, that if an Insurer Default
has occurred and is continuing, such action shall not materially adversely
affect the interest of the Insurer. The Seller and Servicer must deliver to the
Owner Trustee, the Indenture Trustee and the Insurer upon the execution and
delivery of the Sale and Servicing Agreement and any amendment thereto an
opinion of counsel, satisfactory to the Insurer that all financing statements
and continuation statements have been filed that are necessary to fully protect
and preserve the Trustee's interest in the Receivables.
THE NOTE POLICY
The following information has been supplied by the Insurer for inclusion in
this Prospectus Supplement.
The Insurer, in consideration of the payment of the premium and subject to
the terms of the Note Policy, thereby unconditionally and irrevocably guarantees
to any Noteholder that an amount equal to each full and complete Note Insured
Payment will be received by the Indenture Trustee, or its successors as
Indenture Trustee for the Noteholders, on behalf of the Noteholder from the
Insurer, for distribution by the Indenture Trustee to each Noteholder of each
Noteholder's proportionate share of the Note Insured Payment. The Insurer's
obligations under the Note Policy with respect to a particular Note Insured
Payment shall be discharged to the extent funds equal to the applicable Note
Insured Payment are received by the Indenture Trustee, whether or not such funds
are properly applied by the Indenture Trustee. Note Insured Payments shall be
made only at the time set forth in the Note Policy and no accelerated Note
Insured Payments shall be made regardless of any acceleration of the Notes,
unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, the Note Policy does not cover
shortfalls, if any, attributable to the liability of the Trust or the Indenture
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability).
The Insurer will pay any Note Insured Payment that is a Note Preference
Amount on the Business Day following receipt on a Business Day by the Fiscal
Agent (as described below) of (i) a certified copy of the order requiring the
return of a preference payment, (ii) an opinion of counsel satisfactory to the
Insurer that such order is final and not subject to appeal, (iii) an assignment
in such form as is reasonably required by the Insurer, irrevocably assigning to
the Insurer all rights and claims of the Noteholder relating to or arising under
the Notes against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Noteholder in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Noteholder and not to any Noteholder
directly unless such Noteholder has returned principal or interest paid on the
Notes to such receiver or trustee in bankruptcy, in which case such payment
shall be disbursed to such Noteholder.
The Insurer will pay any other amount payable under the Note Policy no
later than 12:00 noon New York City time on the later of the Distribution Date
or the Class A-1 Final Scheduled Distribution Date, as applicable on which the
related Note Deficiency Amount is due or the second Business Day following
receipt in New York, New York on a Business Day by State Street Bank and Trust
Company, N.A., as Fiscal Agent for the Insurer or any successor fiscal agent
appointed by the Insurer (the "Fiscal Agent") of a Notice (as described below);
provided that if such Notice is received after 12:00 noon New York City time on
such Business Day, it will be deemed to be received on the following Business
Day. If any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making a claim under the Note Policy
it shall be deemed not to have been received by the Fiscal Agent for purposes of
this paragraph, and the Insurer or the Fiscal Agent, as the case may be, shall
promptly so advise the Indenture Trustee and the Indenture Trustee may submit an
amended Notice.
Note Insured Payments due under the Note Policy unless otherwise stated
therein will be disbursed by the Fiscal Agent to the Indenture Trustee on behalf
of the Noteholders by wire transfer of immediately available funds in the amount
of the Note Insured Payment less, in respect of Note Insured Payments related to
Note Preference Amounts, any amount held by the Indenture Trustee for the
payment of such Note Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent
shall in no event be liable to Noteholders for any acts of the Fiscal Agent or
any failure of the Insurer to deposit or cause to be deposited, sufficient funds
to make payments due under the Note Policy.
Subject to the terms of the Agreement, the Insurer shall be subrogated to
the rights of each Noteholder to receive payments under the Notes to the extent
of any payment by the Insurer under the Note Policy.
As used in the Note Policy, the following terms shall have the following
meanings:
"AGREEMENT" means the Sale and Servicing Agreement without regard to any
amendment or supplement thereto unless such amendment or supplement has been
approved in writing by the Insurer.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Indenture Trustee is located are
authorized or obligated by law or executive order to close.
"CLASS A-1 NOTE POLICY CLAIM AMOUNT" for the Class A-1 Final Scheduled
Distribution Date, shall equal the lesser of (i) the sum of the amounts required
to be distributed pursuant to clauses A and B under "Description of the Purchase
Agreements and Trust Documents - Distributions" on the Class A-1 Final Scheduled
Distribution Date and (ii) the excess, if any, of the amount specified in clause
(i) over the Class A-1 Distribution Amount with respect to the Class A-1 Final
Scheduled Distribution Date.
"NOTE DEFICIENCY AMOUNT" means (i) for any Distribution Date, (a) the
excess if any of the Noteholders' Interest Distributable Amount over the
Distribution Amount remaining after payment of the amounts to be distributed as
described in clauses 1 and 2 under "Description of the Purchase Agreements and
Trust Documents -- Distributions," and (b) the excess, if any, of the
Noteholders' Principal Distributable Amount over the Distribution Amount
remaining after payment of the amounts to be distributed as described in clauses
1 through 3 under "Description of the Purchase Agreements and Trust Documents -
Distributions" or (ii) for the Class A-1 Final Scheduled Distribution Date, the
Class A-1 Note Policy Claim Amount.
"NOTEHOLDER" means each registered holder of a Note who, on the applicable
Distribution Date, is entitled under the terms of the applicable Notes to
payment thereunder.
"NOTE INSURED PAYMENT" means (i) as of any Distribution Date, or for the
Class A-1 Final Scheduled Distribution Date, as applicable, any Note Deficiency
Amount and (ii) any Note Preference Amount.
"NOTE PREFERENCE AMOUNT" means any amount previously distributed to a
Noteholder on the Notes that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
"NOTICE" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the Note
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Indenture Trustee specifying the Insured Payment which
shall be due and owing on the applicable Distribution Date.
Capitalized terms used in the Note Policy and not otherwise defined in the
Note Policy shall have the respective meanings set forth in the Agreement as of
the date of execution of the Note Policy, without giving effect to any
subsequent amendment or modification to the Agreement unless such amendment or
modification has been approved in writing by the Insurer.
Any notice under the Note Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Insurer shall specify in writing to the Indenture Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify in writing to the Indenture
Trustee.
The Note Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
The insurance provided by the Note Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Note Policy is not cancelable for any reason. The premium on the Note
Policy is not refundable for any reason including payment, or provision being
made for payment, prior to maturity of the Notes.
RATINGS
It is a condition to issuance that the Class A-1 Notes be rated A-1+ by S&P
and P-1 by Moody's, and that the Class A-2 Notes and the Class A-3 Notes be
rated AAA by S&P and Aaa by Moody's. The ratings by the Rating Agencies of the
Notes will be based primarily on the issuances of the Note Policy. A rating is
not a recommendation to purchase, hold or sell Notes. In the event that the
rating initially assigned to any of the Notes is subsequently lowered or
withdrawn for any reason, including by reason of a downgrading of the
claims-paying ability of the Insurer, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Notes. Any
reduction or withdrawal of a rating may have an adverse effect on the liquidity
and market price of the Notes. See "Ratings" in the Prospectus.
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS ARE ADVISED TO CONSULT THEIR TAX ADVISORS WITH
REGARD TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR
DISPOSITION OF INTERESTS IN THE NOTES, AS WELL AS THE TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
Stroock & Stroock & Lavan LLP, special tax counsel to the Trust, is of the
opinion, that for federal income tax purpose the Notes will be characterized as
debt and the Trust will not be characterized as an association (or a publicly
traded partnership) taxable as a corporation. Opinions of counsel are not
binding on the Internal Revenue Service (the "IRS") and there can be no
assurance that the IRS could not successfully challenge this conclusion.
Moreover, no ruling will be sought from the IRS with respect to the transaction
described herein.
STATE TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential Noteholders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or 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. Title
I of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA
make investments that are prudent, diversified (except if prudent not to do so)
and in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Trust were deemed to be assets of a Benefit Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The Seller believes that the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Notes are treated as an
Equity Interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Owner Trustee or the Indenture Trustee, the owner
of collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
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 Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the Seller has agreed to cause the Trust to sell to the Underwriters
named below (the "Underwriters"), for whom Salomon Brothers Inc is acting as
representative, and the Underwriters have severally but not jointly agreed to
purchase the following respective number of Notes.
Principal Amount
Underwriter of Notes
Salomon Brothers Inc........................ $50,000,000
First Union Capital Markets Corp. .......... $40,000,000
The Underwriters have informed the Representative and the Seller that they
do not expect discretionary sales by the Underwriters to exceed 5% of the
principal amount of the Notes being offered hereby.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Notes from time to time for sale in negotiated transactions
or otherwise, at prices determined at the time of sale. The Underwriters may
effect such transactions by selling Notes to or through dealers and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters and any purchasers of Notes for whom they may
act as agents. The Underwriters and any dealers that participate with the
Underwriters in the distribution of the Notes may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of Notes by them may be deemed to be underwriting discounts or commissions,
under the Securities Act of 1933, as amended.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Notes. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such person may bid
for or purchase Notes for the purpose of stabilizing their respective market
price. An Underwriter also may create a short position for its account by
selling more Notes in connection with the offering than it is committed to
purchase, and in such case may purchase Notes in the open market following
completion of the offering to cover all or a portion of such short position. Any
of the transactions described in this paragraph may result in the maintenance of
the price of the Notes at a level above that which might otherwise prevail in
the open market. In addition, Salomon Brothers Inc on behalf of the Underwriters
may impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from dealers participating in the offering, for the
account of the Underwriters, the selling concessions with respect to the Notes
that are distributed in the offering but are subsequently purchased for the
account of the Underwriters in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they may
be discontinued at any time.
The Representative and Seller have jointly agreed to indemnify the several
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
The Indenture Trustee and the Indenture Collateral Agent may from time to
time invest the funds in the Collection Account, the Pre-Funding Account and the
Capitalized Interest Account, as the case may be, in Eligible Investments
acquired from the Underwriters.
Each of the Underwriters provide certain investment banking services for
the Representative for which it receives additional compensation.
EXPERTS
The consolidated financial statements of MBIA Insurance Corporation and its
subsidiaries as of December 31, 1996 and 1995 and for the three years in the
period ended December 31, 1996, incorporated by reference into this Prospectus
Supplement, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon, incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other matters will be passed upon for the Seller and the
Trust by Stroock & Stroock & Lavan LLP. Certain legal matters relating to the
Notes will be passed upon for the Representative by Eric R. Elwin, Corporate
Counsel of the Representative. Certain legal matters relating to the Notes will
be passed upon for the Underwriters by Stroock & Stroock & Lavan LLP. Certain
legal matters will be passed upon for the Insurer by Kutak Rock. Stroock &
Stroock & Lavan LLP has performed legal services for The Money Store Inc. and it
is expected that it will continue to perform such services in the future.
<PAGE>
Prospectus
THE MONEY STORE AUTO TRUSTS
Asset Backed Certificates
Asset Backed Notes
--------------
TMS AUTO HOLDINGS, INC.
Seller
THE MONEY STORE INC.
Representative
The Asset Backed Certificates (the "Certificates") and the Asset Backed Notes
(the "Notes" and, collectively with the Certificates, the "Securities")
described herein may be sold from time to time in one or more series, in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (a "Prospectus Supplement") . Each
series of Securities will include either one or more classes of Certificates or,
if Notes are issued as part of a series, one or more classes of Notes and one or
more classes of Certificates, as set forth in the related Prospectus Supplement.
The Certificates and the Notes, if any, of any series of Securities will be
issued by a trust (a "Trust") to be formed with respect to such series by TMS
Auto Holdings, Inc. (the "Seller"), a wholly-owned subsidiary of The Money Store
Inc. (the "Representative"). The assets of each Trust (the "Trust Property")
will include a pool of motor vehicle retail installment sale contracts
("Receivables") purchased by The Money Store Auto Finance Inc. (the "Servicer")
from motor vehicle dealers and secured by new and used automobiles, light trucks
and vans, certain monies received thereunder on or after the Cutoff Date set
forth in the related Prospectus Supplement, security interests in the vehicles
financed thereby and certain other property, all as more fully described herein
and in the related Prospectus Supplement. In addition, if so specified in the
related Prospectus Supplement, the Trust Property will include Receivables
originated directly by The Money Store Auto Finance Inc. or acquired from
third-party lenders, security interests in the vehicles financed thereby, monies
on deposit in one or more trust accounts to be established with an Owner Trustee
or an Indenture Trustee, as the case may be, which may include a Pre-Funding
Account which would be used to purchase additional Receivables (the "Subsequent
Receivables") from the Seller from time to time during the Pre-Funding Period
specified in the related Prospectus Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into among the
Seller, the Servicer in its individual capacity and as Servicer, and the trustee
(the "Owner Trustee") and any other party, if any, specified in the related
Prospectus Supplement or (ii) a Trust Agreement (the "Trust Agreement") to be
entered into between the Seller and the Owner Trustee. If the Trust is formed
pursuant to a Trust Agreement, a Sale and Servicing Agreement (the "Sale and
Servicing Agreement") will be entered into among the Seller, the Servicer, in
its individual capacity and as Servicer, the Trust and any other party, if any,
specified in the related Prospectus Supplement. In either case, the Pooling and
Servicing Agreement or the Trust Agreement and the Sale and Servicing Agreement
are collectively referred to herein as the "Trust Documents." The Notes, if any,
of a series will be issued and secured pursuant to an Indenture (the
"Indenture") between the Trust and the Indenture Trustee specified in the
related Prospectus Supplement (the "Indenture Trustee").
Each class of Securities of any series will represent the right to receive,
or be secured by, a specified amount of payments of principal and/or interest on
the related Receivables in the manner described herein and in the related
Prospectus Supplement. The right of each class of Securities to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of such series. A series may include two or more classes of Certificates or
Notes which differ as to the timing and priority of payment, interest rate or
amount of distributions in respect of principal or interest or both. A series
may include one or more classes of Certificates or Notes entitled to
distributions in respect of principal, with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no distributions in respect of principal. Distributions on
Certificates of any series will be subordinated to prior payments due on the
related Notes, if any, to the extent described herein and in the related
Prospectus Supplement. The Certificates of each series will represent fractional
undivided ownership interests in the related Trust, but may be treated as debt
secured by the assets of the Trust for federal income tax purposes. Holders of
Securities are referred to herein as "Securityholders." At the time of issuance,
each series of Securities will be rated investment grade by at least one Rating
Agency (as defined herein).
Each class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of principal
on Certificates and payment in respect of principal on Notes, if any, of any
class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, liquidations and repurchases of
Receivables) on the related Receivables. A rate of payment lower or higher than
that anticipated may affect the weighted average life of each class of
Securities in the manner described herein and in the related Prospectus
Supplement.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it will
continue. The Securities will not be listed on any securities exchange.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE 13 HEREIN
AND AS MAY BE SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS
OF THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
THE SERVICER, THE SELLER, THE REPRESENTATIVE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NONE OF THE SECURITIES OR ANY OF THE RELATED RECEIVABLES ARE ISSUED
OR GUARANTEED BY ANY GOVERNMENT OR GOVERNMENT AGENCY.
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 offered hereby unless accompanied by a
Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS DECEMBER 16, 1997
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER,
THE REPRESENTATIVE OR ANY UNDERWRITER. THIS PROSPECTUS AND THE RELATED
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OFFERED THEREBY TO ANYONE IN ANY JURISDICTION IN
WHICH THE PERSON MAKING SUCH OFFER AND SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT NOR ANY
SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Representative, as sponsor of each Trust, has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement (together
with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Securities offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement which is available
for inspection without charge at the office of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
the Registration Statement may be accessed electronically at the Commission's
site on the World Wide Web located at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of each Trust with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to the date of
this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this Prospectus
and the related Prospectus Supplement and to be a part hereof and thereof from
the respective dates of filing of such documents. Any statement contained herein
or in a document all or any portion of which is deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the related Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
the related Prospectus Supplement.
The Servicer will provide without charge to each person to whom this
Prospectus is delivered, on the written or verbal request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits). Requests for such copies should be directed to the President, The
Money Store Auto Finance Inc., 1625 West North Market Blvd., Suite 210,
Sacramento, California 95834 (telephone (916) 928-4400).
<PAGE>
PROSPECTUS SUMMARY
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 THE SECURITIES CONTAINED IN THE RELATED PROSPECTUS
SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH THE OFFERING OF EACH
SERIES OF SECURITIES. CERTAIN CAPITALIZED TERMS USED IN THIS PROSPECTUS SUMMARY
ARE DEFINED ELSEWHERE HEREIN. A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS
ARE DEFINED IS FOUND IN THE "INDEX OF TERMS."
ISSUER............................ With respect to each series of Securities, a
trust (the "Trust"), to be formed by the
Seller pursuant to a Pooling and Servicing
Agreement among the Seller, the Servicer and
the Owner Trustee and any other party, if
any, specified in the related Prospectus
Supplement, or a Trust Agreement between the
Seller and the Owner Trustee specified in the
related Prospectus Supplement. The term
"Owner Trustee" is used herein solely for
purposes of reference and nothing herein
shall characterize each Trust as an "owner
trust" except as specified in the related
Prospectus Supplement.
SELLER............................ TMS Auto Holdings, Inc., a Delaware
corporation. The Seller is a wholly-owned
subsidiary of The Money Store Auto Finance
Inc.
SERVICER.......................... The Money Store Auto Finance Inc., a Delaware
corporation. The Servicer is a wholly-owned
subsidiary of The Money Store Inc., a New
Jersey corporation ("The Money Store" or the
"Representative"). The Money Store is a
financial services company headquartered in
Sacramento, California and Union, New Jersey.
OWNER TRUSTEE..................... The Owner Trustee will be specified in the
related Prospectus Supplement with respect to
any series of Securities.
INDENTURE TRUSTEE..................The Indenture Trustee for any series of Notes
will be specified in the related Prospectus
Supplement.
SECURITIES OFFERED................ The Securities offered from time to time may
include one or more series of Certificates
and/or one or more series of Notes, as
described herein and in the related
Prospectus Supplement.
THE CERTIFICATES.................. The Certificates may consist of one or more
classes, each of which will be issued
pursuant to a Pooling and Servicing Agreement
or Trust Agreement. Only a certain class or
certain classes of such Certificates,
however, may be offered hereby and by the
related Prospectus Supplement, as specified
in the related Prospectus Supplement. Each
Certificate will represent a fractional
undivided ownership interest in the related
Trust. Each offered Certificate may also
represent a fractional undivided interest in
monies on deposit, if any, in a trust account
(as defined below, the "Pre-Funding Account")
to be established with the Owner Trustee or
Indenture Trustee, as specified in the
related Prospectus Supplement, and any other
account established for the benefit of
Certificateholders, as specified in the
related Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the offered
Certificates shall be issued in fully
registered form in denominations of $1,000
and integral multiples of $1,000 in excess
thereof and will be available in book-entry
form only. Unless the related Prospectus
Supplement specifies that the Certificates
are offered in definitive form, holders of
Certificates ("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
- Book-Entry Registration."
Each class of offered Certificates (other
than certain Strip Certificates (as defined
below) will have a stated Certificate Balance
(as defined for each class in the related
Prospectus Supplement) and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each class of
Certificates, the "Pass-Through Rate"). Each
class of offered Certificates may have a
different Pass-Through Rate, which may be
fixed, variable or adjustable, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Pass-Through Rate for each class of offered
Certificates, or the initial Pass-Through
Rate and the method for determining
subsequent Pass-Through Rates.
A series of Securities may include two or
more classes of Certificates which may differ
as to timing of distributions, sequential
order, priority of payment, seniority,
allocation of loss, Pass-Through Rate or
amount of distributions in respect of
principal or interest, or as to which
distributions of principal or interest on any
class may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated portions
of the Receivables related to such series. In
addition, a series may include one or more
classes of Certificates entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest
distributions, or (ii) interest distributions
with disproportionate, nominal or no
distributions in respect of principal (such
Certificates, "Strip Certificates").
With respect to any series of Securities
including one or more classes of Notes,
distributions in respect of the Certificates
may be subordinated in priority of payment to
payments on the Notes of such series, to the
extent specified in the related Prospectus
Supplement.
If the 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 herein or in
the related Prospectus Supplement),
Certificateholders will receive as a
prepayment an amount in respect of the
Certificates as specified in the related
Prospectus Supplement.
THE NOTES......................... Any series of Securities may include one or
more classes of Notes, as specified in the
related Prospectus Supplement, each of which
will be issued pursuant to an Indenture.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples of $1,000 in
book-entry form only. Unless otherwise
specified in the related Prospectus
Supplement, holders of Notes ("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
- Book-Entry Registration."
Each class of Notes will have a stated
principal amount and will bear interest at a
rate or rates (with respect to each class of
Notes, the "Interest Rate"), as specified in
the related Prospectus Supplement, which may
be different for each class of Notes and may
be fixed, variable, adjustable or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Interest Rate for each class of Notes or the
method for determining the Interest Rate.
Each Note may also represent a fractional
undivided interest in monies on deposit, if
any, in the Pre-Funding Account to be
established with the Indenture Trustee as
specified in the related Prospectus
Supplement and any other account established
for the benefit of Noteholders, as specified
in the related Prospectus Supplement.
A series may include two or more classes of
Notes which differ as to the timing and
priority of payment, seniority, allocations
of loss, Interest Rate or amount of payments
of principal or interest, or as to which
payments of principal or interest may or may
not be made upon the occurrence of specified
events or on the basis collections from
designated portions of the Receivables for
such series. In addition, a series may
include one or more classes of Notes entitled
to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments (such Notes, "Strip Notes").
If the 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 herein or in
the related Prospectus Supplement)
Noteholders will receive as a prepayment an
amount in respect of the Notes as specified
in the related Prospectus Supplement.
TRUST PROPERTY.................... The Trust property will include certain
non-prime motor vehicle retail installment
sale contracts initially transferred to the
Trust (the "Initial Receivables"), as
specified in the related Prospectus
Supplement, secured by new or used
automobiles, light trucks and vans (the
"Initial Financed Vehicles"), certain monies
received thereunder on or after a date as
specified in the related Prospectus
Supplement (the "Initial Cutoff Date"),
security interests in the Initial Financed
Vehicles securing the Initial Receivables,
certain bank accounts and the proceeds
thereof, all proceeds of the foregoing, any
proceeds from claims on certain insurance
policies, and certain rights under the
related Trust Documents. If specified in the
related Prospectus Supplement, non-prime
motor vehicle retail installment sale
contracts to be sold to the Trust after the
date of issuance of the Securities and on or
before a date specified in the related
Prospectus Supplement (the "Subsequent
Receivables"), secured by additional new or
used automobiles, light trucks and vans (the
"Subsequent Financed Vehicles"), certain
monies received thereunder on or after a date
or dates as specified in the related
Prospectus Supplement (the "Subsequent
Cut-Off Date"), security interests in the
Subsequent Financed Vehicles securing the
Subsequent Receivables, certain bank accounts
and the proceeds thereof may be purchased by
the Trust from the Seller from funds on
deposit in the related Pre-Funding Account.
The Initial Receivables and any Subsequent
Receivables related to each series of
Securities are hereinafter, collectively,
referred to as the "Receivables" and the
Initial Financed Vehicles and the Subsequent
Financed Vehicles related to each series of
securities are hereinafter, collectively,
referred to as the "Financed Vehicles."
RECEIVABLES....................... The Receivables will be purchased by the
Seller from The Money Store Auto Finance Inc.
(in its individual capacity, "TMS Auto
Finance") pursuant to a Purchase Agreement
(the "Purchase Agreement") between the Seller
and TMS Auto Finance providing for such
purchase. The Receivables comprising the
property of the Trust consist of non-prime
motor vehicle retail installment sale
contracts, with such characteristics,
including their weighted average annual
percentage rate and their weighted average
remaining maturity, as shall be specified in
the related Prospectus Supplement. The
Receivables arise or will arise from loans
originated by motor vehicle dealers
("Dealers") and purchased by TMS Auto Finance
pursuant to agreements with the Dealers or
other third parties for subsequent sale to
the Seller. If so specified in the related
Prospectus Supplement, the Receivables will
also include automobile loans originated
directly by TMS Auto Finance or acquired in
bulk and other purchases from third-party
lenders. The Receivables for any Trust will
be selected from the contracts owned by the
Seller based on the criteria specified in the
related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as
applicable, and as described herein and in
the related Prospectus Supplement.
PRE-FUNDING ACCOUNT............... If and to the extent so specified in the
related Prospectus Supplement, all or a
portion of the net proceeds from the offering
of the Securities of a series (such amount,
the "Pre-Funded Amount") may be deposited in
a segregated account (the "Pre-Funding
Account") with the Owner Trustee or Indenture
Trustee, as the case may be, for the benefit
of the Securityholders. During the period
specified in the related Prospectus
Supplement (the "Funding Period") the
Pre-Funded Amount will be reduced as it is
used to purchase Subsequent Receivables
subject to the satisfaction of certain
conditions specified under "Description of
the Purchase Agreements and Trust
Documents--Eligibility Criteria" herein and
otherwise in accordance with the Trust
Documents. For a Trust that elects to be
characterized as a grantor trust under
federal income tax laws, the maximum length
of the Funding Period will not exceed 90 days
from the date of issuance of the Securities
and otherwise the maximum length of the
Funding Period will not exceed the period set
forth in the related Prospectus Supplement.
In any event, the amount of the initial Pre-
Funded Amount and the maximum length of the
Funding Period is intended not to exceed the
aggregate principal balance of Subsequent
Receivables satisfying the eligibility
criteria that TMS Auto Finance anticipates it
will be able to acquire and convey to the
Trust during the Funding Period.
Prior to the conveyance of any Subsequent
Receivables to the Trust, TMS Auto Finance
will be required to give notice of the
Subsequent Receivables to be conveyed to the
Seller and from the Seller to the Trust to
the Trustee(s), the Rating Agencies and any
third-party credit enhancement provider. Upon
the satisfaction of the conditions set forth
in the Trust Documents, including the receipt
by the Owner Trustee and/or Indenture
Trustee, as applicable, of an executed
assignment, an Officer's Certificate and a
legal opinion, the Owner Trustee and/or
Indenture Trustee, as applicable, will
release from the Pre-Funding Account the
necessary funds to purchase the Subsequent
Receivables to be conveyed to the Trust on
such date. In no event will funds be released
from the Pre-Funding Account to purchase
Subsequent Receivables unless the Rating
Agencies rating the Securities of such series
confirm that the ratings on the Securities of
such series have not been withdrawn or
reduced as a result of the conveyance of the
Subsequent Receivables to the Owner Trustee.
If any Pre-Funded Amount remains on deposit
in the Pre-Funding Account at the end of the
Funding Period, such amount, in the amounts
and in the manner specified in the related
Prospectus Supplement, will be used to prepay
some or all classes of the Notes and/or
Certificates. In the event of such
prepayment, the Securityholders may be
entitled to receive a prepayment premium in
the amount and to the extent provided in the
related Prospectus Supplement.
REVOLVING PERIOD AND
AMORTIZATION PERIOD;
RETAINED INTEREST................. If the related Prospectus Supplement so
provides, there may be a period commencing on
the date of issuance of a class or classes of
Notes or Certificates of a series and ending
on the date set forth in the related
Prospectus Supplement (the "Revolving
Period") during which no principal payments
will be made to one or more classes of Notes
or Certificates of the related series as are
identified in such Prospectus Supplement. All
collections of principal otherwise allocated
to such classes of Notes or Certificates may
be (i) utilized by the Trust during the
Revolving Period to acquire additional
Receivables which satisfy the standards
described under "The Receivables - General"
herein and the criteria set forth in the
related Prospectus Supplement, (ii) held in
an account and invested in Eligible
Investments for later distribution to
Securityholders, (iii) applied to those Notes
or Certificates, if any, specified in the
related Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as
specified in the related Prospectus
Supplement.
An "Amortization Period" is the period during
which an amount of principal is payable to
holders of a series of Securities which,
during the Revolving Period, were not
entitled to such payments. If so specified in
the related Prospectus Supplement, during an
Amortization Period all or a portion of
principal collections on the Receivables may
be applied as specified above for a Revolving
Period and, to the extent not so applied,
will be distributed to the classes of Notes
or Certificates specified in the related
Prospectus Supplement as then being entitled
to payments of principal. In addition, if so
specified in the related Prospectus
Supplement, amounts deposited in certain
accounts for the benefit of one or more
classes of Notes or Certificates may be
released from time to time or on a specified
date and applied as a payment of principal on
such classes of Notes or Certificates. The
related Prospectus Supplement will set forth
the circumstances which will result in the
commencement of an Amortization Period.
Each Trust which has a Revolving Period may
also issue to the Seller a certificate
evidencing an undivided beneficial interest
(the "Retained Interest") in the Trust not
represented by the other Securities issued by
such Trust. As further described in the
related Prospectus Supplement, the value of
such Retained Interest will fluctuate as the
amount of Trust Property fluctuates and the
amount of Notes and Certificates of the
related series of Securities outstanding is
reduced.
YIELD AND PREPAYMENT
CONSIDERATIONS.................... The weighted average life of the Securities
of the related series will be reduced by full
or partial prepayments on the related
Receivables. The Receivables will generally
be prepayable at any time without penalty.
Prepayments (or, for this purpose, equivalent
payments to the related Trust) may result
from payments by the retail purchasers
obligated under the Receivables (each, an
"Obligor"), liquidations due to default, the
receipt of proceeds from physical damage or
credit insurance, repurchases by (if no other
party is described in the related Prospectus
Supplement as obligated to make such
repurchases) TMS Auto Finance and the Seller
as a result of certain uncured breaches of
representations and warranties made with
respect to the Receivables, purchases by (if
no other party is described in the related
Prospectus Supplement as obligated to make
such purchases) the Servicer as a result of
certain uncured breaches of the covenants
made by it with respect to the Receivables,
if so specified in the related Prospectus
Supplement, amounts on deposit, if any, in
the Pre-Funding Account at the end of the
Funding Period being applied to the payment
of principal of the Securities, the Servicer
exercising its option to purchase all of the
remaining Receivables of a Trust or, if and
to the extent provided in the related
Prospectus Supplement, the receipt of
satisfactory bids for the purchase of the
Receivables of the related Trust in the
manner and on the respective terms and
conditions specified in the related
Prospectus Supplement. In addition, if a
Trust is not a grantor trust and an
Insolvency Event with respect to the entity
which serves as such Trust's general partner
(such entity, the "Affiliated Purchaser")
occurs, subject to certain limitations the
Receivables will be sold and a prepayment in
respect of the related Securities will
result.
COLLECTION ACCOUNT................ With respect to each series of Securities,
the Owner Trustee or the Indenture Trustee
will establish and maintain one or more
separate accounts (each, a "Collection
Account") for the benefit of the
Certificateholders and the Noteholders, if
any, in the manner specified in each related
Prospectus Supplement. On each Distribution
Date (as specified in the related Prospectus
Supplement, the "Distribution Date"), the
Owner Trustee or the Indenture Trustee, as
the case may be, will be required to pass
through and distribute to the
Certificateholders, or pay to the
Noteholders, as the case may be, on the date
specified in the related Prospectus
Supplement from amounts held in the
Collection Account, the amounts of interest,
principal or otherwise distributable with
respect to the applicable classes of
Certificates and Notes as specified in the
related Prospectus Supplement.
SUBORDINATION AND
CREDIT ENHANCEMENT................ In the event of defaults and delinquencies on
the Receivables, certain distributions of
interest and/or principal with respect to one
or more classes of Securities may be
subordinated in priority of payment to
distributions due on other classes of
Securities as specified in the related
Prospectus Supplement. In addition, to the
extent specified in the related Prospectus
Supplement, one or more classes of Securities
may be entitled to the benefits of a spread
account, a reserve account, accelerated
payments of principal relative to the
amortization of the related Receivables, a
policy or policies of insurance, a letter or
letters of credit, surety bonds, credit or
liquidity facilities, guaranteed investment
contracts, swaps or other interest rate
protection agreements, repurchase
obligations, yield supplement agreements,
other agreements with respect to third party
payments or other support, cash deposits or
other arrangements, which may be subject to
certain limitations and exclusions as
described in the related Prospectus
Supplement.
CERTAIN LEGAL ASPECTS OF
THE RECEIVABLES................... In connection with the sale of the
Receivables to a Trust, the security
interests in the Financed Vehicles securing
the Receivables have been, or in the case of
the Subsequent Receivables, will be, assigned
by the Seller to such Trust. Due to
administrative burden and expense, the
certificates of title to the Financed
Vehicles will not be amended to reflect the
assignment of such security interests to the
Trust. In the absence of such an amendment,
the Trust may not have a perfected security
interest in the Financed Vehicles securing
the Receivables in some states. See "Special
Considerations--Certain Legal Aspects".
REPURCHASES AND
PURCHASES OF CERTAIN
RECEIVABLES....................... The Seller will be obligated to repurchase
any Receivable sold to the Trust as to which
a security interest in the Financed Vehicle
securing such Receivable shall not have been
perfected in favor of TMS Auto Finance if the
Owner Trustee or the Indenture Trustee, as
the case may be, determines such breach shall
materially adversely affect the interest of
the Trust in such Receivable and if such
failure or breach shall not have been cured
by the second (or, if the Seller elects, the
first) month following the discovery by or
notice of such breach. The Seller also will
be obligated to repurchase any Receivable if
the Indenture Trustee or the Owner Trustee,
as the case may be, determines the interest
of the Trust therein is materially adversely
affected by a breach of any other
representation or warranty made by the Seller
with respect to the Receivable, and if the
breach has not been cured by the last day of
the second (or, if the Seller elects, the
first) month following the discovery by or
notice to the Seller of the breach.
The Servicer will be obligated to purchase
any Receivable if a perfected security
interest in the related Financed Vehicle in
favor of the Servicer is not maintained. If
the Seller or the Servicer fails to
repurchase or purchase, as the case may be, a
Receivable for any of the foregoing reasons,
the Representative will be obligated to
purchase such Receivable on the date such
Receivable was to be so purchased or
repurchased. See "Certain Legal Aspects of
the Receivables."
SERVICING......................... The Servicer will be required to remit
collections (net of the Servicing Fee, the
Supplemental Servicing Fee and reimbursement
for Advances, if any (each as defined herein)
included in such collections) to one or more
Collection Accounts established with the
Owner Trustee or the Indenture Trustee as
specified in the related Prospectus
Supplement. As specified in the related
Prospectus Supplement, the Servicer will
receive from the Trust or retain each month a
fee for servicing the Receivables in an
amount specified in the related Prospectus
Supplement out of the collections on the
Receivables. See "The Certificates -
Servicing Compensation."
ADVANCES.......................... If and to the extent specified in the related
Prospectus Supplement, the Servicer may be
required to advance (each, an "Advance")
monthly payments of interest in respect of a
delinquent Receivable that the Servicer, in
its sole discretion, expects to recoup from
subsequent payments on or with respect to
such Receivable or from other Receivables.
The Servicer shall 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.
OPTIONAL PURCHASE................. With respect to each series of Securities,
the Servicer may purchase all of the
Receivables held by the related Trust as of
the last day of any month in which the Pool
Balance of such Trust at the close of
business on the Distribution Date in that
month is 10% or less (or such other
percentage specified in the related
Prospectus Supplement) of the Original Pool
Balance (calculated after giving effect to
the principal balance of any Subsequent
Receivables as of their respective Subsequent
Cutoff Dates). See "The Certificates -
Termination."
TAX STATUS........................ If the Prospectus Supplement specifies that
the related Trust will be treated as a
partnership upon the issuance of the related
series of Securities, Stroock & Stroock &
Lavan LLP, federal tax counsel ("Federal Tax
Counsel") to the Seller, 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. In
respect of any such series, each Noteholder,
if any, by the acceptance of a Note of such
series, will agree to treat such Note as
indebtedness, and each 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 tax purposes.
Alternative characterizations of such Trust
and such Certificates are possible, but would
not result in materially adverse tax
consequences to Certificateholders.
If the Prospectus Supplement specifies that
the related Trust will be treated as a
grantor trust, upon the issuance of the
related series of Certificates, 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 the Prospectus Supplement specifies that a
Trust issuing Certificates will not be
treated as a partnership, but rather will be
regarded as a security device for the
issuance of debt, Federal Tax Counsel to such
Trust will deliver an opinion to the effect
that the Certificates of the related series
will be treated as indebtedness for federal
income tax purposes and that the Trust will
not be characterized as an association (or
publicly traded partnership) taxable as a
corporation. In respect of any such series,
the Seller agrees and each Certificateholder,
by acquiring an interest in a Certificate,
agrees or will be deemed to agree to treat
the Certificates as indebtedness for federal,
state and local income or franchise tax
purposes. Alternative characterizations of
such Trust and such Certificates are possible
and potential investors should consult their
tax advisors before purchasing such
Certificates.
See "Federal Income Tax Consequences" for
additional information concerning the
application of federal tax laws.
ERISA
CONSIDERATIONS.................... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
related Prospectus Supplement, and to the
extent specified in the related Prospectus
Supplement, any Notes included in the offered
Securities will be eligible for purchase by
employee benefit plans or other retirement
arrangements that are subject to either Title
I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section
4975 of the Internal Revenue Code of 1986, as
amended (such plans or arrangements,
"Plans"). Certain Certificates may be
eligible for purchase by Plans as specified
in the related Prospectus Supplement. See
"ERISA Considerations" herein and in the
related Prospectus Supplement.
RATINGS........................... As a condition of issuance, the offered
Securities of each series will be rated an
investment grade, that is, in one of the four
highest rating categories, by at least one
nationally recognized rating agency (a
"Rating Agency"), as specified in the related
Prospectus Supplement. The ratings will be
based on the Receivables related to each
series, the terms of the Securities, and the
subordination and any credit enhancement
provided therefor. There is no assurance that
the ratings initially assigned to such
Securities will not be subsequently lowered
or withdrawn by the Rating Agencies. In the
event the rating initially assigned to any
Securities is subsequently lowered for any
reason, no person or entity will be obligated
to provide any credit enhancement unless
otherwise specified in the related Prospectus
Supplement. The ratings of any Securities
with respect to which a prepayment premium
may be payable do not evaluate such
prepayment premium payable to such
Securityholders or the likelihood that such
prepayment premium will be paid.
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Securities of any series. There can be
no assurance that a secondary market for the Securities will develop or, if such
a market does develop, that it will provide Securityholders with liquidity of
investment or that it will continue for the life of the Securities. See "Plan of
Distribution."
NATURE OF RECEIVABLES; UNDERWRITING PROCESS; SUBJECTIVE CREDIT STANDARDS
AND SUFFICIENCY OF INTEREST RATES TO COVER LOSSES
The underwriting standards applied by TMS Auto Finance may not be as
stringent as those of other financial institutions or the finance companies of
motor vehicle manufacturers, since TMS Auto Finance actively solicits dealers to
purchase and purchases, and intends to originate directly, primarily non-prime
motor vehicle retail installment sale contracts which may not meet the credit
standards of prime lenders. Although TMS Auto Finance believes that it carefully
reviews and evaluates each credit before acceptance, no assurance can be given
that the standards employed by TMS Auto Finance will be sufficient to protect
the Securityholders from loss due to default by the Obligors.
Because of the greater credit risk associated with non-prime motor vehicle
retail installment contracts, the interest rates charged on such contracts are
generally higher than those rates charged on prime motor vehicle retail
installment sale contracts. The range of APRs of the Receivables will be set
forth in the related Prospectus Supplement. There can be no assurance, however,
that the interest rates on the Receivables in a particular pool will be
sufficient to cover losses on other Receivables in such pool. See "TMS Auto
Finance -- General."
RISK OF LOSS
No Trust will 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 and/or any credit enhancement specified in the
related Prospectus Supplement. 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 series will be insured or guaranteed by the Seller, the
Servicer, the Representative, the applicable Owner Trustee, the applicable
Indenture Trustee or, except as specified in the related Prospectus Supplement,
any other person or entity. Consequently, Securityholders must rely for payment
upon payments on the related Receivables and, if and to the extent available,
amounts on deposit in the Pre-Funding Account, if any, and any credit
enhancement, if any, specified in the related Prospectus Supplement. To the
extent specified in the related Prospectus Supplement, distributions with
respect to some or all classes of Certificates may be subordinated in priority
of payment to distributions on the Notes, if any, of such series and
distributions on other classes of Certificates of such series. Any such
subordination or credit enhancement will not cover all contingencies, and losses
in excess of such coverage will be required to be borne directly by the affected
Securityholders. In addition, holders of certain classes of Securities of a
series may have the right to take actions that are detrimental to the interests
of the Securityholders of certain other classes of Securities of such series, as
specified in the related Prospectus Supplement. See "Description of the Purchase
Agreements and Trust Documents -- Credit Enhancement" and "-- Amendment."
RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED VEHICLES
As part of the sale and assignment of Receivables to a Trust, security
interests in the related Financed Vehicles will be assigned by the Seller to
such Trust. In most states, such an assignment is an effective conveyance of a
security interest without amendment of any such security interest noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. Such notation of a secured party's security
interest is generally effected in such states by depositing with the applicable
state motor vehicle registrar or similar state authority, the vehicle's
certificate of title, an application containing the name and address of such
secured party, and the necessary registration fees.
Because of the administrative burden and expense that would be entailed in
doing so, the certificates of title for the Financed Vehicles related to any
Trust will not be endorsed to identify the Trustee as the secured party, and
will not be deposited with the motor vehicle registrar or other state
authorities in any state. In the absence of such action, the Owner Trustee or
the Indenture Trustee, as the case may be, may not have a perfected security
interest in the Financed Vehicles related to such Trust in certain states and,
in the event that another person obtains a perfected security interest in such a
Financed Vehicle subsequent to the transfer of the Receivables to the related
Trust, such person might acquire rights in such Financed Vehicle prior to the
rights of the Trust. The Seller and/or another party, if any, designated in the
related Prospectus Supplement will covenant to repurchase any Receivable if, on
the date of transfer of a Receivable to a Trust, a valid, subsisting and
enforceable first priority security interest shall not have been perfected in
favor of TMS Auto Finance, which shall have been assigned to the Trust, in the
related Financed Vehicle. The Servicer and/or another party, if any, designated
in the related Prospectus Supplement will covenant to repurchase any Receivable
if, after the transfer of such Receivable to a Trust, a valid, subsisting and
enforceable first priority interest in the name of the Servicer is not
maintained on behalf of the Trust in the related Financed Vehicle. If such 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, such Trust will have
a prior claim over subsequent purchasers of such Financed Vehicles and holders
of subsequently perfected security interests. However, as against liens for
repairs of Financed Vehicles or for taxes unpaid by an Obligor under a
Receivable, or through fraud or negligence, such Trust could lose the priority
of its security interest or its security interest in a Financed Vehicle. Neither
the Seller nor TMS Auto Finance will have any obligation to repurchase a
Receivable as to which any of the aforementioned occurrences result in such
Trust's losing the priority of its security interest or its security interest in
such Financed Vehicle after the date such security interest was conveyed to such
Trust. Federal and state consumer protection laws impose requirements upon
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 such Trust) liable to the related borrower for any violation by the
lender. The Seller will be obligated to repurchase any Receivable which fails to
comply with such requirements. See "Certain Legal Aspects of the Receivables --
Security Interests in Vehicles."
INSOLVENCY RISKS
TMS Auto Finance will intend that any transfer of Receivables to the Seller
will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of TMS Auto Finance. However, if TMS Auto Finance were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or TMS Auto Finance as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of TMS Auto Finance. This position, if presented to or accepted by a
court, could result in a delay in or reduction of distributions to
Securityholders. In addition, a delay in or reduction of distributions to
Securityholders could result if the Seller were to become a debtor under any
Insolvency Law and a creditor or trustee-in-bankruptcy of such debtor or such
debtor itself were to take the position that the sale of Receivables to such
Trust should instead be treated as a pledge of such Receivables to secure a
borrowing of such debtor. In addition, if the transfer of any Receivables is
recharacterized as a pledge, a tax lien, other governmental lien, or other lien
created by operation of law on the property of the Servicer, the holder of such
lien may have priority over the Trust's interest in such Receivables.
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, OCTAGON GAS SYSTEM, INC. V. RIMMER, such Circuit
Court found that "accounts", a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If TMS Auto Finance or the Seller were to become a
debtor in a bankruptcy proceeding and a court applied the reasoning of the
Circuit Court reflected in the case described above, delays in payments to
Securityholders could occur or reductions in the amounts of such payments could
result.
With respect to each Trust that is not a grantor trust, if an Insolvency
Event with respect to the Affiliated Purchaser occurs, the related Receivables
will be sold, disposed of or otherwise liquidated, except under certain limited
circumstances. If the proceeds from the liquidation of the Receivables and any
amounts on deposit in the Collection Account or other accounts available for
Securityholders with respect to any such Trust and any amounts available from
any credit enhancement are not sufficient to pay any Notes and the Certificates
of the related series in full, the amount of principal returned to any
Noteholders or Certificateholders will be reduced and such Noteholders and
Certificateholders will incur a loss. See "Certain Legal Aspects -- Insolvency
Matters" herein.
SOCIAL, ECONOMIC AND OTHER FACTORS AFFECTING THE RECEIVABLES
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of a Trust with respect to
the related Receivables. The related Prospectus Supplement will set forth any
restrictions imposed by any Trust on concentrations of Receivables thereunder.
The ability of the Trust to invest in Receivables is largely dependent upon
whether the Obligors thereunder perform the payment and other obligations
required by such Receivables in order that such Receivables meet the
requirements for transfer to a Trust. The performance by such Obligors may be
affected by a variety of social and economic factors. Economic factors include,
but are not limited to, interest rates, unemployment levels, the rate of
inflation and consumer perception of economic conditions, generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the performance by any Obligors,
or the availability of Subsequent Receivables in cases where Subsequent
Receivables are to be transferred to a Trust as specified in the related
Prospectus Supplement. See "TMS Auto Finance."
PREPAYMENTS ON RECEIVABLES AFFECT ON YIELD OF SECURITIES
The weighted average life of the Securities of the related series will be
reduced by full or partial prepayments on the related Receivables. The
Receivables will generally be prepayable at any time without penalty.
Prepayments (or, for this purpose, equivalent payments to the related Trust) may
result from payments by Obligors, liquidations due to default, the receipt of
proceeds from physical damage or credit insurance, repurchases by (if no other
party is described in the related Prospectus Supplement as obligated to make
such repurchases) TMS Auto Finance and the Seller as a result of certain uncured
breaches of representations and warranties made with respect to the Receivables,
purchases by (if no other party is described in the related Prospectus
Supplement as obligated to make such repurchases) the Servicer as a result of
certain uncured breaches of the covenants made by it with respect to the
Receivables, if so specified in the related Prospectus Supplement, amounts on
deposit in the Pre-Funding Account at the end of the Funding Period being
applied to the payment of principal of the Securities, the Servicer exercising
its option to purchase all of the remaining Receivables of a Trust or, if and to
the extent provided in the related Prospectus Supplement, the receipt of
satisfactory bids for the purchase of the Receivables of the related Trust in
the manner and on the respective terms and conditions specified in the related
Prospectus Supplement. In addition, if a Trust is not a grantor trust and an
Insolvency Event occurs with respect to the Affiliated Purchaser, subject to
certain limitations the Receivables will be sold and a prepayment in respect of
the related Securities will result.
TMS Auto Finance commenced operations in January 1995. Consequently, it has
limited historical experience with respect to prepayments, and has not as of the
date of this Prospectus prepared data on prepayment rates. TMS Auto Finance can
make no prediction as to the actual prepayment rates that will be experienced on
the Receivables. TMS Auto Finance, however, believes that the actual rate of
prepayments will result in a substantially shorter weighted average life than
the scheduled weighted average life of the Receivables. Generally, the amounts
paid to Securityholders will include all prepayments (which are not amounts
representing Payaheads) on the Receivables. The Securityholders will bear all
reinvestment risk resulting from the timing of payments on the Securities. See
"Yield and Prepayment Considerations."
RISK OF SERVICER COMMINGLING FUNDS
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, the Servicer will deposit all payments (net of certain
fees) on the related Receivables (from whatever source) and all proceeds of such
Receivables collected during each Monthly Period into the Collection Account of
such Trust within two business days of receipt thereof. However, in the event
that TMS Auto Finance satisfies certain requirements for monthly or less
frequent remittances and the Rating Agencies (as such term is defined in the
related Prospectus Supplement, the "Rating Agencies") affirm their ratings of
the related Securities at the initial level, then for so long as TMS Auto
Finance is the Servicer and provided that (i) there exists no Servicer Default,
(ii) the credit enhancement provider, if any, consents, and (iii) each other
condition to making such monthly or less frequent deposits as may be specified
by the Rating Agencies and described in the related Prospectus Supplement is
satisfied, the Servicer will not be required to deposit such amounts into the
Collection Account of such Trust until on or before the business day preceding
each Distribution Date. If such requirements are satisfied, TMS Auto Finance
will deposit the aggregate Purchase Amount of Receivables purchased by it into
the applicable Collection Account on or before the business day preceding each
Distribution Date. Pending deposit into such Collection Account, collections may
be invested by the Servicer at its own risk and for its own benefit and will not
be segregated from funds of the Servicer. If TMS Auto Finance were unable to
remit such funds, the applicable Securityholders might incur a loss. To the
extent set forth in the related Prospectus Supplement, TMS Auto Finance may, in
order to satisfy the requirements described above, obtain a letter of credit or
other security for the benefit of the related Trust to secure timely remittances
of collections on the related Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by TMS Auto Finance. See
"Description of the Purchase Agreements and Trust Documents -- Collections."
RISKS OF SECURITYHOLDERS UPON SERVICER DEFAULT
Unless otherwise provided in the related Prospectus Supplement with respect
to a series of Securities that includes Notes, in the event a Servicer Default
occurs, the Indenture Trustee or the Noteholders with respect to such series may
remove the Servicer without the consent of the Owner Trustee or any of the
Certificateholders with respect to such series. The Owner Trustee or the
Certificateholders with respect to such series will not have the ability to
remove the Servicer if a Servicer Default occurs. In addition, the Noteholders
of such series have the ability, with certain specified exceptions, to waive
defaults by the Servicer, including defaults that could materially adversely
affect the Certificateholders of such series. See "The Notes -- The Indenture."
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, each class
of Securities of a given series will be initially represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other nominee
for 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. Unless otherwise specified in the
related Prospectus Supplement, persons acquiring beneficial ownership interests
in any Series of Securities may hold their interests through DTC in the United
States or, in the case of any series of Notes, Cedel Bank, sociJtJ anonyme
("Cedel") or the Euroclear System ("Euroclear") in Europe. Because of this,
unless and until Definitive Securities for such series are issued, holders of
such Securities will not be recognized by the Trustee or any applicable
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 related Indenture and Trust Agreement, as applicable).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC
and its participating organizations. See "Certain Information Regarding the
Securities - Book-Entry Registration."
THE TRUSTS
The Seller will establish a Trust with respect to each series of Securities
by selling and assigning the Trust property, as described below, to the Owner
Trustee pursuant to the Trust Documents. Prior to the sale and assignment of the
related Receivables pursuant to the related Trust Documents, such Trust will
have no assets or obligations. Each Trust will not engage in any business
activity other than acquiring, holding and, if so specified in the related
Prospectus Supplement, selling the Trust Property, issuing Certificates and
Notes, if any, of such series and distributing payments thereon.
Each Certificate will represent a fractional undivided ownership interest
in, and each Note, if any, will represent an obligation of, the related Trust.
The property of the Trust will include, among other things, (a) motor vehicle
retail installment sale contracts, as specified in the related Prospectus
Supplement, between Dealers and retail purchasers (the "Obligors") of new or
used automobiles, light trucks and vans and (b) all payments received thereunder
on or after the Initial Cutoff Date or Subsequent Cutoff Date, as the case may
be, as specified in the related Prospectus Supplement. The Receivables were or
will be originated by Dealers in accordance with TMS Auto Finance's requirements
under agreements with Dealers for assignment to TMS Auto Finance, have been or
will be so assigned, and evidence or will evidence the indirect financing made
available to the Obligors. If specified in the related Prospectus Supplement,
the Receivables may be originated directly by TMS Auto Finance or acquired by
TMS Auto Finance in bulk and other purchases from third-party lenders. On or
before the closing date specified in the related Prospectus Supplement, TMS Auto
Finance will sell the Initial Receivables to the Seller for sale to the Trust.
Subsequent Receivables, if any, will be conveyed to the Trust during the
applicable Funding Period, as provided in the related Prospectus Supplement. Any
such Subsequent Receivables will constitute property of the Trust.
The property of each Trust also will include, to the extent set forth in
the Prospectus Supplement, (i) such amounts as from time to time may be held in
separate trust accounts (such as the "Collection Account," the "Certificate
Account" and the "Payahead Account," as may be specified in the related
Prospectus Supplement) established and maintained pursuant to the Trust
Documents, and the proceeds of such accounts; (ii) security interests in the
related Financed Vehicles and any accessions thereto; (iii) amounts payable to
the Servicer under all Dealer Recourse Obligations (in the event of breach of
the warranties of such Dealer); (iv) the right to proceeds of credit life,
credit disability, and physical damage insurance policies covering the related
Financed Vehicles; (v) the rights of the Seller under the Trust Documents; (vi)
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the Receivables, and (viii) any and all
proceeds of the foregoing. To the extent specified in the related Prospectus
Supplement, a Payahead Account, a Pre-Funding Account, a reserve account or
other form of credit enhancement may be a part of the property of any given
Trust or may be held by the Owner Trustee or an Indenture Trustee for the
benefit of holders of the related Securities.
The Servicer will service the Receivables held by each Trust, and will be
compensated for acting as the Servicer. See "Description of the Purchase
Agreement and the Trust Documents - Servicing Compensation." To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
retain physical possession of the Receivables and documents relating thereto as
custodian for the Owner Trustee or the Indenture Trustee, as the case may be.
Due to the administrative burden and expense, the certificates of title to the
Financed Vehicles will not be amended to reflect the assignment of the security
interest in the Financed Vehicles to any Owner Trustee or Indenture Trustee. In
the absence of such amendment, an Owner Trustee or Indenture Trustee may not
have a perfected security interest in the related Financed Vehicles in certain
states. See "Certain Legal Aspects of the Receivables - Security Interest in
Vehicles." The Owner Trustee and any Indenture Trustee will not be responsible
for the legality, validity or enforceability of any security interest in any
Financed Vehicle.
If the protection provided to the holders of any Securities by the
subordination of any Securities or by any credit enhancement is insufficient,
such Securityholders would have to look for payment on their Securities to the
Obligors on the related Receivables, the proceeds from the repossession and sale
of the related Financed Vehicles which secure such Receivables, and the
proceeds, if any, from Dealer Recourse Obligations. In such event, certain
factors, such as the Owner Trustee's or the Indenture Trustee's not having
perfected security interests in the related Financed Vehicles in certain states,
may affect such Trust's ability to repossess and sell the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Securityholders. See "Certain Legal Aspects of the Receivables."
THE OWNER TRUSTEE
The Owner Trustee for each Trust will be specified in the related
Prospectus Supplement. The Owner Trustee's liability in connection with the
issuance and sale of the Securities of such series will be limited solely to the
express obligations of such Owner Trustee set forth in the related Trust
Documents. An Owner Trustee may resign at any time, in which event the Seller or
its successor will be obligated to appoint a successor trustee which is eligible
under the related Trust Documents. The Seller also may remove the Owner Trustee
if the Owner Trustee ceases to be eligible to continue as Owner Trustee under
the related Trust Documents or if the Owner Trustee becomes insolvent. In such
circumstances, the Seller will be obligated to appoint a successor trustee
eligible under the related Trust Documents. Any resignation or removal of an
Owner Trustee and appointment of a successor trustee will be subject to any
conditions or approvals specified in the related Prospectus Supplement and will
not become effective until acceptance of the appointment by the successor
trustee.
<PAGE>
THE RECEIVABLES
GENERAL
Unless the related Prospectus Supplement specifies that some or all of the
Receivables were or will be originated directly by TMS Auto Finance or are to be
acquired in bulk and other purchases from third-party lenders, the Receivables
held by each Trust will be purchased by TMS Auto Finance in its ordinary course
of business pursuant to its Contract Acquisition Program. The underwriting
standards of TMS Auto Finance's Contract Acquisition Program emphasize a review
of the borrower's creditworthiness and ability to repay his or her obligations
underlying the related motor vehicle retail installment sale contract, as well
as the asset value of the related vehicle. Unless the related Prospectus
Supplement specifies otherwise, similar underwriting standards will be applied
to Receivables originated by TMS Auto Finance or any third-party lender from
which Receivables are acquired. Each of the Receivables to be held by Trust (i)
will be originated in the United States, (ii) will be secured by new or used
automobiles, light trucks or vans, (iii) will provide for level monthly payments
which fully amortize the amount financed over its original term to maturity
(except for the last payment which may be minimally different), (vi) will be
either a Precomputed Receivable or Simple Interest Receivable (each as defined
below), and (v) will satisfy the other criteria, if any, set forth in the
related Prospectus Supplement. No selection procedures believed to be adverse to
the Securityholders of any series will be utilized in selecting the Receivables
from qualifying non-prime motor vehicle retail installment sale contracts owned
by TMS Auto Finance. Any obligation of a Trust to purchase Subsequent
Receivables shall be subject to such additional conditions as may be specified
in the related Prospectus Supplement.
"Precomputed Receivables" 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-payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the Annual
Percentage Rate ("APR") of the loan multiplied by the unpaid principal balance
of the loan, and an amount of principal equal to the remainder of the monthly
payment. A Rule of 78's Receivable provides for the payment by the borrower 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 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".
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable 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 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 a borrower 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 a borrower 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 borrower 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 motor vehicle retail
installment sale contract, a "refund" or "rebate" will be made to the borrower
of the portion of the total amount of payments then due and payable under such
motor vehicle retail installment sale contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's
unless otherwise provided by law. If a Simple Interest Receivable is prepaid,
rather than receive a rebate, the borrower 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.
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 but will be paid to the Servicer as additional servicing
compensations.
Information with respect to the Receivables held by each Trust will be set
forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition, distribution by APR, states of origination and
portion secured by new and used automobiles, light trucks and vans.
DELINQUENCIES, CHARGE-OFF POLICIES AND NET LOSSES
Certain information concerning TMS Auto Finance's delinquency and loss
experience with respect to its portfolio of retail installment sale contracts
for new and used automobiles, light trucks and vans acquired pursuant to its
Contract Acquisition Program (which may include receivables previously sold
which are serviced by TMS Store Auto Finance) will be set forth in the related
Prospectus Supplement.
TMS Auto Finance measures delinquency on a contractual basis which
classifies the accounts into 30, 60, 90 and 120+ categories based on monthly
payment cycles elapsed from the date a payment is due under the motor vehicle
retail installment sale contract (the "due date"). Installment payments must
equal or exceed 90% of the scheduled payment due, after application of any
portion of such installment payment necessary to satisfy any prior shortfalls,
for a contract to be considered current.
Collection activities with respect to delinquent motor vehicle retail
installment sale contracts generally begin five (5) days after the due date for
first payment defaults, and ten (10) days after the due date for all subsequent
delinquencies if the payment has not been received. TMS Auto Finance uses an
automated system of monitoring delinquencies, which management utilizes to
categorize delinquent accounts into different priorities of collection activity,
based on the level of delinquency of each account.
TMS Auto Finance's collectors are assigned to specific delinquent accounts
and attempt to contact the delinquent borrower by telephone, letter, or field
contact based on the duration of the delinquency and history of the account.
Repossession procedures typically begin when a motor vehicle retail installment
sale contract becomes forty-five (45) days delinquent. Repossession is carried
out by independent contractors in conformity with specific procedures adopted by
TMS Auto Finance.
TMS Auto Finance's current policy is generally to charge-off a contract on
the date on which the contract becomes 150 days delinquent or, if the motor
vehicle securing the delinquent contract is repossessed, to charge-off the
contract on the earlier of the date on which the contract becomes 150 days
delinquent or the date on which the motor vehicle is sold and the deficiency, if
any, is determined (in which case the amount of the deficiency is charged-off).
Monies subsequently received, if any, on charged-off accounts are recognized as
recoveries.
TMS Auto Finance follows specific procedures with respect to extensions of
the contract maturity date. Generally, an extension requires the demonstration
of financial difficulties based on extraordinary circumstances and the approval
of management. In addition, contracts are not rewritten unless TMS Auto Finance
is mandated to do so in accordance with state or federal law.
Each applicant for a motor vehicle retail installment sale contract is
required to obtain insurance with respect to the motor vehicle being financed.
The continued maintenance of insurance is tracked, but TMS Auto Finance does not
currently force place insurance. TMS Auto Finance does, however, currently have
lender's comprehensive single interest insurance coverage which generally covers
losses due to physical damage, nonfiling and skips in the event that the
insurance coverage maintained by a motor-vehicle owner is terminated. If so
specified in the related Prospectus Supplement, TMS Auto Finance or any
subsequent servicer may force place insurance. In such event, certain amounts in
respect of a Receivable as to which insurance has been forced placed after the
applicable Cutoff Date or Subsequent Cutoff Date, as applicable, may not be
property of the Trust and may be payable to TMS Auto Finance to the extent
specified in the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
Interest paid on the Receivables will be passed through or paid, as the
case may be as specified in the related Prospectus Supplement, to
Securityholders on each Distribution Date set forth in the related Prospectus
Supplement, in an amount equal to one-twelfth of the applicable annual
Pass-Through Rate applied to the applicable Certificate Balance or the
applicable annual Interest Rate on the applicable Note Balance as of the date
specified in the Prospectus Supplement. In the event of prepayments on
Receivables, Securityholders will nonetheless be entitled to receive interest
for the full month in which such prepayment occurs.
All the Receivables are generally prepayable at any time. If prepayments
are received on the Receivables, the actual weighted average life of the
Receivables may be shorter than the scheduled weighted average life (i.e., the
weighted average life assuming that payments will be made as scheduled, and that
no prepayments will be made). (For this purpose, the term "prepayments" also
includes liquidations due to default, as well as receipt of proceeds from credit
life, credit disability, and casualty insurance policies.) Weighted average life
means the average amount of time during which each dollar of principal on a
Receivable is outstanding. The payment characteristics of the Receivables held
by a Trust will be specified in the related Prospectus Supplement.
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 may
not sell or transfer a Financed Vehicle without the consent of the Servicer. TMS
Auto Finance commenced operations in January 1995. Consequently, TMS Auto
Finance has limited historical experience with respect to prepayments, and has
not as of the date of this Prospectus prepared data on prepayment rates. TMS
Auto Finance can make no prediction as to the actual prepayment rates that will
be experienced on the Receivables. TMS Auto Finance, however, believes that the
actual rate of prepayments will result in a substantially shorter weighted
average life than the scheduled weighted average life of the Receivables. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne by the Securityholders of the related Trust. See
"Description of the Purchase Agreements and the Trust Documents Termination"
regarding (i) the Servicer's option to purchase all of the Receivables of a
Trust as of the last day of any month in which the Pool Balance of such Trust at
the close of business on the last day of any Monthly Period is 10% (or such
other percentage specified in the related Prospectus Supplement) or less of the
Original Pool Balance (calculated after giving effect to the principal balance
of any Subsequent Receivables as of their respective Subsequent Cutoff Dates)
and (ii) the sale of the Receivables if so specified in the related Prospectus
Supplement if satisfactory bids for the purchase of the Receivables are
received. See "Description of the Purchase Agreements and Trust Documents
Insolvency Event" if the Trust is not a grantor trust, for the sale of the
Receivables upon the occurrence of an Insolvency Event with respect to the
Affiliated Purchaser.
Since the rate of payment of principal on the Receivables will depend on
future events and a variety of other factors, no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the yield to
maturity of a class of Securities may vary from the anticipated yield may depend
upon the degree to which it is purchased at a discount or premium, and the
degree to which the timing of payments thereon is sensitive to prepayments,
liquidations and purchases of the Receivables. Further, an investor should
consider the risk that, in the case of any class of Securities purchased at a
discount, a slower than anticipated rate of principal payments (including
prepayments) on the Receivables could result in an actual yield to such investor
that is lower than the anticipated yield and, in the case of a class of
Securities purchased at a premium, a faster than anticipated rate of principal
payments on the Receivables could result in an actual yield to such investor
that is lower than the anticipated yield.
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION
The "Certificate Factor" for each class of Certificates will be a
seven-digit decimal which the Servicer will compute each month indicating the
Certificate Balance, as of the close of business on the Distribution Date as
specified in the related Prospectus Supplement in that month as a fraction of
the respective original outstanding principal balances of all of the
Certificates of such series. The Certificate Factor will not change as a result
of the addition of Subsequent Receivables. The "Note Factor" for each class of
Notes, if any, will be a seven-digit decimal which the Servicer will compute
each month indicating the remaining outstanding principal balance with respect
to such Notes as of each Payment Date as specified in the related Prospectus
Supplement as a fraction of the original outstanding principal balance of such
class of Notes. Each Certificate Factor and each Note Factor will be 1.0000000
as of the Initial Cutoff Date for such series; thereafter, the Certificate
Factor and the Note Factor will decline to reflect reductions in the Certificate
Balance of the applicable class of Certificates and the Note Factor will decline
to reflect reductions in the outstanding principal balance of the applicable
class of Notes, as the case may be, as a result of scheduled payments collected,
prepayments and liquidations of the Receivables (and also as a result of a
prepayment arising from application of amounts on deposit in the Pre-Funding
Account). The amount of a Certificateholder's pro rata share of the Certificate
Balance for the related class of Certificates can be determined on any date by
multiplying the original denomination of the holder's Certificate by the
applicable Certificate Factor as of the close of business on the most recent
Distribution Date. The amount of a Noteholder's pro rata share of the aggregate
outstanding principal balance of the applicable class of Notes can be determined
by multiplying the original denomination of such Noteholder's Note by the then
applicable Note Factor.
Pursuant to each Trust and pursuant to the related Trust Documents, the
Securityholders thereunder will be entitled to receive monthly reports
concerning the payments received on the Receivables, additions of Subsequent
Receivables, if any, and the reduction in the Pre-Funded Amount, if any, the
Certificate Balance, the Note Balance, the Certificate Factor or Certificate
Factors for each class of Certificates, the Note Factor or Note Factors for each
class of Notes and various other items of information with respect to such
series. Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Certain Information Regarding the Securities - Statements to
Securityholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of each series
of Securities will be applied to the purchase of Receivables from TMS Auto
Finance and, if specified in the related Prospectus Supplement, to the deposit
of the Pre-Funded Amount, if any, in the Pre-Funding Account and/or to provide
for other forms of credit enhancement specified in the related Prospectus
Supplement.
THE SELLER
The Seller, a wholly-owned subsidiary of the Representative, was
incorporated in the State of Delaware in July 1995. The Seller was organized for
limited purposes, which include purchasing receivables from TMS Auto Finance and
transferring such receivables to third parties and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 1625 West North Market
Blvd., Suite 210, Sacramento, California 95834. The telephone number of such
offices is (916) 928-4400.
The Seller has taken and will take steps in structuring the transactions
contemplated hereby and in the related Prospectus Supplement that are intended
to make it unlikely that the voluntary or involuntary application for relief by
TMS Auto Finance, under any Insolvency Law will result in the consolidation of
the assets and liabilities of the Seller with those of TMS Auto Finance. These
steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to Articles of Incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a restriction
on the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the unanimous affirmative vote of all of its directors).
The Seller's Articles of Incorporation include a provision that requires the
Seller to have at least one director who qualifies under the Articles of
Incorporation as an "Independent Director."
If, notwithstanding the foregoing measures a court concluded that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of TMS Auto Finance in the event of the application of any
Insolvency Law to TMS Auto Finance or a filing were made under any Insolvency
Law by or against the Seller, or if an attempt were made to litigate any of the
foregoing issues, delays in the distributions on the Securities (and possible
reductions in the amount of such distributions) could occur.
The Seller will also take certain steps in structuring the transactions
contemplated hereby and in the related Prospectus Supplement to help ensure that
an Insolvency Event with respect to the Affiliated Purchaser for a Trust will
not occur. These steps include the creation of the Affiliated Purchaser as a
separate, limited purpose corporation pursuant to articles of incorporation
containing certain limitations (including restrictions on the nature of the
Affiliated Purchaser's business and a restriction on the Affiliated Purchaser's
ability to commence a voluntary case or proceeding under any Insolvency Law
without the prior affirmative unanimous vote of its directors). However, there
can be no assurance that the activities of the Affiliated Purchaser would not
result in an Insolvency Event.
TMS AUTO FINANCE
TMS Auto Finance was incorporated in October 1994. Its executive offices
are located at 1625 West North Market Blvd., Suite 210, Sacramento, California
95834, and its telephone number is (916) 928-4400.
GENERAL
TMS Auto Finance is an automotive finance company engaged primarily in the
indirect financing (by the purchase of motor vehicle retail installment sale
contracts from automotive dealers) of automotive purchases by individuals with
non-prime credit. The non-prime market segment is comprised of individuals who
are deemed to be relatively high credit risks due to various factors, including,
among other things, the manner in which they have handled previous credit, the
limited extent of their prior credit history and/or their limited financial
resources. Because of the greater credit risk associated with non-prime motor
vehicle retail installment contracts, the interest rates charged on such
contracts are generally higher than those rates charged on prime motor vehicle
retail installment sale contracts. The range of APRs of the Receivables will be
set forth in the related Prospectus Supplement. There can be no assurance,
however, that the interest rates on the Receivables in a particular pool will be
sufficient to cover losses on other Receivables in such pool.
TMS Auto Finance serves as an alternative source of financing to automotive
dealers by offering them the opportunity for increased sales to customers who
typically do not qualify for financing by the automotive dealers' traditional
financing sources. As of September 30, 1997, TMS Auto Finance does business with
approximately 3509 franchised new car dealers or independent used car dealers in
the following 43 states: Alaska, Arizona, California, Colorado, Connecticut,
Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North
Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina,
South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin
and Wyoming. From time to time, TMS Auto Finance may determine to commence
business in additional jurisdictions or cease doing business in any state in
which it presently does business. The related Prospectus Supplement will specify
the geographic distribution of the specific Receivables included in the related
Trust. In certain cases TMS Auto Finance may effect purchases of non-prime motor
vehicle retail installment sale contracts, or may hold and effect ownership of
contracts by means of a wholly-owned subsidiary. The related Prospectus
Supplement will specify whether any specific Receivables included in the related
Trust have been so acquired or held and the reasons a subsidiary was used by
Servicer.
TMS Auto Finance intends to offer to consumers directly loans for the
purchase of automobiles. The related Prospectus Supplement will disclose whether
any Receivables to be sold to a Trust include loans originated by TMS Auto
Finance. Unless the related Prospectus Supplement provides otherwise, the
underwriting guidelines to be applied by TMS Auto Finance when originating
automobile loans will be the same as those it applies when reviewing credit
applications received from Dealers. Similarly, unless otherwise specified in the
related Prospectus Supplement, with respect to any Receivable originated
directly by TMS Auto Finance or purchased from a third-party lender, TMS Auto
Finance's security interest will be noted on the related vehicle's certificate
of title and such Receivable will be serviced in the same manner as Receivables
originated by Dealers.
TMS Auto Finance has developed certain procedures and controls to
investigate and analyze each credit applicant in an effort to eliminate those
applicants whose credit characteristics indicate too great a probability of
loss. This procedure includes an investigation, verification, and evaluation
process of credit bureau reports as well as the general credit information
provided by both dealer and applicant. In addition, TMS Auto Finance uses
collection procedures and systems that are designed to ensure that the customers
clearly understand their credit obligations. For example, TMS Auto Finance uses
a monthly billing system in order to continually remind borrowers of their
monthly payment obligations and has established a "welcoming" process that
educates each borrower, both verbally and in writing, of its obligations.
CONTRACT ACQUISITION PROGRAM
TMS Auto Finance's Contract Acquisition Program is designed to acquire
automotive contracts through the purchase of such contracts from franchised new
and used car dealers and independent used car dealers.
INDIRECT FINANCING
TMS Auto Finance's operations are currently centered on the indirect
financing of automotive purchases by individuals with non-prime credit. This
program is targeted to franchised new car dealers and independent used car
dealers (collectively, "Dealers") in certain markets within the United States
which are selected based on management's assessment of the size and growth
potential of the non-prime market, the economic vitality of the market, the
presence of an active new and used car market and the availability of
experienced personnel in such market. These markets currently include Phoenix,
Arizona, Anaheim, California, Encino, California, Fresno, California, Ontario,
California, Sacramento, California, San Diego, California, Santa Clara,
California, Ventura, California, Visalia, California, Denver, Colorado,
Jacksonville, Florida, Orlando, Florida, Pensacola, Florida, Tampa, Florida,
Atlanta, Georgia, Norcross, Georgia, Burr Ridge, Illinois, Chicago, Illinois,
Homewood, Illinois, Indianapolis, Indiana, Kansas City, Kansas, Louisville,
Kentucky, Baltimore, Maryland, Boston, Massachusetts, Detroit, Michigan,
Bloomington, Minnesota, Jackson, Mississippi, St. Louis, Missouri, Las Vegas,
Nevada, Cherry Hill, New Jersey, Woodbridge, New Jersey, Albuquerque, New
Mexico, Raleigh, North Carolina, Cincinnatti, Ohio, Oklahoma City, Oklahoma,
Medford, Oregon, Portland, Oregon, Pittsburgh, Pennsylvania, Columbia, South
Carolina, Nashville, Tennessee, Austin, Texas, Dallas/Ft. Worth, Texas, Houston,
Texas, San Antonio, Texas, Salt Lake City, Utah, Richmond, Virginia, Virginia
Beach, Virginia, Seattle, Washington and Milwaukee, Wisconsin. This service
offers Dealers the opportunity for increased vehicle sales to customers who
typically do not qualify for financing by Dealers' traditional financing
sources.
DEALER SOLICITATION
TMS Auto Finance solicits business from Dealers through its marketing
representatives. TMS Auto Finance's marketing representatives identify and
target both franchised new car dealers and independent used car dealers. Once
selected, if a Dealer is interested in TMS Auto Finance's financing program, it
and TMS Auto Finance enter into a non-exclusive written dealer agreement (a
"Dealer Agreement"). TMS Auto Finance's Dealer Agreements generally provide that
contracts are sold by the Dealer to TMS Auto Finance "without recourse" to the
Dealer, except in limited circumstances including, among others, that (i) the
financed vehicle is not properly registered showing TMS Auto Finance as
lienholder; (ii) unless otherwise specified in the related motor vehicle retail
installment sale contract, the full down payment specified in the contract was
not received by the Dealer in cash; (iii) certain representations and warranties
by the Dealer regarding the contract, the financed vehicle, the contract process
and manner of sale are breached or untrue; and (iv) the Dealer has failed to
comply with applicable law.
TMS Auto Finance's representatives train Dealers' personnel in TMS Auto
Finance's finance programs. This training is continuous since dealerships
generally experience a relatively high degree of personnel turnover. The
training provided by TMS Auto Finance is designed to assist Dealers in
identifying consumers who will qualify for financing by TMS Auto Finance and
structuring transactions that meet TMS Auto Finance's requirements. TMS Auto
Finance's representatives generally reside in their assigned market territories
to facilitate the servicing of their respective Dealers.
In the event that an individual elects to finance the purchase through a
Dealer, the Dealer will submit a customer's credit application to TMS Auto
Finance and other financing sources for a review of the customer's credit
worthiness and proposed transaction terms. Such reviews generally take into
account, among other things, the individual's credit history and capacity to
pay, residence and job stability. After reviewing the credit application, each
finance source will notify the Dealer whether it is willing to purchase the
contract and, if so, under what conditions. If more than one finance source has
offered to purchase the contract, the Dealer typically will select the source
based on an analysis of the "buy rate," or the interest rate, discounts, fees,
participation, and other terms and conditions stipulated by the finance source.
CREDIT EVALUATION PROCEDURES
TMS Auto Finance has developed processing procedures and controls
specifically designed to support its evaluation process of non-prime credit
applicants. This process consists of an evaluation of credit bureau reports in
order to eliminate individuals whose credit quality is deteriorating, suggests
too great a probability of default or whose credit experience is too limited for
TMS Auto Finance to assess the probability of performance. TMS Auto Finance will
also require verification of certain applicant and/or Dealer provided
information prior to making its credit decision. This verification process in
many instances requires submission of supporting documentation and is performed
solely by Servicer personnel.
After receiving the applicant's credit application and extracting
information from the credit bureau reports, the application and the proposed
transaction are reviewed on the basis of TMS Auto Finance's credit and
transaction structure criteria and the credit decision is made. This decision
may be to approve the application, approve the application with conditions or
decline the application. The credit analyst documents the decision and the
Dealer is notified by facsimile transmission.
LOSS EXPOSURE MANAGEMENT
TMS Auto Finance believes it has designed its finance programs to limit the
loss exposure on each transaction. The degree of exposure in any transaction is
a function of (i) determining the customer's intent to pay; (ii) determining the
customers ability to pay; (iii) the extent of credit granted compared to the
value of the automobile; and (iv) the possibility of physical damage to the
automobile. TMS Auto Finance seeks to control loss exposure by (i) careful
analysis of the applicant's credit history; (ii) determining whether the
applicant has sufficient disposable income to meet existing obligations,
including the obligation resulting from the proposed transaction; (iii) limiting
the credit it is willing to extend based upon its assessment of the value of the
underlying collateral and the applicant's other credit characteristics; and (iv)
requiring physical damage insurance to be maintained at all times to protect its
financial interest. The continued maintenance of insurance is tracked, but TMS
Auto Finance does not currently force place insurance. TMS Auto Finance
currently maintains a lender's comprehensive single interest insurance policy
which generally covers losses due to physical damage, nonfiling and skips in the
event that insurance coverage maintained by a motor vehicle owner is terminated.
Upon purchase of a motor vehicle retail installment sale contract, TMS Auto
Finance acquires a security interest in the vehicle financed. All contracts
purchased by TMS Auto Finance from Dealers through its Contract Acquisition
Program are fully amortizing and provide for equal payments over the term of the
contract (typically 24 to 72 months) other than the final payment which may be
minimally different. The portions of such payments allocable to principal and
interest are, for payoff and deficiency purposes, determined in accordance with
the law of the state in which the contract was originated. In the event that
state law provides for more than one method of allocating principal and
interest, the terms of the acquired installment contract are applied. Unless the
related Prospectus Supplement provides otherwise, any loans originated by TMS
Auto Finance or acquired from third-party lenders will have comparable payment
terms.
CONTRACT PROCESSING, PURCHASE, SERVICING AND ADMINISTRATION
Upon submission by a Dealer of a motor vehicle retail installment sale
contract and related documentation, TMS Auto Finance completes a series of
processes and procedures which are designed to (i) substantiate the accuracy of
information critical to TMS Auto Finance's original credit decision; (ii) verify
that the contract submitted by the Dealer complies with both the conditions
under which the credit approval was granted and TMS Auto Finance's transaction
structure criteria; and (iii) confirm that the documentation complies with TMS
Auto Finance's loss management requirements. These processes and procedures
include the verification of employment, income, collateral and insurance prior
to the contract being released for purchase. The customer also may be contacted
to confirm delivery of the vehicle and the terms of the transaction.
Upon a contract being released for purchase, TMS Auto Finance prepares and
issues funds to the Dealer in the appropriate amount, and initiates a welcoming
process through which TMS Auto Finance begins to attempt to educate borrower
both verbally and in writing about their financial obligations upon the purchase
of their contract. This process is designed to ensure that borrowers clearly
understand their credit obligations, including their responsibility to maintain
insurance coverage on the financed vehicle. The education process includes an
initial acknowledgment of the contract purchase, which includes the first
monthly billing statement, which thereafter is mailed approximately 15 days
prior to each payment due date. The acknowledgment is followed by a welcome
letter from the insurance tracking vendor that instructs the borrower regarding
the need to maintain insurance as well as the address to send the policy to.
Five days prior to the first payment due date, TMS Auto Finance contacts the
borrower to determine if the first statement was received and to educate the
borrower regarding where to make payments. If the first payment is not received
by approximately the fifth day after the due date, the Collections Department
immediately begins calling the borrower until the payment is received or some
other servicing action is taken.
TMS Auto Finance's servicing and administration activities relate to the
administration and collection of the contracts and have been specifically
tailored to the unique challenges of non-prime credits. Through such services,
TMS Auto Finance (i) collects payments; (ii) accounts for and posts all payments
received; (iii) responds to borrower inquiries; (iv) takes all necessary action
to maintain the security interest granted in the financed vehicle; (v)
investigates delinquencies and communicates with the borrower to obtain timely
payments; (vi) reports tax information to the borrower; (vii) monitors the
contract and its related collateral; and (viii) when necessary, repossesses and
disposes of the financed vehicle.
TMS Auto Finance currently utilizes a monthly billing statement system
(rather than payment coupon books) to remind borrowers of their monthly payment
obligations. This system also serves as an early warning mechanism in the event
the borrower has failed to notify TMS Auto Finance of an address change. TMS
Auto Finance also contacts borrowers substantially earlier than is customary in
the industry, for first payment delinquencies commencing five days after the
borrower's due date and ten days after the due date for other payments (as
opposed to the more conventional initial contact between the 17th and the 21st
day) and continuing until payment has been received. TMS Auto Finance believes
that early and frequent contact with the borrower reinforces the individual's
obligation and TMS Auto Finance's expectation for timely payment and serves to
expedite payments.
DELINQUENCY CONTROL AND COLLECTION STRATEGY
TMS Auto Finance's collection personnel generally review any account that
reaches fifteen (15) days delinquent to assess the collection efforts to date
and to refine, if necessary, the collection strategy. TMS Auto Finance's
collection personnel, together with senior management, generally will design a
collection strategy that includes a specific deadline within which the
obligation must be collected. Accounts that have not been collected during such
period are again reviewed, and, unless there are specific circumstances which
warrant further collection efforts, the account is assigned to outside agencies
for repossession of the financed vehicle. Repossessed vehicles are generally
resold by TMS Auto Finance through wholesale auctions, which are attended
principally by Dealers. Regardless of the actions taken or circumstances
surrounding a specific delinquent account, generally any account which reaches
150 days of delinquency is charged-off and the borrower is pursued, subject to
legal limitations, for both the collateral and the deficiency.
Policies for charging-off an account do not differ based upon whether a
receivable is owned by TMS Auto Finance or sold to a Trust. Repossession losses,
if any, are recognized upon the sale of the financed vehicle and receipt of sale
proceeds. The proceeds of resale of repossessed financed vehicles generally will
be applied first to the expenses of repossession and resale and then to the
satisfaction of the indebtedness on the related Receivable.
THE MONEY STORE
The Money Store Inc., a New Jersey corporation ("The Money Store"), is a
financial services company engaged, through its subsidiaries, in the business of
originating, purchasing, selling and servicing consumer and commercial loans of
specified types and offering related services. Loans originated by The Money
Store and its subsidiaries primarily consist of mortgage loans, loans (the "SBA
Loans") guaranteed in part by the United States Small Business Administration
(the "SBA") and government guaranteed student loans.
Since 1967, The Money Store and its subsidiaries have been active in the
development of the residential home equity lending industry in the United
States. In 1979, The Money Store and its subsidiaries began to originate SBA
Loans and, based upon statistics compiled by the SBA, The Money Store believes
that during each of the last 14 SBA fiscal years it originated a greater
principal amount of SBA Loans than any other originator of such loans in the
United States. In 1984, The Money Store entered into the government guaranteed
student loan origination market.
For the year ended December 31, 1996 and for the three month period ended
June 30, 1997, The Money Store and its subsidiaries originated or purchased
approximately $5.7 billion and $3.3 billion of loans, respectively. Of those
loans, approximately 73% and 73%, respectively, by principal amount were home
equity loans, approximately 11% and 10%, respectively, by principal amount were
SBA Loans, approximately 8% and 7%, respectively, by principal amount were
government guaranteed student loans and approximately 8% and 10%, respectively,
by principal amount were auto loans. The business strategy of The Money Store
has been to identify and pursue niche lending opportunities which management
believes have had widespread unsatisfied demand.
At June 30, 1997, The Money Store and its subsidiaries operated out of 227
branch locations in 50 states, the District of Columbia and the Commonwealth of
Puerto Rico.
The Money Store executive offices are located at 3301 C Street, Suite
100-A, Sacramento, California 95816 and 2840 Morris Avenue, Union, New Jersey
07083. The offices' respective telephone numbers are (916) 446-5000 and (908)
686-2000.
THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series will be issued pursuant to Trust Documents to be entered into among the
Seller, the Servicer, the Owner Trustee, the Indenture Trustee, if any, and any
other party identified in the related Prospectus Supplement, forms of which 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, all of the
material provisions of such forms of Trust Documents.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by a single Certificate registered
in the name of Cede & Co., the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"). See "Certain Information
Regarding the Securities - Book-Entry Registration." Unless higher denominations
are specified in the related Prospectus Supplement, the Certificates evidencing
interests in a Trust will be available for purchase in denominations of $1,000
initial principal amount and integral multiples thereof, except that one
Certificate evidencing an interest in such Trust may be issued in a denomination
that is less than $1,000 initial principal amount. Certificates may be
transferred or exchanged without the payment of any service charge other than
any tax or governmental charge payable in connection with such transfer or
exchange. The Owner Trustee will initially be designated as the registrar for
the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on the
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, except to the extent specified in
the related Prospectus Supplement, will be made prior to distributions with
respect to principal. A series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distribution, or (ii) interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. 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 Certificate, or the initial Pass-Through Rate and the method
for determining the subsequent Pass-Through Rate. Interest on the Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Distributions in respect of the Certificates may be subordinated to all
or certain payments in respect of the Notes, if any, to the extent described in
the related Prospectus Supplement. Distributions in respect of principal of any
class of Certificates will be made on a pro rata basis among all of the
Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of 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 addition, if the related Prospectus Supplement so provides, payments of
principal on one or more classes of Certificates issued by a Trust may be
delayed during the Revolving Period or an Amortization Period to the extent
described in such Prospectus Supplement.
THE NOTES
GENERAL
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Notes will be issued as a part of any series if and as specified in the related
Prospectus Supplement. The following summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Notes and the Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
the following summary may be supplemented by the related Prospectus Supplement.
Each class of Notes will initially be represented by a single Note
registered in the name of Cede & Co., the nominee of DTC. See "Certain
Information Regarding the Securities - Book-Entry Registration." Notes will be
available for purchase in denominations of $1,000 and integral multiples
thereof. Notes may be transferred or exchanged without the payment of any
service charge other than any tax or governmental charge payable in connection
with such transfer or exchange. The Indenture Trustee will initially be
designated as the registrar for the Notes of any series.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss,
Interest Rate and amount of or method of determining payments of principal and
interest on the Notes 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 any class or
classes of Notes of such series, or any class of Certificates, as described in
the related Prospectus Supplement. Except to the extent provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A series may include one or more classes of Strip
Notes entitled to (i) principal payments with disproportionate, nominal or no
interest payment, 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, or the initial Interest Rate and the method for determining the
Interest Rate. One or more classes of Notes of a series may be redeemable under
the circumstances specified in the related Prospectus Supplement.
In the case of a series of Securities which includes two or more classes of
Notes, the sequential order and priority of payments in respect of principal and
interest on any of the dates specified for payments in the related Prospectus
Supplement (each, a "Payment Date"), 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.
In addition, if the related Prospectus Supplement so provides, payments of
principal on one or more classes of Notes issued by a Trust may be delayed
during the Revolving Period or an Amortization Period to the extent described in
such Prospectus Supplement.
THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Seller will provide a copy
of the applicable Indenture (without exhibits) upon request to any holder of
Notes issued thereunder.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT. With respect to each
Trust, without the consent of the related Noteholders, and with notice to the
applicable Rating Agencies, the Indenture Trustee and the Owner Trustee (on
behalf of such Trust), and with the consent of the third party credit
enhancement provider, if any (so long as no Insurer Default (as defined in the
related Prospectus Supplement) has occurred and is continuing) unless the
related Prospectus Supplement provides otherwise, may enter into one or more
supplemental indentures for any of the following purposes: (i) to correct or
amplify the description of the collateral or add additional collateral; (ii) to
evidence and provide for the assumption of the Note and the Indenture
obligations by a permitted successor to the Trust; (iii) to add additional
covenants for the benefit of the related Noteholders, or to surrender any rights
or power conferred upon the Trust: (iv) to convey, transfer, assign, mortgage or
pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity
or correct or supplement any provision in the Indenture or in any supplemental
indenture; (vi) to evidence and provide for the acceptance of the appointment of
a successor Indenture Trustee or to add to or change any of the provisions of
the Indenture as shall be necessary and permitted to facilitate the
administration by more than one trustee; (vii) to modify, eliminate or add to
the provisions of the Indenture in order to comply with the Trust Indenture Act
of 1939, as amended; and (viii) to add any provisions to, change in any manner,
or eliminate any of the provisions of, the Indenture or modify in any manner the
rights of Noteholders under such Indenture; provided that any action specified
in this clause (viii) shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any related
Noteholder.
MODIFICATIONS OF INDENTURE WITH NOTEHOLDER CONSENT. With respect to each
Trust, with the consent of the holders representing a majority of the aggregate
principal balance of the outstanding related Notes (a "Note Majority"), with the
consent of the third party credit enhancement provider, if any (so long as no
Insurer Default (as defined in the related Prospectus Supplement) has occurred
and is continuing) unless the related Prospectus Supplement provides otherwise,
and with notice to the applicable Rating Agencies, the Indenture Trustee may
execute a supplemental indenture to add provisions to change in any manner or
eliminate any provisions of, the related Indenture, or modify in any manner the
rights of the related Noteholders.
Without the consent of the third party credit enhancement provider, if any
(so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing) unless the related Prospectus Supplement
provides otherwise, and the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate thereon or the redemption price with respect
thereto, change the provisions of the Indenture relating to the application of
collections on or the proceeds of the sale of, the collateral for the Notes to
payment of principal of or interest on the Notes or change any place of payment
where or the coin or currency in which any Note or any interest thereon is
payable, (ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment, (iii) reduce the percentage of
the aggregate principal amount of the outstanding Notes the consent of the
holders of which is required for any such supplemental indenture or the consent
of the holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture, (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, the
Seller, an affiliate of either of them or any obligor on the Notes, (v) reduce
the percentage of the aggregate outstanding amount of the Notes the consent of
the holders of which is required to direct the Indenture Trustee on behalf of
the Trust to sell or liquidate the Receivables if the proceeds of such sale
would be insufficient to pay the principal amount and accrued but unpaid
interest on the outstanding Notes, (vi) decrease the percentage of the aggregate
principal amount of the Notes required to amend the sections of the Indenture
which specify the applicable percentage of aggregate principal amount of the
Notes necessary to amend the Indenture or certain other related agreements,
(vii) modify any of the provisions of the Indenture in such manner as to affect
the calculation of the amount of any payment of interest on any Distribution
Date or principal due on any Note on any Distribution Date (including the
calculation of any of the individual components of such calculation) or to
affect the rights of the Noteholders to the benefit of any provision for the
mandatory redemption of the Notes contained in the Indenture or (viii) permit
the creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security provided by the lien of the Indenture.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note after the same becomes due and
payable; (ii) a default in the payment of the principal or of any installment of
the principal of any Note when the same becomes due and payable; (iii) a default
in the observance or performance of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in aggregate
principal amount of the related Notes then outstanding (or for such longer
period, not in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or less
and the Owner Trustee delivers an officer's certificate to the Indenture Trustee
to the effect that the Trust has commenced, or will promptly commence and
diligently pursue, all reasonable efforts to remedy such default); (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of a
least 25% in aggregate principal amount of the Notes then outstanding (or for
such longer period, not in excess of 90 days as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 90
days or less and the Owner Trustee delivers an officer's certificate to the
Indenture Trustee to the effect that the Trust has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default)
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. However, the amount of principal due and payable on any class of
Notes on any Payment Date (prior to the final scheduled Payment Date, if any,
for such class) will generally be determined by the amount available to be
deposited in the Note Distribution Account for such Payment Date. Therefore, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default unless such class of Notes has a final
scheduled Payment Date, and then not until such final scheduled Payment 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 a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may
be rescinded by a Note Majority if (i) the Trust has paid to the Indenture
Trustee a sum sufficient to pay all amounts then due with respect to the Notes
(without giving effect to such acceleration) and certain amounts payable to the
Indenture Trustee and (ii) all Events of Default (other than nonpayment of the
principal of the Notes due solely as a result of such acceleration) have been
cured or waived.
Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
Trust maintain possession of such Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration. The
Indenture Trustee, however, will be prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal or a default for five days or more in the payment of any
interest on any Note, unless (i) the holders of all the outstanding related
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) the Indenture Trustee determines that the
proceeds of the Receivables would not be sufficient on an ongoing basis to make
all payments on the Notes as such payments would have become due if such
obligations had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders representing 66-2/3% of the aggregate
principal balance of the outstanding related Notes. In the event the Notes are
accelerated and the Receivables are sold, no distributions will be made on the
Certificates until all of the interest on and principal of the Notes has been
paid in full. In such event, all the funds, if any, on deposit in any reserve
account or received from another source of credit support will be available to
first pay interest on and principal of the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the 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 the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee with respect to the Notes or exercising any
trust or power conferred on the Indenture Trustee and a Note Majority may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered the Indenture Trustee reasonable indemnity,
(iv) the Indenture Trustee has for 60 days failed to institute such proceeding,
(v) no direction inconsistent with such written request has been given to the
Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes, and (vi) in the case of a series of
Notes with respect to which a guaranty insurance policy has been issued, unless
otherwise specified in the related Prospectus Supplement, an Insurer Default (as
defined in the related Prospectus Supplement) has occurred and is continuing.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice of
the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the related Trust, the Seller and the Affiliated Purchaser any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
No recourse may be taken, directly or indirectly, with respect to the
obligations of a Trust, the Seller, the Servicer, the Affiliated Purchaser, the
Owner Trustee or the Indenture Trustee on the related Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Seller, the Servicer, the Affiliated Purchaser, the Indenture
Trustee or the Owner Trustee in its individual capacity or (ii) any partner,
owner, beneficiary, agent, officer, director, employee or agent of the Seller,
the Servicer, such Trust, the Affiliated Purchaser, the Owner Trustee or the
Indenture Trustee or of any successor or assignee of the Seller, the Servicer,
the Affiliated Purchaser, the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee will have no
such obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
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 the Trust's obligation to make due and punctual payments upon
the Notes and the performance or observance of every agreement and covenant of
the Trust under the Indenture, (iii) no Default or Event of Default shall have
occurred and be continuing immediately after such merger or consolidation, (iv)
none of the applicable Rating Agencies, after 10 days' prior notice, shall have
notified the Seller, the Servicer or the Trust in writing that such transaction
will result in a reduction or withdrawal of the then current ratings of the
Notes, (v) unless the related Prospectus Supplement provides otherwise, the
third party credit enhancement provider, if any, has consented to such merger or
consolidation and no Insurer Default (as defined in the related Prospectus
Supplement) has occurred and is continuing, (vi) the Trust has received an
opinion of counsel to the effect that such transaction would have no material
adverse Federal or state tax consequence to the Trust or to any
Certificateholder or Noteholder, (vii) any action necessary to maintain the lien
and security interest created by the Indenture has been taken and (viii) the
Trust has delivered to the Indenture Trustee an officers' certificate of the
Trust and an opinion of counsel each stating that such transaction and the
supplemental indenture executed in connection with such transaction comply with
the Indenture and that all conditions precedent relating to the transaction have
been complied with (including any filing required by the Exchange Act).
Also, each Trust may not convey or transfer all or substantially all its
properties or assets to any other entity, unless (i) the entity that acquires
the assets of the Trust (A) agrees that all right, title and interest conveyed
or transferred shall be subject and subordinate to the rights of Noteholders,
(B) unless otherwise agreed, expressly agrees to indemnify, defend and hold
harmless the Trust against and from any loss, liability or expense arising under
or related to the Indenture and the Notes, (C) expressly agrees to make all
filings with the Securities and Exchange Commission (and any other appropriate
entity) required by the Exchange Act in connection with the Notes and (D) is
organized under the laws of the United States or any state; and (ii) the
criteria specified in clauses (ii) through (vii) of the preceding paragraph have
been complied with.
Each Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Purchase Agreement, the Trust Documents or certain related
documents for such Trust (collectively, 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
Internal Revenue Code of 1986, as amended, or applicable state law) or assert
any claim against any present or former holder of such Notes because of the
payment of taxes levied or assessed upon the collateral for the Notes, (iii)
except as contemplated by the Related Documents, 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 collateral for the Notes or any part
thereof, or any interest therein or proceeds thereof except as expressly
permitted by the Related Documents or (vi) permit the lien of the Indenture not
to constitute a valid first priority security interest in the collateral for the
Receivables.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture or otherwise in
accordance with the Related Documents.
ANNUAL COMPLIANCE STATEMENT. Each 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. The Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to, among
other things, 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
Trust to the Indenture Trustee in its individual capacity, the property and
funds physically held by the Indenture Trustee as such and any action taken by
it that materially affects the Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. The 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 the Indenture Trustee of funds sufficient
for the payment in full of all of such Notes.
TRUST INDENTURE ACT. The Indenture will comply with applicable provisions
of the Trust Indenture Act of 1939, as amended.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for one series of Notes may
serve as the Owner Trustee with respect to another series of Securities. The
Indenture Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor trustee eligible under the Indenture which,
unless the related Prospectus Supplement provides otherwise, shall be acceptable
to the third party credit enhancement provider, if any, so long as no Insurer
Default (as defined in the related Prospectus Supplement) has occurred and is
continuing. The Seller may also remove the Indenture Trustee, with the consent
of the third party credit enhancement provider, if any, if the Indenture Trustee
ceases to be eligible to continue as such under the Indenture or if the
Indenture Trustee becomes insolvent. In such circumstances, the Seller will be
obligated to appoint a successor trustee eligible under the Indenture which,
unless the related Prospectus Supplement provides otherwise, shall be acceptable
to the third party credit enhancement provider, if any, so long as no Insurer
Default (as defined in the related Prospectus Supplement) has occurred and is
continuing. Any resignation or removal of the Indenture Trustee and appointment
of a successor trustee will be subject to any conditions or approvals, including
the approval of the issuer of any credit enhancement, if any, specified in the
related Prospectus Supplement and will not become effective until acceptance of
the appointment by a successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any class of
Securities of a given series may consist of Securities ("Indexed Securities") in
which the principal amount payable at the final scheduled Distribution Date (the
"Indexed Principal Amount") is determined by reference to a measure (the
"Index") which will be related to (i) the difference in the rate of exchange
between United States dollars and a currency or composite currency (the "Indexed
Currency") specified in the applicable Prospectus Supplement (such Indexed
Securities, "Currency Indexed Securities"); (ii) the difference in the price of
a specified commodity (the "Indexed Commodity") on specified dates (such Indexed
Securities, "Commodity Indexed Securities"); (iii) the difference in the level
of a specified stock index (the "Stock Index"), which maybe based on U.S. or
foreign stocks, on specified dates (such Indexed Securities, "Stock Indexed
Securities"); or (iv) such other objective price or economic measures as are
described in the applicable Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index or other price or economic measures used in such determination will be set
forth in the applicable Prospectus Supplement, together with information
concerning tax consequences to the holders of such Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then such
Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Distribution Date will be the
Face Amount of such Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment or another amount
described in such Prospectus Supplement.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, persons
acquiring beneficial ownership interests in the Securities of each Series may
hold their interests through DTC in the United States or, in the case of any
series of Notes, Cedel or Euroclear in Europe. Each Class of Certificates will
be registered in the name of Cede as nominee for DTC. Cedel and Euroclear will
hold omnibus positions with respect to the Notes and, if the related Prospectus
Supplement so provides, the Certificates on behalf of Cedel Participants and
Euroclear Participants, respectively, through customers' securities accounts in
Cedel's and Euroclear's name on the books of their respective depositories
(collectively, the "Depositories") which in turn will hold such positions in
customers' securities accounts in the Depositories' names on the books of DTC.
For additional information regarding clearance and settlement procedures see
Annex I hereto.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants"). The rules applicable to DTC
and its participants are on file with the Commission.
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on, the
Securities, from the Owner Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Owner Trustee as Certificateholders or
by the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities issued in book-entry form, while
such Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants with whom Certificate Owners or Note Owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners and Note Owners. Accordingly, although Certificate
Owners and Note Owners will not possess Securities, the Rules provide a
mechanism by which Certificate Owners and Note Owners will receive distributions
and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date, and any such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly holding Notes and, if the
related Prospectus Supplement so provides, Certificates or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC Rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadline (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions to the Depositories.
With respect to any series of Securities, Certificates and Notes (if any)
will be issued in registered form to Certificate Owners and Note Owners, or
their nominees, rather than to DTC (such Certificates and Notes being referred
to herein as "Definitive Certificates" and "Definitive Notes," respectively),
only if (i) the Seller advises the Owner Trustee or the Indenture Trustee, as
the case may be, in writing that DTC is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Certificates or the Notes and the Seller is unable to locate a qualified
successor, (ii) the Seller at its sole option has advised the Owner Trustee or
the Indenture Trustee, as the case may be, in writing that it elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, the holders representing a majority of the Certificate Balance
(a "Certificate Majority") or a Note Majority advises the Owner Trustee or the
Indenture Trustee, as the case may be, through DTC that continuation of a
book-entry system is no longer in their best interests. Upon issuance of
Definitive Certificates or Definitive Notes to Certificate Owners or Note
Owners, such Certificates or Notes will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Owner Trustee or the Indenture Trustee, as the case may be, with
respect to transfers, notices and distributions.
DTC has advised the Seller that, unless and until Definitive Certificates
or Definitive Notes are issued, DTC will take any action permitted to be taken
by a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or more Participants to whose DTC
accounts the Certificates or Notes are credited. DTC has advised the Seller that
DTC will take such action with respect to any fractional interest of the
Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York the "Euroclear Operator"), under contract
with Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through, or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Notes and, if the related Prospectus
Supplement so provides, Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes and, if the related Prospectus
Supplement so provides, Certificates under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes and, if the related
Prospectus Supplement so provides, the Certificates among Direct Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
NEITHER THE TRUST, THE SELLER, THE SERVICER, THE REPRESENTATIVE, THE OWNER
TRUSTEE, THE INDENTURE TRUSTEE, NOR ANY OF THE UNDERWRITERS WILL HAVE ANY
RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, CEDEL PARTICIPANTS OR
EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT
TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, CEDEL, EUROCLEAR OR ANY
PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL, EUROCLEAR OR ANY PARTICIPANT OF ANY
AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL BALANCE OF, OR
INTEREST ON, THE NOTES AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES,
THE CERTIFICATES, (3) THE DELIVERY BY ANY PARTICIPANT, CEDEL PARTICIPANT OR
EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THE AGREEMENT TO BE GIVEN TO NOTEHOLDERS AND, IF
THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES, CERTIFICATEHOLDERS OR (4) ANY
OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE NOTEHOLDER AND, IF THE RELATED
PROSPECTUS SUPPLEMENT SO PROVIDES, THE CERTIFICATEHOLDER.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
Owners or Note Owners to pledge them. In addition, since distributions on the
Certificates and the Notes will be made by the Owner Trustee or the Indenture
Trustee to DTC unless and until Definitive Certificates and Definitive Notes are
issued and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate Owners or Note Owners,
Certificate Owners and Note Owners may experience delays in the receipt of such
distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Owner Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date. On or prior to each Payment Date,
the Servicer will prepare and provide to the Indenture Trustee a Statement to be
delivered to the related Noteholders on such Payment Date. Such statements will
be based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Noteholders will include
the following information as to the Notes with respect to such Payment Date or
the period since the previous Payment Date, as applicable:
(i) the amount of the distribution allocable to interest on or with respect
to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Factor for each class of
Certificates and the aggregate outstanding principal balance and, if applicable,
the Note Factor for each class of Notes, after giving effect to all payments
reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect to
the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate, Interest Rate or other applicable rate of
return, if any, for the next period for any class of Certificates or Notes with
variable or adjustable rates;
(vi) the amount, if any, distributed to Certificateholders and Noteholders
applicable to payments under any credit enhancement; and
(vii) such other information as may be specified in the related Prospectus
Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv), (vi) and
(vii) with respect to Certificates or Notes will be expressed as a dollar amount
per $1,000 of the initial Certificate Balance or the initial principal balance
of the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued,
such reports with respect to a series of Securities will be sent on behalf of
the related Trust to the Owner Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate Owners
or Note Owners, as the case may be, and payment of any expenses associated with
the distribution of such reports, from the Owner Trustee or the Indenture
Trustee, as applicable. See "Reports to Securityholders" and " - Book-Entry
Registration" above.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of a Trust, the Owner Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has been a Securityholder,
and received any payment thereon, a statement containing certain information for
the purposes of such Securityholder's preparation of federal income tax return.
See "Certain Federal Income Tax Consequences."
LIST OF SECURITYHOLDERS
At such time, if any, as Definitive Certificates have been issued, the
Owner Trustee will, upon written request by three or more Certificateholders or
one or more holders of Certificates evidencing not less than 25% of the
Certificate Balance, within five Business Days after provision to the Owner
Trustee of a statement of the applicants' desire to communicate with other
Certificateholders about their rights under the related Trust Documents or the
Certificates and a copy of the communication that the applicants propose to
transmit, 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 Trust Documents. The
Trust Documents will not provide for holding any annual or other meetings of
Certificateholders.
At such time, if any, as Definitive Notes have been issued, the Indenture
Trustee will, upon written request by three or more Noteholders or one or more
holders of Notes evidencing not less than 25% of the aggregate principal balance
of the related Notes, within five Business Days after provision to the Indenture
Trustee of a statement of the applicants' desire to communicate with other
Noteholders about their rights under the related Indenture or the Notes and a
copy of the communication that the applicants propose to transmit, afford such
Noteholders access during business hours to the current list of Noteholders for
purposes of communicating with other Noteholders with respect to their rights
under the Indenture. The Indenture will not provide for holding any annual or
other meetings of Noteholders.
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreements
(each a "Purchase Agreement") pursuant to which the Seller will purchase
Receivables from TMS Auto Finance and certain terms of either (i) the Pooling
and Servicing Agreements or (ii) the Sale and Servicing Agreements and the Trust
Agreements (in either case collectively referred to as the "Trust Documents")
pursuant to which the Seller will sell and assign such Receivables to a Trust
and TMS Auto Finance will agree to service such Receivables on behalf of the
Trust, and pursuant to which such Trust will be created and Certificates will be
issued. Forms of the Purchase Agreement and the Trust Documents have been filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
The Seller will provide a copy of such agreements (without exhibits) upon
request to a Securityholder described therein. This summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the forms of Purchase Agreement and the Trust
Documents.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date with respect to a series of Securities
specified in the related Prospectus Supplement, TMS Auto Finance will enter into
a Purchase Agreement with the Seller pursuant to which TMS Auto Finance will, on
or prior to such Closing Date, sell and assign to the Seller, without recourse,
its entire interest in and to the related Receivables, including its security
interest in the Financed Vehicles securing such Receivables and its rights to
receive all payments on, or proceeds with respect to, such Receivables to the
extent paid or payable after the applicable Cutoff Date. Pursuant to the
Purchase Agreement, unless another party is identified in the related Prospectus
Supplement as having so agreed, TMS Auto Finance will agree that, upon the
occurrence of a breach of a representation or warranty under the related Trust
Documents with respect to any of the Receivables of a Trust which causes the
Seller to be obligated to repurchase a Receivable, the Owner Trustee will be
entitled to require TMS Auto Finance to repurchase such Receivables from the
Trust. Such rights of the Trust under the Purchase Agreement will constitute
part of the property of the Trust and may be enforced directly by the Owner
Trustee and, unless the related Prospectus Supplement provides otherwise, the
third party credit enhancement provider, if any. In addition, the Owner Trustee
will pledge such rights to the Indenture Trustee as collateral for the Notes, if
any, and such rights may be enforced directly by the Indenture Trustee.
On the Closing Date, the Seller will sell and assign to the Owner Trustee,
without recourse, the Seller's entire interest in the related Receivables and
the proceeds thereof, including its security interest in the Financed Vehicles.
Each Receivable transferred by the Seller to the Trust will be identified in a
schedule appearing as an exhibit to the related Trust Documents (the "Schedule
of Receivables"). Concurrently with such transfer and assignment, the Owner
Trustee will execute and deliver the related certificates representing the
Certificates to or upon the order of the Seller, and the Owner Trustee will
execute and the Indenture Trustee will authenticate and deliver the Notes, if
any, to or upon the order of the Seller. The net proceeds received from the sale
of the Certificates and the Notes of a given series will be applied to the
purchase of the related Receivables from the Seller and, to the extent specified
in the related Prospectus Supplement, to the deposit of the Pre-Funded Amount
into the Pre-Funding Account.
ELIGIBILITY CRITERIA
In the Purchase Agreement, TMS Auto Finance will represent and warrant to
the Seller, and in the Trust Documents the Representative and the Seller will
represent and warrant to the Owner Trustee and/or the Indenture Trustee, as the
case may be, among other things, that (i) the information provided with respect
to the Receivables is correct in all material respects; (ii) the Obligor on each
Receivable is required to maintain physical damage insurance in accordance with
the Servicer's normal requirements; (iii) at the date of issuance of the
Certificates and any Notes, the Initial Receivables and on the applicable
Subsequent Transfer Date, if any, the related Subsequent Receivables, as the
case may be, are, to the best of its knowledge, free and clear of all security
interests, liens, charges and encumbrances and no offsets, defenses, or
counterclaims against it have been asserted or threatened; (iv) at the date of
issuance of the Certificates and any Notes, and on the applicable Subsequent
Transfer Date, if any, each of the Initial Receivables or Subsequent
Receivables, as the case may be, is or will be secured by a first perfected
security interest in the Financed Vehicle in favor of TMS Auto Finance; and (v)
each Receivable, at the time it was originated, complied, and at the date of
issuance of the Certificates and any Notes, and on the applicable Subsequent
Transfer Date, if any, the related Subsequent Receivables, as the case may be,
complies in all material respects with applicable federal and state laws,
including consumer credit, truth in lending, equal credit opportunity and
disclosure laws.
If the related Prospectus Supplement specifies that Subsequent Receivables
are to be acquired by a Trust, then during the related Funding Period, pursuant
to the Purchase Agreement, the Seller will be obligated to purchase from TMS
Auto Finance and, pursuant to the Agreement, sell to the Trust Subsequent
Receivables. The aggregate principal balance of the Subsequent Receivables will
be in an amount that TMS Auto Finance anticipates will equal the amount
deposited in the Pre-Funding Account on the date of the issuance of the related
series. On each Subsequent Transfer Date, TMS Auto Finance will sell and assign
to the Seller, without recourse, its entire interest in the Subsequent
Receivables identified in a schedule attached to a supplemental conveyance
relating to such Subsequent Receivables executed on such date by TMS Auto
Finance and the Seller. In connection with each purchase of Subsequent
Receivables, the Trust will be required to pay to the Seller a cash purchase
price equal to the outstanding principal balance of each Subsequent Receivable
as of its Subsequent Cutoff Date, which price the Seller will pay to TMS Auto
Finance. The purchase price will be withdrawn from the Pre-Funding Account and
paid to the Seller for payment to TMS Auto Finance so long as the
representations and warranties set forth in the preceding paragraph and under
"The Receivables -- General" apply to each Subsequent Receivable to be conveyed,
and the conditions set forth below are satisfied. TMS Auto Finance will convey
the Subsequent Receivables to the Seller on each such Subsequent Transfer Date
pursuant to the Purchase Agreement and the applicable Subsequent Transfer
Agreement (each, a "Subsequent Transfer Agreement") executed by TMS Auto Finance
and the Seller on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date. The
Seller will convey the Subsequent Receivables to the Trust on such Subsequent
Transfer Date pursuant to the Agreement and the applicable Subsequent Transfer
Assignment (each, a "Subsequent Transfer Assignment") executed by the Seller and
the Trustee on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date.
Any conveyance of Subsequent Receivables will be subject to the following
conditions, among others specified in the related Prospectus Supplement: (i)
each such Subsequent Receivable must satisfy the eligibility criteria specified
in the preceding paragraph as of its Subsequent Cutoff Date and such additional
criteria as may be specified in the related Prospectus Supplement; (ii) if and
to the extent specified in the related Prospectus Supplement, the third-party
credit enhancement provider, if any, shall have approved the transfer of such
Subsequent Receivables to the Trust; (iii) neither TMS Auto Finance nor the
Seller will have selected such Subsequent Receivables in a manner that either
believes is adverse to the interests of the Securityholders; (iv) TMS Auto
Finance and the Seller will deliver certain opinions of counsel to the
Trustee(s) and the Rating Agencies with respect to the validity of the
conveyance of such Subsequent Receivables; and (v) the Rating Agencies shall
confirm that the ratings on the Securities of such series have not been
withdrawn or reduced as a result of the transfer of such Subsequent Receivables
to the Owner Trustee.
As of the last day of the second (or, if the Seller elects, the first)
month following the discovery by the Seller or receipt by the Seller of notice
from the Representative, the Servicer, the Owner Trustee, the Indenture Trustee
or the third party credit enhancement provider, if any, of a breach of any
representation or warranty of the Seller which the Owner Trustee or the
Indenture Trustee, as the case may be, determines materially and adversely
affects the interests of the Securityholders in a Receivable, the Seller, unless
it cures the breach, will be required to purchase the Receivable from the Owner
Trustee, and TMS Auto Finance will be required to purchase the Receivable from
the Seller, at a price equal to the amount of outstanding principal and accrued
interest of the Receivable (including one month's interest thereon, in the month
of payment, at the APR less, so long as TMS Auto Finance is the Servicer, the
Servicing Fee), after giving effect to the receipt of any moneys collected (from
whatever source) on such Receivable, if any (such price is hereinafter referred
to as the "Purchase Amount"). The "second month" shall mean the month following
the month in which discovery occurs or notice is given, and the "first month"
shall mean the month in which discovery occurs or notice is given. If the Seller
or TMS Auto Finance fails to purchase the Receivable, the Representative will be
obligated to purchase such Receivable on the date such Receivable was required
to be so purchased. The purchase obligation will constitute the sole remedy
available to the Securityholders, the Owner Trustee and the third party credit
enhancement provider, if any, for any such uncured breach.
CUSTODY OF RECEIVABLE FILES
Pursuant to the Trust Documents, the Servicer will service and administer
the Receivables. The Trust Documents will also designate the Servicer as
custodian to maintain possession, as the Owner Trustee's and Indenture
Trustee's, if any, agent, of the motor vehicle retail installment sale contracts
and any other documents relating to the Receivables. The documents will be
physically segregated from other similar documents that are in the Servicer's
possession and are stamped or marked to reflect the transfer to a Trust. Uniform
Commercial Code financing statements reflecting the sale and assignment of the
Receivables to the Seller and by the Seller to the Owner Trustee will be filed,
and TMS Auto Finance's accounting records and computer systems will be marked to
reflect such sale and assignment. See "Certain Legal Aspects of the Receivables
- - Security Interests in Vehicles".
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, reserve
account or other 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"). The Servicer will establish and maintain with the
related Owner Trustee an account, in the name of such Owner Trustee on behalf of
such Certificateholders, into which amounts released from the Collection Account
and any Pre-Funding Account, reserve account or other credit or cash flow
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account specified in the related Prospectus
Supplement in the name of the related Owner Trustee on behalf of the related
Certificateholders.
The Servicer will also establish an additional account (the "Payahead
Account") in the name of the Owner Trustee or the Indenture Trustee, into which
early payments by or on behalf of the Obligors which constitute neither
scheduled payments, full prepayments, nor certain partial prepayments as
described below ("Payaheads") will be deposited until such time as the payment
falls due. Unless otherwise specified in the related Prospectus Supplement, if
the Trust elects to be treated as a grantor trust, the Payahead Account will not
be an asset of such Trust, but will be pledged to the Owner Trustee for the
benefit of Certificateholders and any third-party credit enhancement provider
and all Investment Earnings thereon will be for the benefit of, and will be
distributable to, the Seller.
In addition, the Servicer will establish as additional segregated trust
accounts, if specified in the related Prospectus Supplement, a Pre-Funding
Account and one or more spread accounts or reserve or other accounts in the name
of the Owner Trustee or the Indenture Trustee on behalf of the Securityholders.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account, the Certificate Distribution Account and any Payahead
Account and any Pre-Funding Account, reserve account and other accounts
identified as such in the related Prospectus Supplement (collectively, the
"Accounts") will be invested as provided in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement in Eligible Investments. "Eligible
Investments" are limited to (a) direct obligations of, and obligations fully
guaranteed as to timely payment by, the United States of America; (b) 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 the District of Columbia (or any domestic branch of a
foreign bank), provided, that at the time of the investment, the commercial
paper or other short-term senior unsecured debt obligations of such depository
institution or trust company shall have a minimum credit rating satisfying each
of the Rating Agencies rating such Securities; (c) commercial paper having a
minimum credit rating satisfying each of the Rating Agencies rating such
Securities; (d) investments in money market funds having a minimum credit rating
satisfying each of the Rating Agencies rating such Securities; (e) repurchase
obligations with respect to any security that is a direct obligation of, or
fully guaranteed by, the United States of America entered into with a depository
institution or trust company (acting as principal) referred to in clause (b)
above; and (f) other investments acceptable to the Rating Agencies rating such
Securities which are consistent with the rating of such Securities. The related
Prospectus Supplement will specify whether and the extent to which investment
earnings on funds deposited in the Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), will be deposited in the
applicable Collection Account on each Distribution Date and treated as
collections of interest on the related Receivables or distributed to the
Servicer, as additional servicing compensation, the Seller or any other person.
Investment Earnings on a Pre-Funding Account will be deposited in the applicable
Collection Account on each Distribution Date and treated as collections of
interest on the Receivables.
The 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 in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Owner 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) which has either (A) a
long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will be required to make reasonable efforts to collect all
payments due with respect to the Receivables and will be required to continue
such collection procedures as it follows with respect to its own motor vehicle
retail installment sale contracts, in a manner consistent with the Trust
Documents. Consistent with its normal procedures, the 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 (other than to permit payment on a different date in the same month in
which the original due date falls) or the amount of the scheduled payments
(unless the obligor is in default or, in the judgment of the Servicer, such
default is imminent) 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 Representative or the Servicer being required to
purchase the Receivable for the Purchase Amount, while others may result in the
Servicer being required to make Advances. If the Servicer determines that
eventual payment in full of a Receivable is unlikely, the Servicer will follow
its normal practices and procedures to realize upon the Receivable, including
the repossession and disposition of the Financed Vehicle securing the Receivable
at a public or private sale, or the taking of any other action permitted by
applicable law.
COLLECTIONS
The Servicer will be required to deposit all payments on Receivables
received (net of amounts in respect of the Servicing Fee, the Supplemental
Servicing Fee and reimbursement for Advances, if any, included in such payments)
and all proceeds of Receivables collected during each Monthly Period (net of
amounts in respect of the Servicing Fee, the Supplemental Servicing Fee and
reimbursement for Advances, if any, included in such proceeds) into the
Collection Account as specified in the related Prospectus Supplement. However,
at any time that and for so long as (i) TMS Auto Finance is the Servicer, (ii)
there exists no Servicer Default, (iii) the credit enhancement provider, if any,
consents and (iv) each other condition to making deposits less frequently than
daily as may be specified by the Rating Agencies or set forth in the related
Prospectus Supplement is satisfied, the Servicer will not be required to deposit
such amounts into the Collection Account until on or before the applicable
Distribution Date or Payment Date. Pending deposit into the Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds. If the Servicer were
unable to remit such funds, Securityholders might incur a loss. To the extent
set forth in the related Prospectus Supplement, TMS Auto Finance may in order to
satisfy the requirements described above, obtain a letter of credit or other
security for the benefit of the related Trust to secure timely remittances of
collections on the related Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by TMS Auto Finance. If the
conditions specified above are satisfied, TMS Auto Finance, the Seller and the
Representative, as the case may be, will be required to remit the aggregate
Purchase Amount of Receivables to be purchased from the Trust to the Collection
Account on the Business Day immediately preceding the Distribution Date.
For purposes of the Trust Documents, collections on a Receivable made
during a Monthly Period are required to be applied first to the scheduled
payment thereof. To the extent that such collections on a Receivable during a
Monthly Period exceed the scheduled payment on such Receivable, the collections
(other than Payaheads) are required to be applied to prepay the Receivable in
full. In the case of Precomputed Receivables, if the collections are
insufficient to prepay the Receivable in full, they generally are required to be
treated as Payaheads until such later Monthly Period as such Payaheads may be
applied either to the scheduled payment or to prepay the Receivable in full.
ADVANCES
If and to the extent specified in the related Prospectus Supplement, the
Servicer may be required to advance (each, an "Advance") monthly payments of
interest in respect of a delinquent Receivable that the Servicer, in its sole
discretion, expects to receive from subsequent payments on or with respect to
such Receivable or from other Receivables. The Servicer shall 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.
SERVICING COMPENSATION
The Servicer is entitled under the Trust Documents to receive or retain, as
specified in the related Prospectus Supplement on each Distribution Date a
servicing fee (the "Servicing Fee") for the related Monthly Period at the rate
specified in the related Prospectus Supplement (the "Servicing Fee Rate")
multiplied by the Pool Balance as of the first day of such Monthly Period. The
Servicer is also entitled to retain from collections a supplemental servicing
fee (the "Supplemental Servicing Fee") for each Monthly Period equal to any late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period plus reinvestment proceeds on any payments
received in respect of Receivables. If specified in the related Prospectus
Supplement, the Servicer may be entitled to additional compensation from
investment earnings (net of losses) on certain accounts or otherwise. The
Servicer, in its discretion at its election, may defer receipt of all or any
portion of the Servicing Fee, the Supplemental Servicing Fee or any additional
compensation from investment earnings for any Monthly Period to and until a
later Monthly Period for any reason, including in order to avoid a shortfall in
any payments due on any Securities. Any such deferred amount shall be payable to
(or may be retained from subsequent collections by) the Servicer on demand.
The Servicing Fee and the Supplemental Servicing Fee and any other amounts
specified in the related Prospectus Supplement (collectively, the "Servicer
Fee") are intended to compensate the Servicer for performing the functions of a
third-party servicer of the Receivables as an agent for the Securityholders,
including collecting and posting all payments, responding to inquiries of
Obligors on the Receivables, investigating delinquencies, reporting tax
information to Obligors, paying costs of collections and policing the
collateral. The Servicer Fee will also compensate the Servicer for administering
the Receivables, including accounting for collections, furnishing monthly and
annual statements to the Owner Trustee and any Indenture Trustee with respect to
distributions and generating federal income tax information for the Trust. The
Servicer Fee also will reimburse the Servicer for certain taxes, the Trustee's
fees, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
MANDATORY PREPAYMENT
To the extent a Pre-Funding Account is specified in the related Prospectus
Supplement, the Securities will be prepaid in part on the Distribution Date on
which the Funding Period ends (or on the Distribution Date immediately following
the last day of the Funding Period, if the Funding Period does not end on a
Distribution Date) in the event that any amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of Subsequent
Receivables, if any, on such Distribution Date. The aggregate principal amount
of Securities to be prepaid will be an amount equal to the amount then on
deposit in the Pre-Funding Account in such portions as specified in the related
Prospectus Supplement. In such event, if and to the extent specified in the
related Prospectus Supplement, a limited recourse mandatory prepayment premium
(the "Prepayment Premium") may be payable by the Trust to the offered
Securityholders if the aggregate principal amount of the offered Securities to
be prepaid pursuant to such mandatory prepayment exceeds such threshold amount
as will be specified in the related Prospectus Supplement. The amount of such
Prepayment Premium, if any, will be specified in the related Prospectus
Supplement. A Trust's obligation to pay the Prepayment Premium shall be limited
to funds which are received from the Seller under the Purchase Agreement as
liquidated damages for the failure to deliver Subsequent Receivables. No other
assets of the Trust will be available for the purpose of making such payment.
The ratings of any series of Securities with respect to which a Prepayment
Premium is payable does not evaluate the Prepayment Premium or the likelihood
that the Prepayment Premium will be paid.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date or Payment
Date, as applicable, 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
Owner Trustee or the Indenture Trustee, as applicable, to the Securityholders.
The timing, calculation, allocation, order, source and priorities of, and
requirements for, all distributions to each class of Certificateholders and all
payments to each class of Noteholders will be set forth in the related
Prospectus Supplement.
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a class or classes of Notes or
Certificates of a series and ending in the date set forth on the related
Prospectus Supplement (the "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related series as are identified in such Prospectus Supplement. All collections
of principal otherwise allocated to such classes of Notes or Certificates may be
(i) utilized by the Trust during the Revolving Period to acquire additional
Receivables which satisfy the criteria described under "The Receivables -
General" herein and the criteria set forth in the related Prospectus Supplement,
(ii) held in an account and invested in Eligible Investments for later
distribution to Securityholders, (iii) applied to those Notes or Certificates,
if any, specified in the related Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as specified in the related Prospectus
Supplement.
An "Amortization Period" is the period during which an amount of principal
is payable to holders of a series of Securities which, during the Revolving
Period, were not entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Receivables may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
classes of Notes or Certificates specified in the related Prospectus Supplement
as then being entitled to payments of principal. In addition, if so specified in
the related Prospectus Supplement, amounts deposited in certain accounts for the
benefit of one or more classes of Notes or Certificates may be released from
time to time or on a specified date and applied as a payment of principal on
such classes of Notes or Certificates. The related Prospectus Supplement will
set forth the circumstances which will result in the commencement of an
Amortization Period.
Each Trust which has a Revolving Period may also issue to the Seller a
certificate evidencing a Retained Interest in the Trust not represented by the
other Securities issued by such Trust. As further described in the related
Prospectus Supplement, the value of such Retained Interest will fluctuate as the
amount of Trust Property fluctuates and the amount of Notes and Certificates of
the related series of Securities outstanding is reduced.
NET DEPOSITS
As an administrative convenience, unless otherwise specified in the related
Prospectus Supplement, the Servicer will be permitted to make the deposit of
collections, aggregate Advances and Purchase Amounts on the related Receivables
for any Trust for or with respect to the related Monthly Period net of
distributions to be made to the Servicer for such Trust with respect to such
Monthly Period. The Servicer may cause to be made a single, net transfer from
the Collection Account to the related Payahead Account, if any, or vice versa.
The Servicer, however, will account to the Trustee, any Indenture Trustee, the
third party credit enhancement provider, if any, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits,
distributions and transfers were made individually. With respect to any Trust
that issues both Certificates and Notes, if the related Payment Dates do not
coincide with Distribution Dates, all distributions, deposits or other
remittances made on a Payment Date will be treated as having been distributed,
deposited or remitted on the Distribution Date for the applicable Monthly Period
for purposes of determining other amounts required to be distributed, deposited
or otherwise remitted on such Distribution Date.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement, and the provider of any credit
enhancement, if any, with respect to each class of Securities will be set forth
in the related Prospectus Supplement. If and to the extent provided in the
related Prospectus Supplement, credit enhancement may be in the form of the
subordination of one or more classes of Securities, a spread account or other
type of reserve account, accelerated payments of principal relative to the
amortization of the related Receivables, financial guaranty insurance policy,
letter of credit, credit or liquidity facility, repurchase obligation, third
party payment or other support, cash deposit or such other arrangement, or any
combination of two or more of the foregoing, as may be described in the related
Prospectus Supplement. A Trust may also include a guaranteed investment contract
or reinvestment agreement pursuant to which funds held in one or more accounts
will be invested at a specified rate. If any class of Certificates or Notes of a
series has a floating interest rate, or if any of the Receivables has a floating
interest rate, the related Trust may include an interest rate swap contract, an
interest rate cap agreement or similar contract providing limited protection
against interest rate risks. If specified in the applicable Prospectus
Supplement, credit enhancement for a series of Securities may cover one or more
other series of Securities.
The presence of credit enhancement is intended to enhance the likelihood of
receipt by the credit enhanced Securityholders of the full amount of principal
and interest due thereon and to decrease the likelihood that such
Securityholders will experience losses. The credit enhancement for a class of
Securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal and interest thereon. If losses
occur which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, Securityholders will bear their allocable
share of deficiencies. In addition, if a form of credit enhancement covers more
than one series of Securities, Securityholders of any such series will be
subject to the risk that such credit enhancement will be exhausted by the claims
of Securityholders of other series.
EVIDENCE AS TO COMPLIANCE
The Trust Documents will provide that a firm of independent public
accountants will furnish to the Owner Trustee and the Indenture Trustee, if any,
and the third party credit enhancement provider, if any, on or before April 30
of each year, beginning in the calendar year following the establishment of the
related Trust, a statement as to compliance by the Servicer during the preceding
twelve months ended December 31 (or, for the initial report with respect to any
Securities for such longer or shorter period as shall have elapsed from the date
of issuance of the related Securities) with certain standards relating to the
servicing of the Receivables, the Servicer's accounting and computer systems
with respect thereto, and certain other matters.
The Trust Documents will also provide for delivery to the Owner Trustee and
the Indenture Trustee, if any, and the third party credit enhancement provider,
if any, on or before December 31 of each year, commencing in the calendar year
following the establishment of the related Trust, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the applicable Trust Documents throughout the preceding twelve months
ended April 30 (or, for the initial report with respect to any Securities for
such longer or shorter period as shall have elapsed from the date of issuance of
the related Securities) or, if there has been a default in the fulfillment of
any such obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Owner Trustee or the
Indenture Trustee, as the case may be.
CERTAIN MATTERS REGARDING THE SERVICER
The Trust Documents will provide that the initial Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the Owner Trustee or, if Notes have been issued, the Indenture Trustee, or
a successor servicer has assumed the Servicer's servicing obligations and duties
under the Trust Documents, and the third-party credit enhancer, if any, does not
elect to waive the obligations of the Servicer to perform the duties which
render it legally unable to act or does not elect to delegate those duties to
another person.
The Trust Documents will further provide that neither the Servicer, nor any
of its directors, officers, employees, and agents will be under any liability to
any Trust or any Securityholders for taking any action or for refraining from
taking any action pursuant to the Trust Documents, 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 (except for errors in judgment) in
the performance of duties, or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Trust Documents will provide that the
Servicer is under no obligation to appear in, prosecute or defend any legal
action that is not incidental to the Servicer's servicing responsibilities under
the Trust Documents and that, in its opinion, may cause it to incur any expense
or liability. The Servicer may, however, undertake any reasonable action that it
may deem necessary or desirable in respect of the Trust Documents, the rights
and duties of the parties thereto and the interests of the Securityholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Servicer, and the Servicer will not be entitled to be reimbursed therefor out of
any Account held by the Owner Trustee or the Indenture Trustee, as applicable.
Any entity into which the Servicer or the Seller, as the case may be, may
be merged or consolidated, or any entity resulting from any merger, conversion
or consolidation to which the Servicer or the Seller, as the case may be, is a
party, or any entity succeeding to the business of the Servicer or the Seller,
as the case may be, which assumes the obligations of the Servicer or the Seller,
as the case may be, will be the successor of the Servicer or the Seller, as the
case may be, under the Trust Documents. The Servicer may at any time perform its
duties as Servicer through one or more subservicers, but no such delegation
shall relieve the Servicer of its obligations under the Trust Documents.
SERVICER DEFAULT
"Servicer Default" under the Pooling and Servicing Agreements or the Sale
and Servicing Agreements, as the case may be, will consist of (i) any failure by
the Servicer and/or any other party identified in the related Prospectus
Supplement as so obligated to deliver to the Owner Trustee or the Indenture
Trustee, as applicable, to make any required distributions therefrom, which
failure continues unremedied for five business days after written notice from
the Owner Trustee or Indenture Trustee is received by the Servicer or after
discovery of such failure by the Servicer, (ii) any failure by the Seller or the
Servicer duly to observe or perform in any material respect any other covenant
or agreement in the Trust Documents which failure materially and adversely
affects the rights of Securityholders and which continues unremedied for 60 days
after the giving of written notice of such failure (1) to the Seller or the
Servicer, as applicable, by the Owner Trustee or the Indenture Trustee, or (2)
to the Seller or the Servicer, as applicable, and to the Owner Trustee or the
Indenture Trustee by Securityholders evidencing not less than 25% of a class of
Securities constituting at least 25% of the then Pool Balance for such series;
(or such longer period, not in excess of 120 days, as may be reasonably
necessary to remedy such default; provided that such default is capable of
remedy within 120 days or less and the Servicer delivers an officer's
certificate to the Owner Trustee and, if applicable, Indenture Trustees to such
effect and to the effect that the Servicer has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default);
and (iii) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings with respect to the Servicer
indicating its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not less
than 25% of principal amount of such Notes then outstanding may terminate all
the rights and obligations of the Servicer under such Sale and Servicing
Agreement, whereupon such Indenture Trustee or a successor servicer appointed by
such Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. In the case of any Trust that has
not issued Notes, as long as a Servicer Default under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement remains unremedied, the
related Owner Trustee or holders of Certificates of the related series
evidencing not less than 25% of the principal amount of such Certificates then
outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement or Pooling and Servicing Agreement, whereupon
such Owner Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement or 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 Servicer, and no Servicer Default other than such appointment
has occurred, such trustee or official may have the power to prevent such
Indenture Trustee, such Noteholders, such Owner Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Owner Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $50,000,000 and whose regular business
includes the servicing of motor vehicle retail installment sale contracts. Such
Indenture Trustee or Trustee may make such arrangements for compensation to be
paid, which in no event may be greater than the servicing compensation to the
Servicer under such Sale and Servicing Agreement or Pooling and Servicing
Agreement. Notwithstanding the foregoing, if and to the extent specified in the
related Prospectus Supplement, a third-party credit enhancement provider may
exercise the rights and remedies of the Owner Trustee, Indenture Trustee,
Noteholders and Certificateholders specified above.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in principal amount of the then-outstanding Notes
of the related series (or the holders of the Certificates of such series
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer Default which does not adversely affect the related
Indenture Trustee or such Noteholders) may, on behalf of all such Noteholders
and Certificateholders, waive any default by the Servicer in the performance of
its obligations under the related Sale and Servicing Agreement and its
consequences, except a Servicer Default in making any required deposits to or
payments from any of the Accounts in accordance with such Sale and Servicing
Agreement. With respect to each Trust that has not issued Notes, holders of
Certificates of such series evidencing not less than a majority of the principal
amount of such Certificates then outstanding may, on behalf of all such
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, except a Servicer Default in making any required deposits
to or payments from the Certificate Distribution Account or the related Accounts
in accordance with such Sale and Servicing Agreement or Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or Certificateholders'
rights with respect to subsequent defaults. Notwithstanding the foregoing, if
and to the extent specified in the related Prospectus Supplement, a third-party
credit enhancement provider may exercise the rights and remedies of the Owner
Trustee, Indenture Trustee, Noteholders and Certificateholders specified above.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, each of
the Agreements may be amended by the parties thereto, without the consent of the
related Noteholders or Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreements or of modifying in any manner the rights of such Noteholders of
Certificateholders; PROVIDED that such action will not, in the opinion of
counsel satisfactory to the related Owner Trustee or Indenture Trustee, as
applicable, materially and adversely affect the interest of any such Noteholder
or Certificateholder. Unless otherwise specified in the related Prospectus
Supplement, the Purchase Agreements, Pooling and Servicing Agreements and Sale
and Servicing Agreements may also be amended by the Seller, the Servicer, the
related Owner Trustee and any related Indenture Trustee with the consent of the
holders of Notes evidencing at least a majority in principal amount of then
outstanding Notes, if any, of the related series and the holders of the
Certificates of such series evidencing at least a majority of the principal
amount of such Certificates then outstanding, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreements or of modifying in any manner the rights of such Noteholders or
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 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
which are required to consent to any such amendment, without the consent of the
holders of all the outstanding Notes or Certificates, as the case may be, of
such series.
In addition, holders of certain classes of Securities of a series may have
the right to take actions that are detrimental to the interests of the
Securityholders of certain other classes of Securities of such series, as
specified in the related Prospectus Supplement. In certain cases, the senior
classes of securities may have the exclusive right to remove the Servicer, waive
defaults or control the disposition of collateral. In addition, because of the
relative size of the senior classes to the subordinate classes in most
senior/subordinate structures, the senior classes may effectively have voting
control over the Trust on matters that require the vote of all classes of
securities. In no event, however, will any class of securities have the right to
affect the interest rate or payment priorities of another class of securities.
Notwithstanding any of the foregoing, if and to the extent specified in the
related Prospectus Supplement, the consent of the third-party credit enhancement
provider, if any, for the related series may be required to any such amendment.
INSOLVENCY EVENT
With respect to a Trust that is not a grantor trust, if an Insolvency Event
occurs with respect to the Affiliated Purchaser, the related Receivables of such
Trust will be liquidated and the Trust will be terminated 90 days after the date
of such Insolvency Event, unless, before the end of such 90-day period, the
related Owner Trustee shall have received written instructions from (i) holders
of each class of the Certificates (other than the Affiliated Purchaser) with
respect to such Trust representing more than 50% of the aggregate unpaid
principal amount of each such class (not including the principal amount of such
Certificates held by such Company and (ii) holders of each class of Notes, if
any, with respect to such Trust representing more than 50% of the aggregate
unpaid principal amount of each such class 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
Affiliated Purchaser, notice thereof is required to be given to such Noteholders
and Certificateholders; PROVIDED that any failure to give such required notice
will not prevent or delay termination of such Trust. Upon termination of any
Trust, the related Owner Trustee shall, or shall direct the related Indenture
Trustee to, promptly sell the assets of such Trust (other than the 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
reserve account (if any), the Payahead Account (if any), the Note Distribution
Account (if any) and the Certificate Distribution Account are not sufficient to
pay the Notes, if any, and the Certificates of the related series in full, the
amount of principal returned to Noteholders and Certificateholders thereof will
be reduced and some or all of such Noteholders and Certificateholders will incur
a loss.
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Owner Trust without the unanimous prior approval of all
Certificateholders (including the applicable Affiliated Purchaser) of such Trust
and the delivery to such Trustee by each such Certificateholder (including such
Affiliated Purchaser) of a certificate certifying that such Certificateholder
reasonably believes that such Trust is insolvent.
PAYMENT OF 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 Owner 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.
AFFILIATED PURCHASER LIABILITY
Under each Trust Agreement, the Affiliated Purchaser will agree to be
liable directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a Noteholder or a
Certificateholder in the capacity of an investor with respect to such 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 such Affiliated Purchaser was a general
partner.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Seller,
the related Owner Trustee and the related Indenture Trustee, if any, pursuant to
the Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable, will terminate upon the latest of (i) the maturity or other
liquidation of the last related Receivable and the disposition of any amounts
received upon liquidation of any such remaining Receivables, (ii) the payment to
Noteholders, if any, and Certificateholders of the related series of all amounts
required to be paid to them pursuant to the Pooling and Servicing Agreement or
Sale and Servicing Agreement, as applicable, and the payment of any fees or
other amounts owing to the third party credit enhancement provider, if any, for
such Trust, and (iii) the occurrence of either event described below or such
other events provided in the related Prospectus Supplement.
The related Prospectus Supplement will specify whether the Servicer will be
permitted at its option to purchase from each Trust, as of the end of any
applicable Monthly Period, when the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 10% (or such other percentage specified
in the related Prospectus Supplement) or less of the Original Pool Balance
(calculated after giving effect to the principal balance of any Subsequent
Receivables as of their respective Cutoff Dates), all remaining related
Receivables at a price equal to the aggregate of the Purchase Amounts thereof as
of the end of such Monthly Period. If specified in the related Prospectus
Supplement, any such repurchase may require the consent of the third-party
credit enhancement provider, if any, of the related series.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Owner Trustee or, if Notes are outstanding, the
Indenture Trustee, will, within ten days following a Distribution Date as of
which the Pool Balance is equal to or less than the percentage of the Original
Pool Balance (calculated after giving effect to the principal balance of any
Subsequent Receivables as of their respective Subsequent Cutoff Dates) specified
in the related Prospectus Supplement, solicit bids for the purchase of the
Receivables remaining in such Trust, in the manner and subject to the terms and
conditions set forth in such Prospectus Supplement. If the Owner Trustee or
Indenture Trustee, as applicable, receives satisfactory bids as described in
such Prospectus Supplement, then the Receivables remaining in such Trust will be
sold to the highest bidder. If specified in the related Prospectus Supplement,
any such sale may require the consent of the third-party credit enhancement
provider, if any, of the related series.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The Owner Trustee and any Indenture Trustee will make no representations as
to the validity or sufficiency of the Trust Documents, the Certificates (other
than the authentication of the Certificates) or the Notes or any Receivables or
related documents, and is not accountable for the use or application by the
Servicer of any funds paid to the Seller or the Servicer in respect of the
Certificates, the Notes or the Receivables. The Owner Trustee and any Indenture
Trustee have not independently verified the Receivables. If no Event of Default
has occurred, the Owner Trustee or the Indenture Trustee is required to perform
only those duties specifically required of it under the Trust Documents.
Generally, those duties are limited to the receipt of the various certificates,
reports or other instruments required to be furnished to the Owner Trustee or
the Indenture Trustee under the Trust Documents, in which case it is only
required to examine them to determine whether they conform to the requirements
of the Trust Documents. The Owner Trustee and any Indenture Trustee shall not be
charged with knowledge of a breach of a representation or warranty, or a failure
by the Servicer to perform its duties under the Trust Documents which failure
constitutes an Event of Default unless the Owner Trustee or the Indenture
Trustee obtains actual knowledge of such breach or such failure as specified in
the Trust Documents.
The Owner Trustee and any Indenture Trustee are under no obligation to
exercise any of the rights or powers vested in them by the Trust Documents 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 Securityholders, unless such Securityholders have
offered to the Owner Trustee or the Indenture Trustee, as the case may be,
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No Securityholder will have any right
under the Trust Documents to institute any proceeding with respect to such Trust
Document or any related agreement, unless such holder previously has given to
the Owner Trustee or the Indenture Trustee written notice of default and unless
the Securityholders then outstanding evidencing not less than 25% of a class of
Securities constituting at least 25% of the then Pool Balance for such series
have made written request upon the Owner Trustee or the Indenture Trustee to
institute such proceeding in its own name as Owner Trustee or Indenture Trustee
thereunder and have offered to the Owner Trustee or Indenture Trustee reasonable
indemnity and the Owner Trustee or Indenture Trustee for 30 days has neglected
or refused to institute any such proceeding.
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
The Owner Trustee and any Indenture Trustee for each Trust will be
specified in the related Prospectus Supplement. The Owner Trustee or the
Indenture Trustee, in its individual capacity or otherwise, may hold Securities
in its own name or as pledgee. For the purpose of meeting the legal requirements
of certain jurisdictions, the Servicer and the Owner Trustee acting jointly (or
in some instances, the Owner Trustee acting alone) with (unless the related
Prospectus Supplement provides otherwise) the consent of the third party credit
enhancement provider, if any, so long as no Insurer Default (as defined in the
related Prospectus Supplement) has occurred and is continuing, 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 Owner Trustee by the Trust Documents
shall be conferred or imposed upon the Owner Trustee and such separate trustee
or co-trustee jointly, or, in any jurisdiction in which the Owner 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 Owner Trustee.
The Owner Trustee and any Indenture Trustee may resign at any time, in
which event the Seller with (unless the related Prospectus Supplement provides
otherwise) the consent of the third party credit enhancement provider, if any,
so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing, will be obligated to appoint a successor
trustee. The Sellers with (unless the related Prospectus Supplement provides
otherwise) the consent of the third party credit enhancement provider, if any
(so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing), may also remove the Owner Trustee if the Owner
Trustee ceases to be eligible to continue as such under the Trust Documents,
becomes legally unable to act or becomes insolvent. In such circumstances, the
Seller will be obligated to appoint a successor trustee. Any resignation or
removal of the Owner Trustee and appointment of a successor trustee does not
become effective until acceptance of the appointment by the successor trustee.
Any Indenture Trustee may be removed as set forth in the related Prospectus
Supplement.
The Trust Documents will provide that the Servicer will pay the Owner
Trustee's and any Indenture Trustee's fees. The Trust Documents will further
provide that the Owner Trustee and any Indenture Trustee will be entitled to
indemnification by the Seller and the Servicer for, and will be held harmless
against, any loss, liability, fee, disbursement or expense incurred by the Owner
Trustee or any Indenture Trustee not resulting from its 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 Trust Documents). The Trust
Documents will further provide that the Servicer will indemnify the Owner
Trustee and any Indenture Trustee for certain taxes that may be asserted in
connection with the transaction.
INDEMNIFICATION OF THE INSURER
The Trust Documents will provide that the third party credit enhancement
provider with respect to a Trust will be indemnified by the Seller and the
Servicer for, and held harmless against, any loss, liability, fee, disbursement
or expense incurred by such third party credit enhancement provider not
resulting from its 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 Trust Documents) and arising out of or resulting from the use, ownership or
operation by the Servicer or any affiliate thereof of a Financial Vehicle.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial Code
as in effect in California and the other states in which the Contracts are
originated ("UCC"). Pursuant to the UCC, an ownership interest in chattel paper
may be perfected by possession of the chattel paper or filing a UCC-1 financing
statement with the Secretary of State or other central filing office in the
appropriate state as required by the applicable UCC.
TMS Auto Finance will take or cause to be taken such action as is required
to perfect the Trust's rights in the Contracts and will represent and warrant
that the Trust, subject to the interest of the provider of credit enhancement,
if any, has good title, free and clear of liens and encumbrances, to each
Contract on the Closing Date. Under the Trust Documents, TMS Auto Finance, as
Servicer, will have possession of the Contracts following the sale of the
Contracts to the Trust and will hold the Contracts as custodian and agent of the
Owner Trustee and Indenture Trustee, if any. The Contracts will be physically
marked to indicate the ownership interest thereof by the Trust. UCC-1 financing
statements will also be filed with the California Secretary of State to perfect
by filing and give notice of the Trust's ownership interest in the Contracts.
TMS Auto Finance will agree in the Trust Documents to take all necessary action
to preserve and protect the Trust's ownership interest in the Contracts. The
Seller will represent and warrant that each Contract is secured by a Financed
Vehicle.
SECURITY INTERESTS IN VEHICLES
All of the Financed Vehicles were registered in the states where the
related Contracts were originated. Security interests in vehicles registered in
the State of California may be perfected by depositing with the California
Department of Motor Vehicles a properly endorsed certificate of title showing
the secured party as legal owner or an application for an original registration
together with an application for registration of the secured party as legal
owner. Security interests in vehicles registered in most other states are
perfected, generally, in a similar manner. The Seller will represent and warrant
to the Trust in the Trust Documents that all steps necessary to obtain a
perfected first priority security interest with respect to the Financed Vehicles
securing the Contracts have been taken. If the Servicer fails, because of
clerical error or otherwise, to effect or maintain such notation for a Financed
Vehicle, the Trust may not have a first priority security interest in such
Financed Vehicle. Each Receivable in a pool, unless that related Prospectus
Supplement indicates otherwise, typically prohibits the sale or transfer of the
Financed Vehicle without the Servicer's consent.
Perfection of security interests in the vehicles is generally governed by
the motor vehicle registration laws of the state in which the vehicle is
located. In California and the other states in which the Receivables have been
originated, a security interest in a vehicle generally may be perfected only by
causing such vehicle's certificate of title to be amended to note the security
interest of the secured party. Such notation of a secured party's security
interest is generally effected in California and such other states by depositing
with the applicable state motor vehicles registrar, or similar authority, along
with any necessary registration fees, the vehicle's certificate of title and an
application containing the name and address of the secured party.
Pursuant to the Purchase Agreement, TMS Auto Finance will assign its
security interests in the Financed Vehicles securing the Receivables to the
Seller and, pursuant to the Trust Documents, the Seller will assign its security
interests in the Financed Vehicles securing the Receivables to the Owner
Trustee. However, because of the administrative burden and expense, the
Servicer, the Seller and the Owner Trustee will not amend any certificate of
title to identify the Trust as the new secured party on the certificates of
title relating to the Financed Vehicles. Also, the Servicer will continue to
hold any certificates of title relating to the Financed Vehicles in its
possession as custodian for the Owner Trustee pursuant to the Trust Documents.
Under the law of California and most other states, assignments such as
those under the Purchase Agreement and the Trust Documents are an effective
conveyance of a security interest without amendment of any security interest
noted on a vehicle's certificate of title, and the assignee succeeds thereby to
the assignor's rights as secured party. In the absence of fraud or forgery by
the vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of the Servicer's security interest on the certificates
of title or the Servicer's possession of the certificate of title will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which a perfected
security interest was not obtained, the Trust's security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles,
lienholders and holders of perfected security interests. Such a failure,
however, would constitute a breach of TMS Auto Finance's warranties under the
Purchase Agreement and of the Seller's warranties under the Trust Documents and
would create an obligation of TMS Auto Finance and/or another party, if any,
designated, in the related Prospectus Supplement, under the Purchase Agreement
and of the Seller and/or another party, if any, designated, in the related
Prospectus Supplement, under the Trust Documents to purchase the related
Receivable unless the breach is cured. The Seller will assign its rights under
the Purchase Agreement to the Trust. By not identifying the Trust as the secured
party on the certificate of title, the security interest of the Trust in the
Financed Vehicle could be defeated through fraud or negligence.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states, including
California, 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 vehicles registered
in states providing for the notation of a security interest on the certificate
of title but not possession by the secured party, the secured party would
receive notice of surrender if the security interest is noted on the certificate
of title. Thus, the secured party would 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. In the ordinary course of servicing
receivables, TMS Auto Finance takes steps to effect re-perfection upon receipt
of notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor sells a vehicle, TMS Auto Finance must surrender
possession of the certificate of title or will receive notice as a result of its
security interest noted thereon and accordingly will have an opportunity to
require satisfaction of the related Receivable before release of the security
interest. Under the Trust Documents, the Servicer is obligated to take
appropriate steps, at the Servicer's expense, to maintain perfection of security
interests in the Financed Vehicles.
Under the laws of California, Texas and most other states, liens for
repairs performed on, and for storage of, a motor vehicle and liens for certain
unpaid taxes take priority over even a perfected security interest in a Financed
Vehicle. The Internal Revenue Code of 1986, as amended, also grants priority to
certain federal tax liens over the security interest of a secured party. The
laws of certain states and federal law permit the confiscation of motor vehicles
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
motor vehicle. TMS Auto Finance will represent to the Seller and the Seller will
represent to the Trust that each security interest in a Financed Vehicle is or
will be prior to all other present liens (other than tax liens and liens that
arise by operation of law) upon and security interests in such Financed Vehicle.
However, liens for repairs or taxes, or the confiscation of a Financed Vehicle,
could arise or occur at any time during the term of a Receivable. No notice will
be given to the Owner Trustee, the Indenture Trustee, if any, or any
Securityholders in the event such a lien arises or confiscation occurs.
REPOSSESSION
In the event of a 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 laws. In addition to
the provisions of the UCC, under California law the Contracts originated in
California are subject to the provisions of its Rees-Levering Motor Vehicle
Sales and Finance Act (the "Rees-Levering Act"). Contracts originated in other
states are subject to retail installment sales laws and similar laws of those
states. The provisions of the Rees-Levering Act and similar laws of other states
control in the event of a conflict with the provisions of the UCC. The UCC
remedies of a secured party include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Unless a
vehicle is voluntarily surrendered, self-help repossession by outside agencies
is the method employed by TMS Auto Finance in the majority of instances in which
a default occurs and is accomplished by retaking possession of the financed
vehicle. The Rees-Levering Act and similar laws of other states place
restrictions on repossession sales, including notice to the debtor of the intent
to sell and of the debtor's right to redeem the vehicle. In addition, the UCC
requires commercial reasonableness in the conduct of the sale. 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. In certain states under certain circumstances after the vehicle
has been repossessed, the Obligor may reinstate the contract by paying the
delinquent installments on the contract and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
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 the
Obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
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. In
some states 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 this sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some other states, by payment of delinquent
installments or the unpaid balance. Repossessed vehicles are generally resold by
TMS Auto Finance through automobile auctions which are attended principally by
automotive dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the Obligor on the Receivable. 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.
Under California law the proceeds from the resale of the motor vehicle securing
the debtor's loan are required to be applied first to the expenses of resale and
repossession, and if the remaining proceeds are not sufficient to repay the
indebtedness, the creditor may seek a deficiency judgment for the balance. The
priority of application of proceeds of sale as to repossessed vehicles under
Contracts originated in most other states is similar. 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
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any other holder of any lien with respect to the
vehicle or, if no such lienholder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former Obligor.
INSOLVENCY MATTERS
TMS Auto Finance will intend that any transfer of Receivables to the Seller
will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of TMS Auto Finance. However, if TMS Auto Finance were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or TMS Auto Finance as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of TMS Auto Finance. The Seller has taken and will take steps in
structuring the transactions contemplated hereby and by any Prospectus
Supplement that are intended to minimize the risk that the voluntary or
involuntary application for relief under any Insolvency Law would result in the
assets and liabilities of the Seller being consolidated with the assets and
liabilities of any other person. Nevertheless, if TMS Auto Finance were to
become a debtor under any Insolvency Laws, and such positions - that the
transfer of Receivables was a pledge rather than a sale or otherwise should be
treated as part of its bankruptcy estate and/or that the assets and liabilities
of the Seller should be consolidated - were presented to or accepted by a court,
then delays in payments to Securityholders could occur or reductions in the
amounts of such payments could result. In addition, if the Seller were to become
a debtor under any Insolvency Law and a creditor or trustee-in-bankruptcy of
such debtor or such debtor itself were to take the position that the sale of
Receivables to such Trust should instead be treated as a pledge of such
Receivables to secure a borrowing of such debtor, delays in payments of
collections of Receivables to the related Securityholders could occur or
reductions in the amounts of such payments could result. In addition, if the
transfer of any Receivables is recharacterized as a pledge, a tax lien, other
governmental lien, or other lien created by operation of law on the property of
the Servicer, the holder of such lien may have priority over the Trust's
interest in such Receivables. See "The Seller."
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, OCTAGON GAS SYSTEM, INC. V. RIMMER, such Circuit
Court found that "accounts", a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If TMS Auto Finance or the Seller were to become a
debtor in a bankruptcy proceeding and a court applied the reasoning of the
Circuit Court reflected in the case described above, delays in payments to
Securityholders could occur or reductions in the amounts of such payments could
result.
With respect to each Trust that is not a grantor trust, if an Insolvency
Event with respect to the Affiliated Purchaser (which will be, as specified in
the related Prospectus Supplement, the Seller, a wholly owned subsidiary of the
Seller or a limited partnership of which such subsidiary is the general partner
and the Seller is the limited partner, as set forth in such Prospectus
Supplement) occurs, the Indenture Trustee or Owner Trustee for such Trust will
promptly sell, dispose of 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 Collection
Account or other accounts available for Securityholders with respect to any such
Trust and any amounts available from any credit enhancement are not sufficient
to pay any Notes and the Certificates of the related series in full, the amount
of principal returned to any Noteholders or the Certificateholders will be
reduced and such Noteholders and Certificateholders will incur a loss.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, the Rees-Levering Act 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 (such as the Trust's)
ability to enforce consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, state statutes or the common law in certain
states, has the effect of subjecting a seller (and certain related lenders and
their assignees, such as the Trust) in a consumer credit transaction and any
assignee of the seller to all claims and defenses which 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, the Owner Trustee, as holder of the Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts theretofore paid by the obligor on the
Receivable. Under most state motor vehicle dealer licensing laws, sellers of
motor vehicles are required to be licensed to sell motor vehicles at retail
sale. Furthermore, Federal Odometer Regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new and
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 an
Odometer Disclosure Statement was not provided to the purchaser of the related
financed vehicle, the obligor may be able to assert a defense against the seller
of the vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors 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 consumers.
In addition to those parties, if any, identified in the related Prospectus
Supplement, TMS Auto Finance and the Seller will warrant under the Purchase
Agreement and the Trust Documents, that each Receivable complies with all
requirements of law in all material respects. Accordingly, if an Obligor has a
claim against the Trust for violation of any law and the Owner Trustee or the
Indenture Trustee, as the case may be, determines such claim materially and
adversely affects the Trust's interest in a Receivable, such violation would
constitute a breach of warranty under the Purchase Agreement and the Trust
Documents and would create an obligation of TMS Auto Finance, the Seller and the
party, if any, identified in the related Prospectus Supplement, 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 lender to
resale upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The Receivables in a pool, unless the related Prospectus Supplement
indicates otherwise, typically prohibit the sale or transfer of the vehicle
securing a Receivable without the Servicer's consent and permit the Servicer to
accelerate the maturity of the Receivable upon a sale or transfer without its
consent. The Servicer generally will not consent to a sale or transfer without
prepayment of the Receivable. However, in certain circumstances the Servicer may
enter into a transfer of equity agreement with the secondary purchaser for the
purpose of effecting the transfer of the Financed Vehicle.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of the Notes and the Certificates.
Stroock & Stroock & Lavan LLP, special federal tax counsel for the Seller
("Federal Tax Counsel"), is of the opinion that the discussion hereunder fully
and fairly discloses all material federal tax risks associated with the
purchase, ownership and disposition of the Notes and Certificates. The summary
does not purport to deal with federal income tax consequences or special rules
that are applicable to certain categories of holders. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on all of the issues discussed
below. As a result, the IRS may disagree with all or a part of the discussion
below. Prospective investors are urged to consult their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences to
them of the purchase, ownership and disposition of the Notes and the
Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The opinion of Federal Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any of
the issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless otherwise
specified herein, to each Trust and the Notes, Certificates and related terms,
parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust will be treated as a partnership under the Code,
whether the Trust will be treated as a grantor trust, or whether it is intended
that the Trust serve as a security device for the issuance of Certificates that
are to be treated as indebtedness for federal income tax purposes. The
Prospectus Supplement for each series of Certificates will specify whether the
Trust will be treated as a partnership, a grantor trust, or is intended to serve
as a security device as just described. In addition, if the related Prospectus
Supplement so provides, the Transaction Documents for a Trust may provide that
an election will be made on or after September 1, 1997 to qualify such Trust as
a Financial Asset Securitization Investment Trust pursuant to new provisions of
the Code which will be effective as of such date.
TRUSTS TREATED AS PARTNERSHIPS
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion that a Trust which is intended
to be a partnership, as specified in the related Prospectus Supplement, will not
be an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Agreement and related documents will be complied with,
and on counsel's conclusions that (1) the Trust will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that in its
opinion the Notes will be classified as debt for federal income tax purposes.
The discussion below assumes this characterization of the Notes is correct.
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (I.E, any excess
of the principal amount of the Notes over their issue price) does not exceed a
DE MINIMIS amount (i.e., generally 1/4% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID regulations. If these conditions are not satisfied with respect to any given
series of Notes, additional tax considerations with respect to such Notes will
be disclosed in the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions the Notes
generally will not be considered issued with OID. The stated interest thereon
will be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under the
OID regulations, a holder of a Note issued with a DE MINIMIS amount of OID
generally must include such OID in income, on a pro rata basis, as principal
payments are made on the Note. However, a holder may elect to accrue DE MINIMIS
OID under a constant yield method in connection with an election to accrue all
interest, discount, and premium on the Note using the constant yield method. See
"Trusts Treated as Grantor Trusts--Taxation of Holders if Stripped Bond Rules Do
Not Apply-- Election to Treat All Interest as OID" for a discussion of such
election. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short- Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID,
if any, and gain previously included by such Noteholder in income with respect
to the Note and decreased by the amount of bond premium (if any) previously
amortized and by the amount of principal payments previously received by such
Noteholder with respect to such Note. Any such gain or loss generally will be
capital gain or loss if the Note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used only to offset capital
gains.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder who is
a Foreign Investor, as defined below, generally will be considered "portfolio
interest," and generally will not be subject to United States federal income tax
and withholding tax, if the interest is not effectively connected with the
conduct of a trade or business within the United States by the Foreign Investor
and the Foreign Investor (i) is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of the
outstanding Certificates) or a "controlled foreign corporation" with respect to
which the Trust or the Seller is a "related person" within the meaning of the
Code and (ii) provides the Owner Trustee or other person who is otherwise
required to withhold U.S. tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a Foreign Investor and
providing the Foreign Investor's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the Foreign Investor
that owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable tax treaty.
Any gain realized on the sale, redemption, retirement or other taxable
disposition of a Note by a foreign person will be exempt from United States
federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor, (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year, and (iii) in the case of gain representing accrued
interest or OID, the conditions described in the immediately preceding paragraph
are satisfied.
If the interest, gain or income on a Note held by a Foreign Investor is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor (although exempt from the withholding tax
previously discussed if the holder provides an appropriate and timely statement
on Form 4224), the holder generally will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
In addition, if the Foreign Investor is a foreign corporation, it may be subject
to a branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty (as modified by the branch profits tax rules).
Proposed Treasury regulations which would be effective for payments made
after December 31, 1997 if adopted in their current form would provide
alternative certification requirements and means by which a Foreign Investor
could claim the exemptions from federal income and withholding taxes.
For purposes of this tax discussion, a Foreign Person or Foreign Investor
is any person other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
whose income is includable in gross income for United States federal income
taxation regardless of source, or (iv) a trust other than a "Foreign Trust," as
such term is defined in Section 7701(a)(31) of the Code.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing, among other things, the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation if it met certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
Foreign Investors generally would be subject to U.S. tax and U.S. tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Seller and TMS Auto Finance
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of the
arrangement involving the Trust, the Certificates, the Notes, the Seller and TMS
Auto Finance is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
For example, because the Certificates may have certain features
characteristic of debt, the Certificates might be considered debt of the Seller
or the Trust. Generally, provided such Certificates are issued at or close to
face value, any characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. If
Certificates are issued at a substantial discount, a discussion of the relevant
tax consequences will be set forth in the related Prospectus Supplement. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all payments
on the Certificates are denominated in U.S. dollars, none of the Certificates
are Indexed Securities or Strip Certificates, and that a series of Securities
includes a single class of Certificates. If these conditions are not satisfied
with respect to any given series of Certificates, additional tax considerations
with respect to such Certificates will be disclosed in the applicable Prospectus
Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" and "Tax Consequences to Foreign
Certificateholders" below. The Trust's income will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although Federal Tax Counsel is unable to
opine that the IRS would not require a greater amount of income to be allocated
to Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of some of the taxable income allocated to a Certificateholder that is
a pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may conpstitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction will be allocated to Certificateholders if the
related Trust Agreement so provides. Any such allocation will be disclosed in
the related Prospectus Supplement.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. Proposed
regulations would provide that if a termination occurs the partnership will be
considered to transfer its assets and liabilities to a new partnership in
exchange for interests in that new partnership which it would then be treated as
transferring to its partners. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Affiliated
Purchaser is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
ADMINISTRATIVE MATTERS. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Owner Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS with respect to partnership
items. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and, 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. As discussed below, an
investment in a Certificate is not suitable for any Foreign Person, as defined
above, which is not eligible for a complete exemption from U.S. withholding tax
on interest under a tax treaty with the United States. Accordingly, no interest
in a Certificate should be acquired by or on behalf of any such Foreign Person.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for Federal withholding tax purposes with respect
to a Foreign Person of a partnership with activities substantially the same as
the Trust. Depending upon the particular terms of the related Trust Agreement
and Sale and Servicing Agreement, a trust may be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding taxes
with respect to non-U.S. persons. If the Trust is considered to be engaged in a
trade or business in the United States for such purposes, the income of the
Trust distributable to a non-U.S. person would be subject to Federal withholding
tax at a rate of 35% for persons taxable as a corporation and 39.6% for all
other Foreign Persons. Also, in such cases, a Foreign Person that is a
corporation may be subject to the branch profits tax. If the Trust is notified
that a Certificateholder is a Foreign Person, the Trust may withhold as if it
were engaged in a trade or business in the United States in order to protect the
Trust from possible adverse consequences of a failure to withhold. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures.
If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a United States federal individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to
withheld taxes, taking the position that no taxes were due because the Trust was
not engaged in a United States trade or business. However, interest payments
made to (or accrued by) a Certificateholder who is a Foreign Person may be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust and for that reason or because of the
nature of the Receivables, the interest will likely not be considered "portfolio
interest." See "--Tax Consequences to Holders of the Notes Issued by a
Partnership -Foreign Holders" for a discussion of portfolio interests. As a
result, even if the Trust is not considered to be engaged in a U.S. trade or
business, Certificateholders would be subject to United States Federal income
tax which must be withheld at a rate of 30% on their share of the Trust's income
(without reduction for interest expense), unless reduced or eliminated pursuant
to an applicable income tax treaty. If the Trust is notified that a
Certificateholder is a Foreign Person, the Trust may be required to withhold and
pay over such tax, which can exceed the amounts otherwise available for
distribution to such a Certificateholder. A Foreign Person would generally be
entitled to file with the IRS a refund claim for such withheld taxes, taking the
position that the interest was portfolio interest and therefore not subject to
U.S. tax. However, the IRS may disagree and no assurance can be given as to the
appropriate amount of tax liability. As a result, each potential foreign
Certificateholder should consult its tax advisor as to whether the tax
consequences of holding an interest in a Certificate make it an unsuitable
investment.
BACKUP WITHHOLDING. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
As specified in the related Prospectus Supplement, if a partnership
election is not made and the Certificates are not treated as debt for federal
income tax purposes as discussed below, Federal Tax Counsel will deliver its
opinion that the Trust will not be classified as an association taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. In this case, owners of
Certificates (referred to herein as "Grantor Trust Certificateholders") will be
treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus such holder's other miscellaneous
itemized deductions exceed two percent of such holder's adjusted gross income.
Such deductions may also be limited by Code Section 68 for an individual whose
adjusted gross income exceeds certain limits. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share of
income and deductions as and when collected by or paid to the Servicer. A
Grantor Trust Certificateholder using an accrual method of accounting must take
into account its pro rata share of income and deductions as they become due or
are paid to the Servicer, whichever is earlier. If the servicing fees or other
amounts paid to the Servicer exceed reasonable servicing compensation, the
amount of such excess would be considered as an ownership interest retained by
the Servicer (or any person to whom the Servicer assigned all or a portion of
the servicing fees) in a portion of the interest payments on the Receivables.
The Receivables would then be subject to the stripped bond rules of the Code
discussed below.
TAXATION OF HOLDERS IF STRIPPED BOND RULES APPLY
In the absence of comprehensive regulations, Federal Tax Counsel is unable
to opine as to the tax treatment of stripped bonds. The preamble to certain
stripped bond regulations suggests that each purchaser of a Grantor Trust
Certificate will be treated with respect to each Receivable as the purchaser of
a single stripped bond consisting of all of the stripped portions of the
applicable Receivable (such portions with respect to a Receivable are referred
to herein as a "Stripped Bond") which generally should be treated as a single
debt instrument issued on the day it is purchased for purposes of calculating
any original issue discount. Generally, under Treasury regulations relating to
Stripped Bonds (the "Section 1286 Treasury Regulations"), if the discount on a
Stripped Bond is larger than a DE MINIMIS amount (as calculated for purposes of
the OID rules of the Code) such Stripped Bond will be considered to have been
issued with OID. See "-- Original Issue Discount" herein. Based on the preamble
to the Section 1286 Treasury regulations, although the matter is not entirely
clear, the interest income on the Certificates at the sum of the Pass-Through
Rate and the portion of the Servicing Fee Rate that does not constitute excess
servicing should be treated as "qualified stated interest" within the meaning of
the Section 1286 Treasury regulations, assuming all other requirements for
treatment as qualified stated interest are satisfied, and such income will be so
treated in the Trustee's tax information reporting.
ORIGINAL ISSUE DISCOUNT. When Stripped Bonds have more than a DE MINIMIS
amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires an interest in a Stripped Bond issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Stripped Bond for each day on which it owns
a Certificate, including the date of purchase but excluding the date of
disposition. Although the proper method is not entirely clear, the Trust intends
to calculate the daily portions of OID with respect to a Stripped Bond generally
as follows. A calculation will be made of the portion of OID that accrues on the
Stripped Bond during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Stripped Bond
under the prepayment assumption, if any, used in respect of the Stripped Bonds
and (ii) any payments received during such accrual period, and subtracting from
that total the "adjusted issue price" of the Stripped Bond at the beginning of
such accrual period. No representation is made that the Stripped Bonds will
prepay at any prepayment assumption. The "adjusted issue price" of a Stripped
Bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the "adjusted issue
price" of a Stripped Bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment (other than "qualified stated interest") made at the
end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under either an
exact or approximate method set forth in the OID Regulations, or some other
reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the Receivables.
With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
TAXATION OF HOLDERS IF STRIPPED BOND RULES DO NOT APPLY
PREMIUM. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Receivable based on each
Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is unclear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for Receivables that are construed to
be acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption or it prepays faster than the prepayment assumption, the holder of a
Grantor Trust Certificate acquired at a premium should recognize a loss if a
Receivable prepays in full, equal to the difference between the portion of the
prepaid principal amount of such Receivable that is allocable to the Grantor
Trust Certificate and the portion of the adjusted basis of the Grantor Trust
Certificate that is allocable to such Receivable.
MARKET DISCOUNT. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Receivable allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Receivable will be considered to be zero if the amount allocable to the
Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Because the
regulations described above have not been issued, Federal Tax Counsel is unable
to opine as to what effect those regulations might have on the tax treatment of
a Grantor Trust Certificate purchased at a discount.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the DE MINIMIS rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including DE
MINIMIS market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
TAXATION OF HOLDERS REGARDLESS OF WHETHER STRIPPED BOND RULES APPLY
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Subject to the discussion
of market discount above, such gain or loss generally will be capital gain or
loss to an owner for which a Grantor Trust Certificate is a "capital asset"
within the meaning of Section 1221, and will be long-term or short-term
depending on whether the Grantor Trust Certificate has been owned for the
long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
NON-U.S. PERSONS. To the extent that a Grantor Trust Certificate evidences
ownership in underlying Receivables that were issued on or before July 18, 1984,
interest or OID paid by the person required to withhold tax under Section 1441
or 1442 to (i) an owner that is a Foreign Person or (ii) a Grantor Trust
Certificateholder holding on behalf of an owner that is a Foreign Person will be
subject to federal income tax, collected by withholding, at a rate of 30% or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued OID recognized by the owner on the sale or exchange of such a Grantor
Trust Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would be considered portfolio interest and would not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Receivables issued after July 18, 1984, if such Grantor Trust
Certificateholder complies with certain identification requirements (including
delivery of a statement, signed by the Grantor Trust Certificateholder under
penalties of perjury, certifying that such Grantor Trust Certificateholder is
the beneficial owner, is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to
Receivables where the Obligor is not a natural person in order to qualify for
the exemption from withholding. See "--Tax Consequences to Holders of the Notes
Issued by a Partnership--Foreign Holders" for a discussion of when interest will
constitute portfolio interest.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that based upon its analysis of the factors discussed below and certain
assumptions and qualifications the Certificates will be treated as indebtedness
for federal income tax purposes. However, opinions of counsel are not binding on
the IRS and there can be no assurance that the IRS could not successfully
challenge this conclusion. Such Certificates that are intended to be treated as
indebtedness are herein referred to as "Debt Certificates" and holders of such
Certificates are herein referred to as "Debt Certificateholders."
The Seller will express in the Trust Documents its intent that for federal,
state and local income and franchise tax purposes, the Debt Certificates will be
indebtedness secured by the Receivables. The Seller agrees and each Debt
Certificateholder, by acquiring an interest in a Debt Certificate, agrees or
will be deemed to agree to treat the Debt Certificates as indebtedness for
federal, state and local income or franchise tax purposes. However, because
different criteria are used to determine the non-tax accounting characterization
of the transactions contemplated by the Trust Documents, the Seller expects to
treat such transactions, for regulatory and financial accounting purposes, as a
sale of ownership interests in the Receivables and not as debt obligations.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction. The form of a transaction, while a
relevant factor, is not conclusive evidence of its economic substance. In
appropriate circumstances, the courts have allowed taxpayers, as well as the IRS
to treat a transaction in accordance with its economic substance, as determined
under federal income tax laws, notwithstanding that the participants
characterize the transaction differently for non-tax purposes. In some
instances, however, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Federal Tax Counsel will
advise that the rationale of those cases will not apply to the transactions
evidenced by a series of Debt Certificates.
While the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "--Possible
Characterization of the Transaction as a Partnership or as an Association
Taxable as a Corporation."
TAXATION OF INCOME OF DEBT CERTIFICATEHOLDERS
As set forth above, it is expected that Federal Tax Counsel will advise the
Seller that the Debt Certificates will constitute indebtedness for Federal
income tax purposes, and accordingly, holders of Debt Certificates generally
will be taxed in the manner described above in "Trusts Treated as
Partnerships--Tax Consequences to Holders of Notes Issued by a Partnership."
If the Debt Certificates are issued with OID that is more than a DE MINIMIS
amount as defined in the Code and Treasury regulations (see "Trusts Treated as
Partnerships--Tax Consequences to Holders of Notes Issued by a Partnership") a
United States holder of a Debt Certificate (including a cash basis holder)
generally would be required to accrue the OID on its interest in a Certificate
in income for federal income tax purposes on a constant yield basis, resulting
in the inclusion of OID in income in advance of the receipt of cash attributable
to that income. Under section 1272(a)(6) of the Code, special provisions apply
to debt instruments on which payments may be accelerated due to prepayments of
other obligations securing those debt instruments. However, no regulations have
been issued interpreting those provisions, and the manner in which those
provisions would apply to the Debt Certificates is unclear. Additionally, the
IRS could take the position based on Treasury regulations that none of the
interest payable on a Debt Certificate is "unconditionally payable" and hence
that all of such interest should be included in the Debt Certificate's stated
redemption price at maturity. Accordingly, Federal Tax Counsel is unable to
opine as to whether interest payable on a Debt Certificates constitutes
"qualified stated interest" that is not included in a Certificate's stated
redemption price at maturity. Consequently, prospective investors in Debt
Certificates should consult their own tax advisors concerning the impact to them
in their particular circumstances. The Prospectus Supplement will indicate
whether the Trust intends to treat the interest on the Certificates as
"qualified stated interest".
TAX CHARACTERIZATION OF TRUST
Consistent with the treatment of the Debt Certificates as indebtedness, the
Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions and qualifications set forth therein, under then
current law, the issuance of the Debt Certificates of such series will not cause
the applicable Trust to be characterized for Federal income tax purposes as an
association (or publicly traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN
ASSOCIATION TAXABLE AS A CORPORATION
The opinion of Federal Tax Counsel with respect to Debt Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the Seller and some or all of the Debt Certificateholders resulting from
the transactions is that of a partnership (including a publicly traded
partnership), a publicly traded partnership taxable as a corporation, or an
association taxable as a corporation. The Seller currently does not intend to
comply with the federal income tax reporting requirements that would apply if
any Classes of Debt Certificates were treated as interests in a partnership or
corporation.
If a transaction were treated as creating a partnership between the Seller
and the Debt Certificateholders, the partnership itself would not be subject to
federal income tax (unless it were characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such partnership,
including the Debt Certificateholders, would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deductions
of a Debt Certificate could differ if the Debt Certificates were held to
constitute partnership interests, rather than indebtedness. Moreover, unless the
partnership were treated as engaged in a trade or business, an individual's
share of expenses of the partnership would be miscellaneous itemized deductions
that, in the aggregate, are allowed as deductions only to the extent they exceed
two percent of the individual's adjusted gross income, and would be subject to
reduction under Section 68 of the Code if the individual's adjusted gross income
exceeded certain limits. As a result, the individual might be taxed on a greater
amount of income than the stated rate on the Debt Certificates. Finally, all or
a portion of any taxable income allocated to a Debt Certificateholder that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may, under certain circumstances,
constitute "unrelated business taxable income" which generally would be taxable
to the holder under the Code.
If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Debt Certificateholders. Such classification
may also have adverse state and local tax consequences that would reduce amounts
available for distribution to Debt Certificateholders. Moreover, distributions
on Debt Certificates that are recharacterized as equity in an entity taxable as
a corporation would not be deductible in computing the entity's taxable income,
and cash distributions on such Debt Certificates generally would be treated as
dividends for tax purposes to the extent of such deemed corporation's earnings
and profits.
FOREIGN INVESTORS
If the IRS were to contend successfully that the Debt Certificates are
interest in a partnership and if such partnership were considered to be engaged
in a trade or business in the United States, the partnership would be subject to
a withholding tax on income of the Trust that is allocable to a Foreign Investor
and such Foreign Investor would be credited for his or her share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular income tax
rates, and possibly a branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Debt Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the Foreign Investor, the Foreign Investor would be subject to
United States income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the holder's distributive share of the partnership's
interest income. See "Trusts Treated as Partnerships--Tax Consequences to
Holders of the Certificates Issued by the Partnership--Tax Consequences to
Foreign Certificateholders" for a more detailed discussion of the consequences
of an equity investment by a Foreign Investor in an entity characterized as a
partnership.
If the Trust were taxable as a corporation, distribution to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30% unless such rate were reduced or eliminated by an
applicable income tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates, the Notes or the holders of Certificates or Notes of any series
under state and local tax laws. Prospective investors are urged to consult their
own tax advisors regarding state and local tax treatment of the Trust, the
Certificates, the Notes and the consequences of purchase, ownership or
disposition of the Certificates and Notes under any state or local tax law.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), should consider
the fiduciary standards under ERISA in the context of the plan's particular
circumstances before authorizing an investment of a portion of such plan's
assets in the Securities. Accordingly, among other factors, such fiduciary
should consider (i) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries; (ii) whether the investment satisfies the
diversification requirements of Section 404 of ERISA; (iii) whether the
investment is in accordance with the documents and instruments governing the
plan and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of such plans also should consider ERISA's prohibition
on improper delegation of control over, or responsibility for, plan assets.
In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as certain plans or other retirement arrangements not subject to
ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in such entity (collectively, "Plans(s)") are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. The Seller, the Trustee, the Owner Trustee and any
underwriter of the offered Securities and certain of their affiliates might be
considered "parties in interest" or "disqualified persons" with respect to a
Plan. If so, the acquisition, holding or transfer of Securities by, or on behalf
of, such Plan could be considered to give rise to a "prohibited transaction"
within the meaning of ERISA and the Code unless a regulatory exception or
administrative exemption is available. In addition, the Department of Labor
("DOL") has issued a regulation (29 C.F.R. Section 2510.3-101) (the "Plan Assets
Regulation") concerning the definition of what constitutes the assets of a Plan,
which provides that, as a general rule, the underlying assets and properties of
corporations, partnerships, trusts and certain other entities in which a Plan
makes an "equity" investment will be deemed for purposes of ERISA to be assets
of the investing Plan unless certain exceptions apply. If an investing Plan's
assets were deemed to include an interest in the Trust Property and not merely
an interest in the Securities, transactions occurring in connection with the
servicing, management and operation of the Trust between the Seller, the Owner
Trustee, the Trustee, the Servicer (or any other servicer), any insurer or any
of their respective affiliates might constitute prohibited transactions, and the
Trust Property would become subject to the fiduciary investment standards of
ERISA, unless a regulatory exception or administrative exemption applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III.B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III.B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments, (3)
obligations secured by residential or commercial real property, (4) obligations
secured by motor vehicles or equipment or qualified motor vehicle leases, (5)
guaranteed governmental mortgage pool certificates or (6) an undivided
fractional interest in any of the obligations listed in clauses (1) - (5) above.
If the general conditions of Section II of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Certificates by Plans in the initial issue of Certificates, the holding of
Certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of Certificates by Plans. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Certificate on behalf of an "Excluded Plan" by
any person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes of the Certificates,
an Excluded Plan is a Plan sponsored by (1) an underwriter which has been
granted an Exemption (or certain specified entities affiliated or associated
with such underwriter) ("Underwriter"), (2) the Seller, (3) the Servicer (or any
other servicer), (4) the Trustee or Owner Trustee, (5) any obligor with respect
to Receivables constituting more than 5 percent of the aggregate unamortized
principal balance of the Receivables as of the date of initial issuance, (6) any
insurer and (7) any affiliate or successor of a person described in (1) to (6)
above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of the Exemption
are also satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(I)(E) of the
Code in connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the Seller or
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan assets in
Certificates is (a) an obligor with respect to 5 percent or less of the fair
market value of the Receivables or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans and (3) the holding of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust and the Trust Property.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which must
be satisfied for a transaction to be eligible for exemptive relief thereunder.
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Securities issued by the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Structured Ratings Group, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Service, L.P. ("National Credit Rating Agencies");
(4) Neither the Trustee or the Owner Trustee is an affiliate of any other
member of the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made and retained by the Seller pursuant to the assignment of the loans
to the trust fund represents not more than the fair market value of such loans.
The sum of all payments made to and retained by the Servicer or any other
servicer represents not more than reasonable compensation for such person's
services under the pooling and servicing agreement and reimbursement of such
person's reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D under the Securities Act of 1933. The
Seller assumes that only Plans which are accredited investors under the federal
securities laws will be permitted to purchase the Certificates.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist
solely of assets of the type that have been
included in other investment pools;
(ii) certificates in such other investment pools
must have been rated in one of the three
highest rating categories of one of the
National Credit Rating Agencies for at least
one year prior to the Plan's acquisition of
Certificates; and
(iii) certificates evidencing interests in such
other investment pools must have been
purchased by investors other than Plans for
at least one year prior to any Plan's
acquisition of certificates.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust and the
Trust Property as specified in the related Prospectus Supplement. In addition,
in the event the Exemption is not available, certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers".
Certain transactions involving the purchase of Securities which are Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if the Trust Property were deemed to be assets of a Plan. Under the Plan Assets
Regulation, the Trust Property would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an "Equity Interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Seller
believes that the Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. In addition, even in
the event that the Notes are deemed to be an Equity Interest in the Trust, the
Exemption may be applicable to both a Plan's purchase, holding and transfer of
Notes (which in this situation are considered Certificates for purposes of the
Exemption) and the operation, management and servicing of the Trust and the
Trust Property, if so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity Interests,
the acquisition, transfer or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust, the Owner
Trustee or the Trustee or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to such Plan. In such
case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14 may be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note.
Investors that are insurance companies should consult with their legal
counsel with respect to the United States Supreme Court case, JOHN HANCOCK
MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST AND SAVINGS BANK, 114 S.Ct. 517
(1993). In HARRIS TRUST, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed plan assets under certain
circumstances. Accordingly, such insurance company general accounts would be
subject to the same considerations under ERISA and would be eligible for the
same relief under the Exemption that would apply to any other Plan investor. In
the event the Exemption is not applicable to the purchase, holding and transfer
of Securities and the operation, management and servicing of the Trust and Trust
Property, PTCE 95-60 may be applicable depending on the circumstances.
Any Plan fiduciary considering the purchase of Securities should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
such investment.
RATINGS
As a condition of issuance, the offered Securities of each series will be
rated an investment grade, that is, in one of its four highest rating
categories, by at least one nationally recognized rating agency (a "Rating
Agency") as specified in the related Prospectus Supplement. The ratings will be
based on the Receivables related to each series, the terms of the Securities,
and the subordination and any credit enhancement provided therefor. There is no
assurance that the ratings initially assigned to such Securities will not be
subsequently lowered or withdrawn by the Rating Agencies. In the event the
rating initially assigned to any Securities is subsequently lowered for any
reason, no person or entity will be obligated to provide any credit enhancement
unless otherwise specified in the related Prospectus Supplement. The ratings of
any Securities with respect to which a prepayment premium may be payable do not
evaluate such prepayment premium payable to such Securityholders or the
likelihood that such prepayment premium will be paid.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the Seller will agree to
sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each class of Securities of the related
series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities, or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that the Seller will indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
The Owner Trustee or the Indenture Trustee, if any, may, from time to time,
invest funds held by it in any accounts in Eligible Investments acquired from
one or more of the underwriters.
Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of all
other classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of any Series of Securities in Canada ("Canadian
Securities") is being made only on a private placement basis exempt from the
requirement that the Trust prepare and file a prospectus with the securities
regulatory authorities in each province where trades of any Canadian Securities
are effected. Accordingly, any resale of any Canadian Securities must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of any Canadian Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of any Canadian Securities who receives a purchase
confirmation will be deemed to represent to the Seller, the Trust and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Canadian
Securities without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as principal
and not as agent, and (iii) such purchaser has reviewed the text above under
"Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
The Trust, the Seller, the Representative, the Servicer, the Owner Trustee,
the Indenture Trustee and their respective directors and officers, if any, as
well as the experts named herein, may be located outside of Canada and, as a
result, it may not be possible for Ontario purchasers to effect service of
process within Canada upon the Issuer or such persons. All or a substantial
portion of the assets of the Issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the Issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such Issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of any Canadian Securities to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any of the Securities acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #88/5. Only one such report must be filed in respect of any
Canadian Securities acquired on the same date and under the same prospectus
exemption.
LEGAL OPINIONS
Unless otherwise specified in the Prospectus Supplement, certain legal
matters relating to the validity of the issuance of the Certificates and the
Notes, if any, of each series will be passed upon for the Seller and the
Representative by Eric R. Elwin, Esq., Corporate Counsel of the Representative,
and certain legal matters relating to the validity of the issuance of the
Certificates and the Notes, if any, of such series will be passed upon for the
Underwriter of the Certificates and the Notes, if any, of such series by Stroock
& Stroock & Lavan LLP, New York, New York. Stroock & Stroock & Lavan LLP, has
performed legal services for the Representative and it is expected that it will
continue to perform such services in the future.
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, any globally offered Series of
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against-payment basis
through the respective Depositories of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their Participants through their respective Depositories,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriters. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global securities
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depository, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depository of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depository for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depository, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depository, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
interest payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Cedel Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL WITHHOLDING TAXES AND DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owners take one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholder or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The holder of a Global
Securities or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust that is not a "Foreign Trust," as such
term is defined in Section 7701(a)(31) of the Internal Revenue Code of 1986, as
amended. This summary of documentation requirements does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found.
Accounts.................................................................40
Actuarial Receivables....................................................18
Advance..............................................................11, 42
Affiliated Purchaser......................................................9
Amortization Period.......................................................8
APR......................................................................18
Canadian Securities......................................................71
Cede.....................................................................16
Cedel....................................................................16
Cedel Participants.......................................................35
Certificate Account......................................................17
Certificate Distribution Account.........................................40
Certificate Factor.......................................................21
Certificate Majority.....................................................34
Certificateholders....................................................5, 16
Certificates..............................................................1
Code.....................................................................55
Collection Account................................................9, 17, 40
Commission................................................................3
Commodity Indexed Securities.............................................33
Cooperative..............................................................35
Currency Indexed Securities..............................................32
Dealer Agreement.........................................................23
Dealers...............................................................7, 23
Definitive Certificates..................................................34
Definitive Notes.........................................................34
Depositories.............................................................33
Depository...............................................................26
Distribution Date.....................................................9, 27
DOL......................................................................68
DTC......................................................................16
due date.................................................................19
Eligible Deposit Account.................................................41
Eligible Institution.....................................................41
Eligible Investments.....................................................40
ERISA....................................................................12
Euroclear................................................................16
Euroclear Operator.......................................................35
Euroclear Participants...................................................35
Events of Default........................................................29
Exchange Act..............................................................3
Excluded Plan............................................................68
Exemption................................................................68
Face Amount..............................................................33
Federal Tax Counsel..................................................11, 55
Financed Vehicles.........................................................7
FTC Rule.................................................................54
Funding Period............................................................7
Global Securities........................................................73
Grantor Trust Certificateholders.........................................61
Grantor Trust Certificates...............................................62
Indenture.................................................................1
Indenture Trustee.........................................................1
Index....................................................................32
Indexed Commodity........................................................32
Indexed Currency.........................................................32
Indexed Principal Amount.................................................32
Indexed Securities.......................................................32
Initial Cutoff Date.......................................................6
Initial Financed Vehicles.................................................6
Initial Receivables.......................................................6
Insolvency Laws......................................................14, 53
Interest Rate.............................................................6
Investment Earnings......................................................41
IRS..................................................................55, 65
National Credit Rating Agencies..........................................69
Note Distribution Account................................................40
Note Factor..............................................................21
Note Majority............................................................28
Noteholders...........................................................5, 16
Obligor...................................................................9
Obligors.................................................................16
OID......................................................................56
OID regulations..........................................................56
Owner Trustee.............................................................1
Participants.............................................................33
Pass-Through Rate.........................................................5
Payahead Account.....................................................17, 40
Payaheads................................................................40
Payment Date.............................................................28
Plan Assets Regulation...................................................68
Plans....................................................................12
Pooling and Servicing Agreement...........................................1
Precomputed Receivables..................................................18
Pre-Funded Amount.........................................................7
Pre-Funding Account.......................................................4
Pre-Funding Account.......................................................7
Prepayment Premium.......................................................43
Prospectus Supplement.....................................................1
PTCE.....................................................................70
Purchase Agreement....................................................7, 38
Purchase Amount..........................................................39
Rating Agencies..........................................................15
Rating Agency........................................................12, 70
Receivables...............................................................7
Rees-Levering Act........................................................52
Registration Statement....................................................3
Related Documents........................................................31
Restricted Group.........................................................68
Retained Interest.........................................................9
Revolving Period......................................................8, 43
Rule of 78's Receivables.................................................18
Rules....................................................................34
SBA......................................................................26
SBA Loans................................................................26
Schedule of Receivables..................................................38
Section 1286 Treasury Regulations........................................62
Securityholders..........................................................16
Servicer Default.........................................................45
Servicer Fee.............................................................42
Servicer's Certificate...................................................36
Servicing Fee............................................................42
Servicing Fee Rate.......................................................42
Short-Term Note..........................................................56
Simple Interest Receivables..............................................18
Special Tax Counsel......................................................65
Stock Index..............................................................33
Stock Indexed Securities.................................................33
Strip Certificates........................................................5
Strip Notes...............................................................6
Stripped Bond............................................................62
Subsequent Cut-Off Date...................................................6
Subsequent Financed Vehicles..............................................6
Subsequent Receivables....................................................6
Subsequent Transfer Agreement............................................39
Subsequent Transfer Assignment...........................................39
Supplemental Servicing Fee...............................................42
Terms and Conditions.....................................................35
The Money Store.......................................................4, 26
TMS Auto Finance..........................................................7
Trust.....................................................................4
Trust Documents..........................................................38
UCC......................................................................50
Underwriter..............................................................68
Underwriting Agreement...................................................71
(PS) indicates term is primarily defined in the related Prospectus Supplement.
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED THIS
PROSPECTUS, THE RELATED PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR
DEEMED INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR ANY DEALER,
SALESMAN, OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
RELATED PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION HEREIN OR THEREIN SINCE THE DATE HEREOF. THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT ARE NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
AVAILABLE INFORMATION.......................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................3
PROSPECTUS SUMMARY..........................................................4
RISK FACTORS...............................................................13
THE TRUSTS.................................................................16
THE RECEIVABLES............................................................18
YIELD AND PREPAYMENT CONSIDERATIONS........................................20
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION.......................21
USE OF PROCEEDS............................................................21
THE SELLER.................................................................21
TMS AUTO FINANCE...........................................................22
THE MONEY STORE............................................................26
THE CERTIFICATES...........................................................26
THE NOTES..................................................................27
CERTAIN INFORMATION REGARDING THE SECURITIES...............................32
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS.............38
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES...................................50
FEDERAL INCOME TAX CONSEQUENCES............................................55
STATE AND LOCAL TAXATION...................................................67
ERISA CONSIDERATIONS.......................................................67
RATINGS ..................................................................70
PLAN OF DISTRIBUTION.......................................................71
NOTICE TO CANADIAN RESIDENTS...............................................71
LEGAL OPINIONS.............................................................72
ANNEX I ..................................................................73
INDEX OF TERMS.............................................................77
<PAGE>
THE MONEY STORE AUTO TRUSTS
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
TMS AUTO HOLDINGS, INC.
Seller
THE MONEY STORE INC.
Representative
PROSPECTUS
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the related Certificates, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus and the
related Prospectus Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
