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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-22327
PROSPECTUS
[NATIONSCREDIT GRANTOR LOGO]
NATIONSCREDIT GRANTOR TRUST 1997-1
$181,781,125.63
6.75% MARINE RECEIVABLE-BACKED CERTIFICATES
NATIONSCREDIT SECURITIZATION CORPORATION
DEPOSITOR
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA
SERVICER
Each 6.75% Marine Receivable-Backed Certificate (the "Certificates")
offered hereby will represent a fractional undivided interest in the
NationsCredit Grantor Trust 1997-1 (the "Trust"). The Trust will be formed
pursuant to a Pooling and Servicing Agreement (the "Agreement") to be entered
into among NationsCredit Securitization Corporation, as Depositor (the
"Depositor"), NationsCredit Commercial Corporation of America, as Servicer (the
"Servicer"), and Bankers Trust Company, as Trustee and as Collateral Agent (in
such capacities, the "Trustee" and the "Collateral Agent", respectively). The
property of the Trust will include a pool of marine retail installment sale
contracts secured by new and used boats, boat motors and boat trailers (the
"Receivables"), all payments received or due thereunder after April 30, 1997
(the "Cutoff Date"), security interests in the boats and marine equipment
financed thereby, an irrevocable surety bond (the "Surety Bond"), guaranteeing
the Monthly Interest Payment (as defined herein) and the Monthly Principal
Payment (as defined herein), issued by Capital Markets Assurance Corporation
(the "Surety Bond Issuer") and certain other property. The Servicer will be
responsible for servicing and maintaining custody of the Receivables. The
aggregate principal balance of the Receivables (the "Pool Balance") as of the
Cutoff Date was $181,781,125.63 (the "Initial Pool Balance").
The Certificate Balance (as defined herein) as of the Closing Date will
equal $181,781,125.63. Principal and interest to the extent of the Pass-Through
Rate of 6.75% per annum on the Certificates will be distributed to holders of
the Certificates ("Certificateholders") as of the day prior to each Distribution
Date (each a "Record Date") on the 15th day of each month (or, if such day is
not a business day, the next following business day), beginning June 16, 1997
(each a "Distribution Date"). The Final Scheduled Distribution Date on the
Certificates will be on August 15, 2013 (the "Final Scheduled Distribution
Date").
FOR INFORMATION CONCERNING THE RISKS OF AN INVESTMENT IN THE CERTIFICATES,
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
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THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF NATIONSCREDIT SECURITIZATION CORPORATION,
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA OR ANY AFFILIATE THEREOF.
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.
---------------------
<TABLE>
<CAPTION>
=============================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRUST(1)(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate.................... 99.97624% .30000% 99.67624%
- -----------------------------------------------------------------------------------------------------------------------------
Total.............................. $181,737,934.43 $545,343.38 $181,192,591.05
=============================================================================================================================
</TABLE>
(1) Plus interest calculated at the Pass-Through Rate from May 15, 1997.
(2) Before deducting expenses payable by the Depositor estimated at $489,564.19.
---------------------
The Certificates are offered subject to receipt and acceptance by the
Underwriters, to prior sale, and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Certificates will be made in book-entry form
through the facilities of The Depository Trust Company, on or about May 22,
1997.
NATIONSBANC CAPITAL MARKETS, INC. BEAR, STEARNS & CO. INC.
May 15, 1997
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act") with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates offered pursuant
to this Prospectus. For further information reference is made to the
Registration Statement and amendments thereof and exhibits thereto, which are
available for inspection without charge at the office of the Commission at 450
Fifth Street N.W., Washington, D.C. 20549; Natwest Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048; and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement and amendments thereof and exhibits thereto
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates and electronically
through the Commission's Electronic Gathering and Retrieval System at the
Commission's Web Site (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of
NationsCredit Grantor Trust 1997-1, pursuant to Sections 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 Certificates shall be deemed to be incorporated by reference
into this Prospectus and to be part hereof. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Servicer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to NationsCredit Commercial Corporation of America, 225 E.
John Carpenter Freeway, Irving, Texas 75062-2731, Attn: Lawrence Angelilli.
Telephone requests for such copies should be directed to NationsCredit
Commercial Corporation of America at (972) 506-5026.
REPORTS TO CERTIFICATEHOLDERS BY THE TRUSTEE
Bankers Trust Company, as Trustee for the Certificateholders under the
Pooling and Servicing Agreement, including the Standard Terms and Conditions of
the Agreement (the "Agreement"), dated as of April 30, 1997, among the
Depositor, the Servicer, the Trustee and the Collateral Agent, will provide to
The Depository Trust Company ("DTC") for distribution to beneficial owners of
the Certificates (each a "Certificate Owner") monthly and annual reports
concerning the Receivables. See "The Certificates -- Statements to
Certificateholders".
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PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Reference is made
to the Index for the location herein of the definitions of certain capitalized
terms used herein.
Issuer:.................... NationsCredit Grantor Trust 1997-1 (the "Trust")
will be formed by the Depositor. The assets of the
Trust shall consist of a pool of certain marine
retail installment sale contracts acquired after
February 1, 1993 by NationsCredit Commercial
Corporation of America, a wholly-owned subsidiary
of NationsCredit Corporation (the "Receivables"),
all payments received or due thereunder after April
30, 1997 (the "Cutoff Date"), security interests in
new and used boats, boat motors and boat trailers
financed thereby (collectively, "Boats"), certain
bank accounts and the proceeds thereof, the Surety
Bond described below, and certain other property.
See "The Trust," "NationsCredit Commercial's
Portfolio of Marine Contracts" and "Certain Legal
Aspects of the Receivables -- Lack of Perfected
Security Interests in Boats".
The Depositor shall cause the Trust to purchase the
Receivable directly or indirectly from
NationsCredit Commercial (as defined below) or its
affiliates on or prior to the date of issuance of
the Certificates (the "Closing Date").
Depositor:................. NationsCredit Securitization Corporation (the
"Depositor"), a wholly-owned subsidiary of
NationsCredit Commercial Corporation of America
("NationsCredit Commercial"), which in turn is an
indirect wholly-owned subsidiary of NationsCredit
Corporation ("NationsCredit"). See "The Depositor".
Servicer:.................. NationsCredit Commercial (sometimes referred to
herein as the "Servicer"), an indirect wholly-owned
subsidiary of NationsCredit. See "The Servicer".
Securities Offered:........ Each 6.75% Marine Receivable-Backed Certificate (a
"Certificate") represents a fractional undivided
interest in the Trust. The Certificates will be
issued pursuant to the Agreement in book-entry form
and shall be available in denominations of $1,000
and integral multiples thereof.
The Certificates will be represented initially by
global certificates registered in the name of Cede
& Co., as nominee of DTC. See "The
Certificates -- General," "-- Book-Entry
Registration" and "-- Definitive Certificates".
Pass-Through Rate:......... 6.75% per annum, payable monthly at one-twelfth of
the annual rate.
Interest:.................. On each Distribution Date, the Trustee shall
provide for a pro rata distribution to the
Certificateholders of record at the close of
business on the day prior to such Distribution Date
(the "Record Date") of interest in an aggregate
amount equal to one-twelfth of the product of the
Pass-Through Rate and the Certificate Balance as of
the close of business on the prior Distribution
Date (or in case of the first Distribution Date,
the Certificate Balance as of the Closing Date)
(the "Monthly Interest Payment"). See "The
Certificates -- Distributions on Certificates".
Principal:................. The Trustee shall provide for a pro rata
distribution to the Certificateholders of record as
of the related Record Date (x) on each Distribution
Date (except the Final Scheduled Distribution
Date), an amount equal to the sum of (a) that
portion of all collections received by the Servicer
during the related Collection Period on Receivables
allocable to principal (which
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shall not include the principal portion of proceeds
from any recoveries or liquidations in respect of
any Defaulted Receivables received in any
Collection Period following the Collection Period
in which such Receivable became a Defaulted
Receivable), (b) Purchase Amounts allocable to
principal and paid by the Depositor or the Servicer
and (c) the principal balance of Defaulted
Receivables, which became Defaulted Receivables
during the related Collection Period and (y) on the
Final Scheduled Distribution Date after giving
effect to the distribution of the amounts set forth
in clauses (a) through (c) above, an amount
necessary to reduce the Certificate Balance to zero
on such Distribution Date (collectively, the
"Monthly Principal Payment"). See "The
Certificates -- Distributions on Certificates".
Certificate Balance:....... The "Certificate Balance" shall equal on the
Closing Date, $181,781,125.63 and thereafter shall
equal the Certificate Balance as of the Closing
Date reduced by all principal distributions on the
Certificates.
Distribution Date:......... The 15th day of each month (or if such 15th day is
not a business day, the next following business
day) commencing June 16, 1997.
Monthly Servicing Fee:..... On each Distribution Date, the Servicer shall
receive a monthly fee equal to the product of
one-twelfth of 0.75% (the "Servicing Fee Rate") and
the Pool Balance as of the last day of the prior
Collection Period (or in the case of the first
Distribution Date, the Initial Pool Balance), plus
certain late fees, prepayment charges and other
administrative fees or similar charges. See "The
Certificates -- Distributions on Certificates".
Surety Bond:............... The Servicer has obtained, for the benefit of the
Trust, the Surety Bond, which will unconditionally
guarantee the Monthly Interest Payment and the
Monthly Principal Payment and under certain
circumstances the Monthly Servicing Fee to the
extent described herein. See "The
Certificates -- The Surety Bond".
Reserve Account:........... The Depositor will establish and maintain with the
Collateral Agent an account (the "Reserve
Account"). The Reserve Account will not be part of
the Trust, but will be pledged to the Trustee for
the benefit of the Certificateholders and the
Surety Bond Issuer. On the Closing Date an initial
deposit will be made into the Reserve Account and
thereafter on each Distribution Date, the Reserve
Account will be augmented from payments in respect
of Receivables allocable to interest on deposit in
the Certificate Account with respect to the
preceding Collection Period after distributions
thereof in respect of the Monthly Interest Payment,
the Monthly Servicing Fee (to the extent described
herein), the principal balance of any Defaulted
Receivables, and any amounts owing to the Surety
Bond Issuer under the Insurance and Reimbursement
Agreement, dated as of April 30, 1997, among the
Surety Bond Issuer, the Depositor and the Servicer
(the "Insurance Agreement") and the Agreement, and
not paid, until the amount on deposit in the
Reserve Account is equal to a specified amount to
be determined by the Surety Bond Issuer and the
Rating Agencies (the "Specified Reserve Account
Requirement"). Amounts, if any, on deposit in the
Reserve Account on any Distribution Date (after
giving effect to all distributions to be made on
such Distribution Date) in excess of the Specified
Reserve Account Requirement will be released to the
Depositor. The Specified Reserve Account
Requirement and amounts on deposit or to be
deposited into the Reserve Account may be
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reduced, including to zero, or distributed in a
different manner than described herein with the
consent of the Surety Bond Issuer, as long as such
reduction or change does not cause a downgrading or
withdrawal of the then-current rating of the
Certificates by a Rating Agency, but without prior
notice to or the consent of the Certificateholders.
Prospective purchasers of the Certificates should
not rely on any amounts being deposited into or
available from the Reserve Account in making a
decision as to whether to purchase the
Certificates. See "The Certificates -- The Reserve
Account" and "-- Distributions on Certificates".
Optional Purchase:......... The Servicer may purchase all the Receivables in
the Trust as of any Record Date on which the Pool
Balance shall decline to 5% or less of the Initial
Pool Balance, at a purchase price equal to the
aggregate Purchase Amount of the Receivables as of
the beginning of the Collection Period related to
such Record Date less the amount of all collections
on the Receivables received by the Servicer during
such Collection Period; provided, however, that the
Servicer may not make any such purchase on any date
on which there are outstanding draws under the
Surety Bond which have not been reimbursed to the
Surety Bond Issuer. See "The
Certificates -- Termination."
Surety Bond Issuer:........ Capital Markets Assurance Corporation ("CapMAC" or
the "Surety Bond Issuer"), a monoline stock
insurance company incorporated under the laws of
the State of New York. See "The Surety Bond
Issuer".
Trustee:................... Bankers Trust Company, a New York banking
corporation (the "Trustee").
Lack of Perfected Security
Interests in Boats:...... Pursuant to the Agreement, the Servicer will
represent and warrant that each Receivable created
a first priority perfected security interest in the
Boat financed thereby in favor of NationsCredit
Commercial. In connection with the sale of the
Receivables, the security interests of
NationsCredit Commercial in the Boats financed by
the Receivables will be assigned to the Trust. Due
to the administrative burden and expense, the
certificates of title, in the case of Boats
financed in states where security interests in
boats are subject to certificate of title statutes,
will not be endorsed to the Trust and the UCC-1
financing statements, in the case of Boats financed
in states where security interests in boats are
perfected by filing a UCC-1 financing statement,
will not be amended to reflect the assignment to
the Trust. In the absence of such procedures, the
Trust may not have a perfected security interest in
the Boats financed in certificate of title or UCC
states, but the failure to make such endorsements,
filings or recordations will not affect the
validity of the original security interest as
against the Obligor in UCC states. With respect to
Boats licensed in certificate of title states, the
validity of the security interest against the
original Obligor is less clear. In the event that
any required payments under the Surety Bond are not
made and Certificateholders have to rely on
enforcement of their rights under Receivables in
default, this and other factors, including various
Federal and state laws, depreciation in the value
of boats and a limited resale market for boats,
could limit the amount which the Trust could
realize to less than the amount due on such
Receivables. See "Risk Factors -- Lack of Perfected
Security Interests in Boats" and "Certain Legal
Aspects of the Receivables".
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Tax Status:................ The Trust will be treated as a grantor trust for
Federal income tax purposes, and will not be
subject to Federal income tax. Certificateholders
will report their pro rata shares of all income of
the Trust, and, subject to certain limitations in
the case of an individual Certificateholder, may
deduct their pro rata shares of reasonable
servicing and other fees of the Trust. Because tax
consequences may vary based on the status or tax
attributes of the Certificate Owner, prospective
investors should consult their own tax advisors to
determine the Federal, state, local and other tax
consequences of the purchase, ownership and
disposition of Certificates. See "Certain Federal
Income Tax Consequences".
ERISA Considerations:...... The Certificates may be purchased by employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), upon satisfaction of certain conditions
described herein. Any benefit plan fiduciary
considering the purchase of the Certificates
should, among other things, consult with counsel in
determining whether all required conditions have
been satisfied. See "ERISA Considerations".
Ratings:................... As a condition of issuance, the Certificates shall
be rated "Aaa" by Moody's Investors Service, Inc.
("Moody's") and "AAA" by Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies
("S&P") (each a "Rating Agency" and together, the
"Rating Agencies"). The ratings are based primarily
on the credit rating of the Surety Bond Issuer and
the value of the underlying Receivables. Any rating
assigned to the Certificates by a Rating Agency
will reflect such Rating Agency's assessment of the
likelihood that Certificateholders will receive the
payments of interest and principal required to be
made under the Agreement. The ratings take into
consideration the characteristics of the
Receivables and the structural, legal and tax
aspects associated with the Certificates. The
ratings on the Certificates do not represent any
assessment of the likelihood or rate of principal
prepayments. The ratings are not a recommendation
to purchase, hold or sell Certificates, inasmuch as
such rating does not comment as to market price or
suitability for a particular investor. There is no
assurance that the ratings will remain for any
given period of time or that the ratings will not
be lowered or withdrawn entirely by the Rating
Agencies if in their judgment circumstances in the
future so warrant. See "Risk Factors -- Limitation
on Credit Rating".
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RISK FACTORS
Prospective purchasers of the Certificates should consider carefully the
following discussion of certain risks associated with an investment in the
Certificates, as well as the other information set forth in this Prospectus.
Limited Liquidity. There is currently no market for the Certificates.
NationsBanc Capital Markets, Inc. and Bear, Stearns & Co. Inc. (each, an
"Underwriter") expect, but are not obligated, to make a market in the
Certificates. There can be no assurance that a secondary market will develop or,
if a secondary market does develop, that it will provide holders of the
Certificates with liquidity of investment or that it will continue for the life
of the Certificates.
Limited Obligations. The Certificates will not represent an interest in or
obligation of the Depositor, the Trustee, the Underwriters, NationsCredit
Commercial or any of their respective affiliates. Neither the Receivables nor
the Certificates will be insured or guaranteed by any governmental agency or
instrumentality, the Depositor, the Underwriter, the Servicer, the Trustee or
any of their respective affiliates and the Certificates will be payable only
from assets of the Trust, the Reserve Account or paid pursuant to the Surety
Bond.
The Depositor will not be obligated in any way in respect of the
Certificates. The obligations of the Servicer with respect to the Certificates
will be limited to its contractual servicing obligations. The Depositor and
NationsCredit Commercial will, however, make certain representations and
warranties in respect of the Receivables. In the event of an uncured breach of
any such representation or warranty that materially adversely affects the
interests of the Certificateholders or the Surety Bond Issuer, the Depositor or
NationsCredit Commercial, as applicable, may, under certain circumstances, be
obligated to repurchase such Receivable, as described under "The
Certificates -- Sale and Assignment of Receivables" herein.
Lack of First Priority Security Interests in the Receivables. The sale of
the Receivables to the Trust is subject to the perfection requirements of the
Uniform Commercial Code (the "UCC") in effect in the States of Texas and
Georgia. Pursuant to the Agreement, the Servicer will represent and warrant that
the Trust has been assigned a valid, first priority perfected security or
ownership interest in each Receivable conveyed to the Trust on the Closing Date.
Moreover, such representations and warranties relate solely to the Receivables
themselves and do not include the Boats that secure such Receivables. Certain
liens, including landlords', warehousemens' and materialmens' liens and certain
tax liens, may, as a matter of law, have priority over perfected, first priority
liens. In addition, if another person purchased any of the Receivables for new
value without knowledge of the Trust's security interest and acquired possession
of the Receivables in the ordinary course of such person's business, the
purchaser's interest would be superior to the interest of the Trust. To
facilitate servicing and to minimize administrative burden and expense, the
Servicer will maintain possession of all of the Receivables. If NationsCredit
Commercial sells and delivers any of the Receivables to another party, there is
a risk that the purchaser could acquire an interest in the Receivables having
priority over the Trust's interest. NationsCredit Commercial will covenant that
it will not sell, pledge, transfer, deliver or otherwise dispose of any
Receivable, except as provided under the Agreement. As provided in the
Agreement, any breach of this covenant by NationsCredit Commercial that
materially and adversely affects the Trust's interest in the Receivables and
remains uncured will result in an obligation of NationsCredit Commercial to
repurchase the affected Receivables. Pursuant to the Agreement, NationsCredit
Commercial or the Servicer will be obligated to purchase any Receivable if there
is a breach of a representation and warranty made by it that materially
adversely affects the Trust's interest in such Receivable, unless such breach is
cured as provided in the Agreement by the second Record Date following the
discovery of such breach.
Lack of Perfected Security Interests in Boats. When originated, each
Receivable includes a security interest in the Boat financed thereby, such
interest is perfected under state law. The Servicer will make certain
representations and warranties to the Trust with respect to the perfection and
priority of the security interests of NationsCredit Commercial in the Boats,
which representations and warranties will be subject to any statutory liens
arising after the Closing Date. Due to the administrative burden and expense
(estimated by NationsCredit Commercial to be $400,000, excluding associated
labor costs) of (i) endorsing the certificate of title of each Boat to reflect
the Trust's interest therein and delivering each such certificate of title to
the Trustee for filing (and the payment of related filing fees), in the case of
Boats licensed in states where security interests in boats are subject to
certificate of title statutes; and (ii) filing amendments to UCC-1 financing
statements relating to each Boat (and
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<PAGE> 8
the payment of related filing fees) to reflect the Trust's interest therein, in
the case of Boats licensed in states where security interests in boats are
perfected by filing a UCC-1 financing statement; none of such certificates of
title will be endorsed, delivered and filed, or UCC-1 financing statements
amended. In the absence of such procedures the Trust may not have a perfected
security interest in the Boats licensed in certificate of title or UCC states,
but the failure to make such endorsements, filings or recordations will not
affect the validity of the original security interest as against the retail
purchaser (the "Obligor") under a Receivable in UCC states. With respect to
Boats documented under certificate of title states, the validity of the security
interest against the Obligor is less clear. Approximately 70.58% of the Initial
Pool Balance ($128,304,277.06) relates to Receivables which are billed to
Obligors in certificate of title states and approximately 29.39% of the Initial
Pool Balance ($53,432,375.92) relates to Receivables which are billed to
Obligors in UCC states. Boats are not necessarily registered in the states where
Obligors are billed. Additionally, because NationsCredit Commercial will not
make the necessary endorsements, filings or recordations, there is a substantial
risk that the Trust will not have a security interest in Boats registered in
California, which represents 17.65% of the Initial Pool Balance (based on the
billing address of the Obligors), and if the absence of such security interest
is asserted by an Obligor (or its representative), the Trust will not be
entitled to any liquidation proceeds with respect to the related Boat. As a
result, the Certificateholders may be subject to delays in payments and may
incur losses with respect to the Receivables if any required payments under the
Surety Bond are not made. Boats registered in California may not relate to the
geographic concentration of Receivables in California because the concentration
of such Receivables is based solely on the billing address of the related
Obligor. Moreover, statutory liens for repairs or unpaid taxes may have priority
over security interests in Boats perfected under state law.
Risk of Defenses and Risk Related to Repossession and Liquidation. Various
Federal and state laws impose requirements and restrictions applicable to the
origination and servicing of the Receivables. Violations of certain of those
laws may give rise to claims and defenses by an Obligor against the Servicer or
the Trust. In addition, an Obligor may be entitled to assert against the
Servicer or the Trust claims and defenses which the Obligor has against the
seller of the Boat (the "Dealer"). The Servicer pursuant to the Agreement, will
represent and warrant as of the Closing Date that no such claims or defenses
have been asserted or threatened with respect to the Receivables and that all
requirements of applicable laws with respect to the Receivables have been
satisfied. State laws and court decisions also impose requirements and
restrictions relating to repossession sales of boats and on obtaining deficiency
judgments following such sales. Even if a Boat securing a Receivable is
successfully repossessed and sold, the full amount due on the Receivable may not
be realized because of depreciation of or damage to the Boat or because the
resale value of the Boat may vary significantly due to the limited markets for
used boats, seasonal factors and other economic and social factors. In sum, the
Trust may not realize the full amount due on a Receivable because of the failure
to endorse the certificate of title or to amend a UCC-1 financing statement, as
the case may be, or the application of requirements and restrictions on
repossession sales and deficiency judgments, or because of depreciation, damage
or loss of a Boat, the application of Federal and state bankruptcy and
insolvency laws, or other factors. As a result, the Certificateholders may be
subject to delays in payments and losses if any required payments under the
Surety Bond are not made. See "Certain Legal Aspects of the Receivables".
Concentration Risk. Based on the Initial Pool Balance, 17.65% of the
Receivables are billed to Obligors with billing addresses in California. An
economic downturn in California may have an adverse effect on the ability of
Obligors in such state to meet their payment obligations under the Receivables.
Because of the concentration of Receivables with Obligors with billing addresses
in this state, losses on the related Receivables may be higher than would be the
case if there were more geographic diversification among the Receivables and
thus may result in accelerated payments of principal and reinvestment risk to
the Certificateholders.
Prepayment Considerations. Full or partial prepayments on the Receivables
will have the effect of reducing the weighted average life of the Certificates,
while delinquencies under the Receivables by the Obligors and extensions of
Receivables by the Servicer will have the effect of increasing the weighted
average life (but not the final maturity) of the Certificates. The Receivables
may be prepaid at any time without penalty. Prepayments may result from, among
other things, the sale, refinancing, insured loss or other disposition of a
Boat, the Receivables becoming Defaulted Receivables, the purchase of
Receivables due to material breaches of the
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<PAGE> 9
Depositor's or NationsCredit Commercial's representations and warranties or the
exercise by the Servicer of its option to purchase all the Receivables as of any
Record Date on which the Pool Balance shall decline to 5% or less of the Initial
Pool Balance. The actual maturity of the Certificates could occur earlier than
the Final Scheduled Distribution Date since the rate of payments on the
Certificates will depend on the rate of payments on the Receivables. No
prediction can be made as to the actual rate of prepayments in respect of the
Receivables. Prepayments are affected by numerous social, economic and other
factors, including, for example, the seasonal nature of the marine retail
financing business. Certificateholders will bear all reinvestment risk resulting
from prepayment of the Receivables. See "The Receivables Pool -- Maturity and
Prepayment Assumptions".
Commingling Risk. While NationsCredit Commercial or an entity (a) into
which NationsCredit Commercial is merged or consolidated, (b) which succeeds to
the properties and assets of the Servicer substantially as a whole or (c) more
than 50% of the voting stock of which is owned by NationsBank Corporation, which
has executed an agreement of assumption to perform the obligations of the
Servicer under the Insurance Agreement and the Agreement, is the Servicer, the
Servicer may commingle collections held by it and may use such funds for its own
purposes prior to the business day preceding each Distribution Date provided
that all of the following conditions are satisfied: (i) there exists no Event of
Default (as described below), (ii) if the Servicer does not have a short term
debt rating or deposit rating, as applicable, of at least A-1 from S&P and P-1
from Moody's, a guaranty, letter of credit, surety bond or other similar
instrument is issued covering collections held by NationsCredit Commercial or
such successor servicer, which is acceptable to the Rating Agencies and the
Surety Bond Issuer and issued by an entity which has a short term debt or
deposit rating, of at least A-1 from S&P and P-1 from Moody's, and (iii) the
Servicer, the Trustee, the Depositor or the Surety Bond Issuer shall not have
received notice from S&P or Moody's that failure to separate such funds will
result in a reduction or withdrawal of the then current rating on the
Certificates by either S&P or Moody's. If all the conditions contained in the
preceding sentence are not met, the Servicer will deposit all payments on
Receivables (from whatever source) and all proceeds of Receivables collected
during each Collection Period into the Certificate Account not later than the
second business day after receipt. In the event that the Servicer commingles
collections, the Certificateholders will be subject to the risk of loss of such
collections, including as a result of the bankruptcy or insolvency of the
Servicer. It is anticipated that on the Closing Date NationsBank Corporation
will furnish a guaranty that will permit NationsCredit Commercial to commingle
funds.
Limitation on Credit Ratings. As a condition of issuance, the Certificates
shall be rated "Aaa" by Moody's and "AAA" by S&P. The ratings are based
primarily on the credit rating of the Surety Bond Issuer and the value of the
underlying Receivables. Any rating assigned to the Certificates by a Rating
Agency will reflect such Rating Agency's assessment of the likelihood that
Certificateholders will receive the timely payments of interest and principal
required to be made under the Agreement. The ratings take into consideration the
Surety Bond, the characteristics of the Receivables and the structural, legal
and tax aspects associated with the Certificates. The ratings on the
Certificates do not represent any assessment of the likelihood or rate of
principal prepayments. The ratings are not a recommendation to buy, sell or hold
securities and there is no assurance that the ratings will remain for any given
period of time or that the ratings will not be lowered or withdrawn entirely by
the Rating Agencies if in their judgment circumstances in the future so warrant.
Any downgrade of the credit rating of the Surety Bond Issuer will likely result
in a downgrade of the Certificates. None of the Depositor, NationsCredit
Commercial or any of its affiliates have any obligation to maintain the credit
rating of the Certificates. In the event the Surety Bond Issuer's claims paying
ratings have been reduced by any of the Rating Agencies, the Depositor may, but
it is not obligated to, upon payment of all amounts required to be paid to the
Surety Bond Issuer pursuant to the Insurance Agreement and the Agreement either
(i) replace the Surety Bond with a financial guaranty insurance policy issued by
another surety bond issuer, provided that the ratings on the claims paying
ability of such replacement surety bond issuer are higher than those of the
surety bond issuer sought to be replaced (after giving effect to such reduction)
or (ii) eliminate or provide another form of credit enhancement;
provided that in the case of clause (ii), the Rating Agencies consent thereto
and confirmation that the ratings of the Certificates will be increased from
their then current levels (after giving effect to such reduction) as a result of
such action shall have been obtained.
9
<PAGE> 10
THE TRUST
The Depositor will establish the Trust prior to the Closing Date and cause
the Trust to directly or indirectly purchase the Receivables from NationsCredit
Commercial or its affiliates with the proceeds of the sale of the Certificates.
The Servicer will initially service the Receivables pursuant to the Agreement,
and will be compensated for acting as the Servicer. See "The
Certificates -- Servicing Compensation". To facilitate servicing and to minimize
any administrative burden and expense, the Servicer will be appointed custodian
for all the Receivables by the Trustee, but will not stamp the Receivables to
reflect the sale and assignment of the Receivables to the Trust, nor amend the
UCC-1 financing statements relating to the Boats nor amend the certificates of
title of the Boats. NationsCredit Commercial will, however, indicate in its
computer records that the Receivables have been sold and assigned to the Trust.
See "Risk Factors -- Lack of Perfected Security Interests in Boats," "-- Lack of
First Priority Security Interests in the Receivables" and "Certain Legal Aspects
of the Receivables". The Servicer has obtained the Surety Bond for the benefit
of the Trust. The Surety Bond will unconditionally guarantee the Monthly
Interest Payment and the Monthly Principal Payment and under certain
circumstances the Monthly Servicing Fee to the extent described herein. See "The
Certificates -- The Surety Bond" and "-- Distributions on Certificates."
Each Certificate represents a fractional undivided interest in the Trust.
The assets of the Trust include, among other things, the Receivables, and all
payments received thereunder, in the case of simple interest Receivables and all
payments due thereunder, in the case of precomputed Receivables, after the
Cutoff Date. The Receivables were originated by the Dealers and purchased by
NationsCredit Commercial pursuant to agreements with the Dealers ("Dealer
Agreements"), are serviced by the Servicer, and evidence indirect financings
made available to the Obligors. During the term of the Agreement, the Servicer
may not substitute any other marine retail installment sale contract for any
Receivable sold to the Trust. The assets of the Trust also include (i) such
amounts as from time to time may be held in one or more trust accounts
(collectively, the "Certificate Account") which will be established and
maintained by the Servicer pursuant to the Agreement, as described below; (ii)
the interest of NationsCredit Commercial in the security interests in the Boats;
(iii) the Surety Bond; (iv) the interest of NationsCredit Commercial in any
proceeds from recourse to Dealers on Receivables; (v) the interest of
NationsCredit Commercial in any proceeds from claims on physical damage, credit
life or disability insurance policies covering the Boats or the Obligors, as the
case may be; (vi) any property that shall have secured a Receivable and that
shall have been acquired by the Trustee and (vii) the proceeds of all of the
foregoing.
NATIONSCREDIT COMMERCIAL'S PORTFOLIO OF MARINE CONTRACTS
GENERAL
The following describes certain general origination, servicing and
collection policies and procedures applied by NationsCredit Commercial with
respect to marine retail installment sale contracts ("marine contracts").
As of April 30, 1997, NationsCredit Commercial has purchased marine
contracts directly or indirectly from approximately 1,500 retail boat dealers or
finance subsidiaries of manufacturers who regularly initiate and sell contracts
to NationsCredit Commercial pursuant to the terms of approved dealer agreements.
NationsCredit Commercial services such contracts. No marine contract is
purchased from a dealer until the credit application from the obligor is
submitted to NationsCredit Commercial and is reviewed, evaluated, and approved
by one of NationsCredit Commercial's credit analysts in accordance with
NationsCredit Commercial's underwriting policies and procedures. NationsCredit
Commercial's evaluation of credit applicants is intended to assess the
applicant's willingness and ability to repay the amounts due on the contract and
the adequacy of the boat (which usually includes the boat, motor and trailer)
or, in a small minority of cases, the boat motor or trailer by itself, as
collateral. References to "boats" herein include the boat motor and trailer with
respect to each boat, and the separately financed boat motors or trailers,
unless the context otherwise indicates.
The credit application, which requests the liabilities, income, and credit
and employment history of the applicant, is reviewed for completeness and
compliance with NationsCredit Commercial's credit guidelines for marine
contracts purchased from Dealers. In response to recessionary forces that
adversely impacted marine collateral values in 1990, 1991, and 1992,
NationsCredit Commercial (as its predecessor company) instituted
10
<PAGE> 11
tighter underwriting criteria in 1992, including an increase in the downpayment
requirements on both new and used boats. Also, in 1992 NationsCredit Commercial
completed a process of reducing the number of its offices and the number of its
employees with credit authority as a means to improve consistency and control
over credit approvals. In December of 1993, NationsCredit Commercial instituted
an upfront scoring system which has resulted in more consistent underwriting
standards and has provided more management control over decisions effecting
credit approvals. NationsCredit Commercial's current guidelines, which are based
on credit scoring criteria, are intended to provide a basis for credit
decisions, but are not meant to supersede the credit judgment of the credit
analysts in both approval and denial decisioning. Consequently, certain marine
contracts may not comply with all NationsCredit Commercial guidelines, but will
be within prescribed limits for which exceptions to the guidelines are
permitted. In all cases, NationsCredit Commercial will review a current credit
report issued by an independent credit reporting agency, and will generally
confirm income and employment data, on each applicant.
Each marine contract arises from a credit sale of a new or used boat. In
most cases, NationsCredit Commercial will not purchase a marine contract
relating to a new boat if the amount financed under the marine contract exceeds
the sum of (a) 110% of the manufacturer's invoice price of the boat to the
dealer, plus (b) the cost to the customer of any dealer-installed options,
extended warranty plans and credit life and disability insurance, less a 10%
downpayment by the obligor.
NationsCredit Commercial will not purchase a marine contract secured by a
used boat if the amount financed under the marine contract exceeds 100% of the
"NADA (National Automobile Dealers Association) Wholesale Price" less a
downpayment by the obligor of at least 10%. It is the policy of NationsCredit
Commercial not to purchase a used boat marine contract if the amount financed
under the marine contract exceeds the total sales price of the boat to the
obligor. While NationsCredit Commercial reviews the sales price of each used
boat financed, resale prices for used boats vary significantly based upon
individual circumstances, and there can be no assurance that a ready secondary
market will exist for any used boat.
Each Dealer from which NationsCredit Commercial purchases marine contracts
has been selected by NationsCredit Commercial based on such Dealer's financial
and operating history. Such Dealers have made representations and warranties to
NationsCredit Commercial with respect to the marine contracts and the security
interests in the boats relating thereto. These representations and warranties do
not relate to the creditworthiness of the obligors or the collectibility of the
contracts. NationsCredit Commercial has a right of recourse against such Dealers
who breach such representations and warranties to require them to repurchase
such marine contracts. In determining whether to exercise such right,
NationsCredit Commercial considers the prior performance of the Dealer and other
business and commercial considerations. NationsCredit Commercial is obligated to
enforce such rights with respect to Dealer Agreements relating to the
Receivables only to the extent of such customary practices.
Once NationsCredit Commercial has purchased a marine contract from a dealer
it may, on a case-by-case basis, permit an extension with respect to the due
date of the marine contract. NationsCredit Commercial's policy sets certain
guidelines on such extensions which include the following: (a) generally a
marine contract may not be extended during the first six months of its term; (b)
each extension of a marine contract shall be for a period not to exceed one
month; (c) a marine contract may not be extended more than three times in any
twelve-month period; and (d) a marine contract may not be extended for more than
fourteen one-month periods during its life. Pursuant to the Agreement, the
Servicer will not be permitted to extend, rewrite or otherwise modify the
payment terms of a Receivable; provided, however, that the Servicer may, with
certain limitations set forth in the Agreement, extend a Receivable for credit
related reasons that would be acceptable to the Servicer with respect to
comparable marine contracts that it services for itself and others and in
accordance with its customary standards, policies and procedures if the
cumulative extensions with respect to any Receivable shall not cause the term of
such Receivable to extend beyond the last day of the Collection Period preceding
the Final Scheduled Distribution Date.
Extensions represent the deferral of a monthly payment until the month
after the final maturity date of the marine contract. The fee payable by the
obligor which will effect such a deferral varies by state in accordance with
each state's applicable laws. Such fees, if any, will be included as part of the
Trust's assets; provided
11
<PAGE> 12
however that the Trustee will agree to hold any such amounts for the benefit of
the Servicer and any payments received with respect thereto will not be passed
through to Certificateholders, but will instead be promptly remitted to the
Servicer upon receipt.
NationsCredit Commercial will also permit one deferral known as a
"delinquency cure" over the life of a marine contract. A delinquency cure will
permit the obligor to postpone the due date of past-due monthly installments of
principal and interest when three consecutive regularly scheduled payments are
received on a timely basis, and will extend the final maturity date of the
marine contract by the number of months equal to the number of payments
deferred, unless the extended final maturity date goes beyond the last day of
the Collection Period preceding the Final Scheduled Distribution Date.
NationsCredit Commercial does not receive a fee from the obligor for a
delinquency cure.
Collection activities with respect to delinquent contracts are performed in
a centralized environment by collection personnel and under current practices,
collection personnel generally initiate contact, by mail, with obligors whose
marine contracts have become more than five days delinquent. In the event that
such mail contact fails to resolve the delinquency, NationsCredit Commercial
generally begins to contact the obligor periodically by telephone after the
marine contract becomes ten days delinquent. After a marine contract has been
delinquent for 60 days, a process to repossess the collateral is commenced.
After repossession, the obligor generally has an additional 15 days (subject to
variance under state law) to satisfy the obligor's obligations under the marine
contract before the boat is subject to resale.
Losses may occur in connection with delinquent contracts and can arise in
several ways, such as the inability of NationsCredit Commercial to locate the
boat to be repossessed or costs incurred by NationsCredit Commercial in
effecting repossession. NationsCredit Commercial uses the following rules for
recognizing losses on delinquent marine contracts: within the first 91 days that
a marine contract becomes past due, the fair market value of the boat is
reviewed and established for management purposes, to determine the appropriate
carrying value, defined as the NADA Wholesale Price, or the manager's assessment
of the collateral value, whichever is less. At the time of repossession, the
boat is again evaluated for its collateral value, and the status of the account
is updated to reflect this valuation. In the event that the valuation of the
boat at the time of repossession is less than the total balance outstanding on
the marine contract, then a charge-off of that difference is incurred at that
time. If a repossessed boat that secures a marine contract with a balance of
$10,000 or less is not resold within 90 days of repossession or within 180 days,
in the case of a marine contract with a balance of greater than $10,000, the
entire carrying value of the boat will be charged-off, and the marine contract
will be written off in its entirety. If a repossessed boat is resold within 90
or 180 days, as the case may be, of repossession for less than the carrying
value of the boat, then a charge-off of such difference is incurred at that
time. When the boat is eventually resold, the proceeds from the sale, less the
expenses associated with collection, repossession, and sale, where permitted by
law, will represent a recovery on the final disposition of the marine contract.
Upon repossession of the boat, any deficiency remaining will be pursued to the
extent deemed practical and to the extent permitted by law. Prior to January
1996, NationsCredit Commercial's charge-off policy was to write down marine
contracts to fair market value of the collateral at the time of repossession and
charge-off marine contract balances related to repossessed collateral not sold
within 90 days of repossession. The charge-off policies and the servicing and
collection practices of NationsCredit Commercial may change again over time in
accordance with NationsCredit Commercial's business judgment.
The marine contract requires the obligor to maintain insurance covering
physical damage to the boat. Such insurance typically names NationsCredit
Commercial as loss payee and insures the boat against loss or damage due to
fire, theft and other physical damage and marine risks. Since obligors may
choose their own insurers to provide the required coverage, the specific terms
and conditions of their policies may vary. Prior to May 1, 1997, in the event an
obligor does not maintain adequate insurance coverage and the outstanding
balance and months remaining to maturity on the marine contract are greater than
$10,000 and 6 months, respectively, NationsCredit Commercial will purchase a
collateral protection insurance policy on behalf of the obligor. The obligor is
billed monthly by NationsCredit Commercial for such policy. The principal
balance of certain of the Receivables will include the outstanding amount of
premiums of collateral protection insurance purchased by NationsCredit
Commercial on behalf of any Obligors on or prior to the Cutoff Date. Such
amounts amortize over a period of twelve months rather than over the remaining
term of the Receivable. On or after May 1, 1997, NationsCredit
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<PAGE> 13
Commercial will not purchase collateral protection insurance on behalf of
obligors, but NationsCredit Commercial will still require obligors to maintain
insurance covering physical damage to the boat. Further, NationsCredit
Commercial will not, during the term of any marine contract with an outstanding
balance of less than $10,000, verify if insurance has been maintained by the
obligor. However, NationsCredit Commercial may or may not, during the term of
any marine contract with an outstanding balance of greater than or equal to
$10,000, verify if insurance has been maintained by the obligor. NationsCredit
Commercial's practices regarding the purchase of collateral protection insurance
on behalf of obligors and its verification of insurance maintained by obligors
may change over time in accordance with changes in applicable law or its
business judgment.
In accordance with NationsCredit Commercial's normal practices and
procedures, payments by or on behalf of obligors are allocated first to late
payment fees and extension fees, second to interest accrued on the marine
contracts, third to principal due on the marine contracts, fourth to collateral
protection insurance premiums and certain other amounts due on physical damage
insurance policies, fifth to administrative charges, if any, and sixth to the
remaining principal balance. Late payment and extension fees, if any, and other
administrative fees will be recorded to the credit of the Servicer.
The marine contracts generally provide for equal monthly payments which
amortize the full amount of the marine contracts in accordance with a
pre-determined amortization schedule. The first payment can be deferred beyond
forty-five days under certain specialized programs. Generally, the marine
contracts have an original term of up to 15 years. The marine contracts can be
prepaid at any time without prepayment penalty. All the marine contracts are
either simple interest or precomputed contracts. As payments are received under
a simple interest contract, the finance charges accrued to date are paid first
and the remaining amount of the payment is applied to reduce the unpaid amount
financed. Accordingly, if an obligor pays the fixed monthly payment on a simple
interest contract in advance of the due date, the portion of the payment
allocable to finance charges for the period since the preceding payment will be
less than it would be if the payment were made on the due date, and the portion
of the payment allocable to reduce the amount financed will be correspondingly
greater. Conversely, if the obligor pays the fixed monthly payment on a simple
interest contract after its due date, the portion of the payment allocable to
finance charges for the period since the last payment will be greater than it
would be if the payment were made on the due date, and the portion of the
payment allocable to reduce the amount financed will be correspondingly smaller.
Adjustments are made in the amount of the final scheduled payment with respect
to each simple interest contract to reflect the larger or smaller allocations of
payments to the amount financed under the contract as a result of early or late
payments. On a precomputed contract the allocation of principal and interest is
consistently applied to the obligor's balance in accordance with a
pre-determined schedule regardless of when the payment is received. A late fee
may be charged on a precomputed contract for each payment received following a
grace period after the due date. Precomputed contracts that are not paid in full
by their final scheduled payment date typically will accrue finance charges
thereafter until payment in full, but not necessarily at the contract annual
percentage rate ("APR").
DELINQUENCY AND LOSS EXPERIENCE
The tables set forth below indicate the delinquency and loss experience for
each of the last three calendar years and for each of the three months ended
March 31, 1997 and March 31, 1996, for marine contracts that were purchased by
NationsCredit Commercial from Dealers, and prior to January 1, 1993, were not
securitized (the "Marine Contract Portfolio"). The delinquency experience and
credit loss experience percentages may be affected by the size and relative lack
of seasoning of the marine contracts originated in 1995 and 1996 and the first
quarter of 1997. Accordingly, the information should not be considered as a
basis for assessing the likelihood, amount or severity of delinquency or losses
on the Receivables in the future and no assurances can be given that the
delinquency and loss experience presented in the tables below will be indicative
of such experience of the Receivables.
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<PAGE> 14
DELINQUENCY AND LOSS EXPERIENCE FOR THE MARINE CONTRACT PORTFOLIO
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------
AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------------------------- -----------------------
1997 1996 1996(1)
----------------------- ----------------------- -----------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF PRINCIPAL OF PRINCIPAL OF PRINCIPAL
RECEIVABLES BALANCE RECEIVABLES BALANCE RECEIVABLES BALANCE
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Portfolio.............. 36,215 $400,484 32,200 $359,951 34,207 $368,306
Period of Delinquency
30-59 Days........... 542 $ 5,933 452 $ 5,007 1,043 $ 11,221
60-89 Days........... 101 1,036 85 755 231 2,211
90 Days or More...... 243 2,833 56 597 286 3,275
------ -------- ------ -------- ------ --------
Total Delinquency...... 886 $ 9,802 593 $ 6,359 1,560 $ 16,707
Total Delinquency as a
Percent of the
Portfolio............ 2.45% 1.77% 4.54%
<CAPTION>
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)
-------------------------------------------------
AS OF DECEMBER 31,
-------------------------------------------------
1995 1994
----------------------- -----------------------
NUMBER AGGREGATE NUMBER AGGREGATE
OF PRINCIPAL OF PRINCIPAL
RECEIVABLES BALANCE RECEIVABLES BALANCE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Portfolio.............. 31,836 $359,681 32,267 $361,237
Period of Delinquency
30-59 Days........... 695 $ 7,962 597 $ 5,674
60-89 Days........... 171 1,947 159 1,344
90 Days or More...... 195 2,178 142 1,197
------ -------- ------ --------
Total Delinquency...... 1,061 $ 12,087 898 $ 8,215
Total Delinquency as a
Percent of the
Portfolio............ 3.36% 2.27%
</TABLE>
- ---------------
(1) A third party vendor error in billing statement distribution contributed to
a one month increase in delinquencies in December 1996.
<TABLE>
<CAPTION>
CREDIT LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
----------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Portfolio During the Period............... $384,395 $359,816 $364,836 $366,736 $322,413
Average Number of Marine Contracts Outstanding
During the Period............................... 35,211 32,018 32,975 32,270 27,324
Net Losses........................................ $ 1,101 $ 1,288 $ 3,455 $ 3,645 $ 2,745
Annualized Net Losses as a Percent of Average
Amount Outstanding.............................. 1.15% 1.43% 0.95% 0.99% 0.85%
</TABLE>
THE RECEIVABLES POOL
The Receivables include marine contracts originated subsequent to February
1, 1993 from NationsCredit Commercial's Marine Contract Portfolio (other than
marine contracts sold in a securitization transaction in February 1996) meeting
the following criteria as of the Cutoff Date: (i) each Receivable provides for
level monthly payments (provided that the payment in the first or last month in
the life of the Receivable may be minimally different from the level payment)
that fully amortize the principal amount of such Receivable (as long as each
scheduled payment is made when due) by maturity and pay interest at the APR;
(ii) each Receivable provides for, in the event that such contract is prepaid, a
prepayment that fully pays the Principal Balance and includes accrued but unpaid
interest through the date of prepayment in an amount at least equal to the APR;
(iii) each Receivable has a fixed APR of not less than 8.246% and not greater
than 21.902%; (iv) each Receivable has an original maturity of not more than 180
months; (v) each Receivable has a remaining maturity of not more than 180
months; (vi) each Receivable has a remaining principal balance of not greater
than $49,694.18; (vii) each Receivable is denominated in U.S. dollars in the
United States; (viii) with respect to each Receivable, the related Obligor has
obtained physical damage insurance covering the Boat and such Obligor is
required under the terms of the Receivable to maintain such insurance; (ix) each
Receivable constitutes "chattel paper" under the UCC; and (x) no Boat related to
any Receivables shall be required to be documented under the Ship Mortgage Act
of 1920, as amended (the "Ship Mortgage Act").
As of the Cutoff Date, (i) approximately 89.61% of the number of the
Receivables, constituting approximately 91.52% of the Initial Pool Balance,
represents the financing of new Boats; the remainder of the Receivables
represent the financing of used Boats; (ii) approximately 79.94% of the number
of Receivables, constituting approximately 83.05% of the Initial Pool Balance,
are simple interest contracts; (iii) approximately
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<PAGE> 15
20.06% of the number of Receivables, constituting approximately 16.95% of the
Initial Pool Balance are precomputed contracts; (iv) approximately 0.04% of the
number of Receivables constituting approximately 0.05% of the Initial Pool
Balance are related to Boats which have been repossessed by the Servicer; (v)
approximately 0.98% of the number of Receivables constituting approximately
0.85% of the Initial Pool Balance are 30 to 59 days overdue; (vi) approximately
0.17% of the number of Receivables constituting approximately 0.17% of the
Initial Pool Balance are 60 to 89 days overdue; and (vii) approximately 0.34% of
the number of Receivables constituting approximately 0.32% of the Initial Pool
Balance are 90 or more days overdue. All statistical information set forth in
the tables below is given as of the Cutoff Date.
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<PAGE> 16
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
AGGREGATE AVERAGE
WEIGHTED PRINCIPAL NUMBER OF PRINCIPAL WEIGHTED AVERAGE WEIGHTED AVERAGE
AVERAGE APR BALANCE RECEIVABLES BALANCE ORIGINAL TERM REMAINING TERM
- ----------- --------------- ----------- ---------- ---------------- ----------------
<C> <C> <C> <C> <C> <C>
10.94% $181,781,125.63 15,962 $11,388.37 122 mos. 109 mos.
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
STATE(1) RECEIVABLES RECEIVABLES(2) BALANCE BALANCE(2)
- -------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Alabama................................................. 798 5.00% $ 9,323,340.86 5.13%
Alaska.................................................. 4 0.03 21,679.13 0.01
Arizona................................................. 810 5.07 12,744,949.20 7.01
Arkansas................................................ 236 1.48 2,479,385.03 1.36
California.............................................. 2,120 13.28 32,078,917.72 17.65
Colorado................................................ 138 0.86 1,829,890.76 1.01
Connecticut............................................. 104 0.65 955,002.09 0.53
Delaware................................................ 39 0.24 380,177.81 0.21
District of Columbia.................................... 7 0.04 111,045.01 0.06
Florida................................................. 1,426 8.93 15,903,353.61 8.75
Georgia................................................. 1,036 6.49 11,854,512.72 6.52
Hawaii.................................................. 1 0.01 7,227.99 0.00(3)
Idaho................................................... 3 0.02 37,967.30 0.02
Illinois................................................ 234 1.47 2,428,941.28 1.34
Indiana................................................. 37 0.23 424,020.51 0.23
Iowa.................................................... 30 0.19 326,398.36 0.18
Kansas.................................................. 117 0.73 1,247,956.75 0.69
Kentucky................................................ 152 0.95 1,538,649.68 0.85
Louisiana............................................... 86 0.54 828,542.66 0.46
Maine................................................... 166 1.04 1,025,746.07 0.56
Maryland................................................ 477 2.99 5,099,203.16 2.81
Massachusetts........................................... 424 2.66 3,707,097.28 2.04
Michigan................................................ 46 0.29 465,705.55 0.26
Minnesota............................................... 41 0.26 259,729.12 0.14
Mississippi............................................. 171 1.07 2,048,498.98 1.13
Missouri................................................ 419 2.62 4,352,922.44 2.39
Montana................................................. 4 0.03 16,321.36 0.01
Nebraska................................................ 37 0.23 424,058.87 0.23
Nevada.................................................. 276 1.73 3,648,309.85 2.01
New Hampshire........................................... 76 0.48 760,836.56 0.42
New Jersey.............................................. 501 3.14 4,714,421.68 2.59
New Mexico.............................................. 183 1.15 2,441,575.41 1.34
New York................................................ 261 1.64 2,705,638.68 1.49
North Carolina.......................................... 1,571 9.84 15,079,530.28 8.30
North Dakota............................................ 2 0.01 11,325.75 0.01
Ohio.................................................... 46 0.29 535,391.63 0.29
Oklahoma................................................ 183 1.15 2,177,791.96 1.20
Oregon.................................................. 299 1.87 2,723,553.58 1.50
Pennsylvania............................................ 374 2.34 3,687,148.94 2.03
Rhode Island............................................ 67 0.42 560,792.24 0.31
South Carolina.......................................... 428 2.68 4,089,115.97 2.25
South Dakota............................................ 5 0.03 60,018.97 0.03
Tennessee............................................... 347 2.17 3,576,822.20 1.97
Texas................................................... 1,488 9.32 16,016,768.45 8.81
Utah.................................................... 28 0.18 488,953.42 0.27
Vermont................................................. 4 0.03 73,942.91 0.04
Virginia................................................ 386 2.42 3,941,941.78 2.17
Washington.............................................. 168 1.05 1,510,411.30 0.83
West Virginia........................................... 77 0.48 685,878.24 0.38
Wisconsin............................................... 14 0.09 137,935.63 0.08
Wyoming................................................. 12 0.08 194,534.24 0.11
Other................................................... 3 0.02 37,244.66 0.02
------ ------ --------------- ------
Total........................................... 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) Based on the current billing addresses of the Obligors on the Receivables.
(2) The sum of the individual percentages may not add to 100% because of
rounding.
(3) Less than 0.005% but greater than zero percent.
16
<PAGE> 17
DISTRIBUTION BY APR
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
APR(%) RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ------ ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
8.001 - 9.000.............................. 703 4.40% $ 11,298,115.09 6.22%
9.001 - 10.000.............................. 3,287 20.59 46,594,157.05 25.63
10.001 - 11.000.............................. 4,512 28.27 58,476,931.12 32.17
11.001 - 12.000.............................. 3,276 20.52 35,691,269.92 19.63
12.001 - 13.000.............................. 1,911 11.97 16,813,914.36 9.25
13.001 - 14.000.............................. 1,120 7.02 7,703,245.64 4.24
14.001 - 15.000.............................. 694 4.35 3,517,982.51 1.94
15.001 - 16.000.............................. 273 1.71 1,038,206.24 0.57
16.001 - 17.000.............................. 120 0.75 448,211.34 0.25
17.001 - 18.000.............................. 60 0.38 187,218.89 0.10
18.001 - 19.000.............................. 2 0.01 1,544.66 0.00(2)
19.001 - 20.000.............................. 3 0.02 9,044.50 0.00(2)
21.001 - 22.000.............................. 1 0.01 1,284.31 0.00(2)
------ ------ --------------- ------
Total.............................. 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
(2) Less than 0.005% but greater than zero percent.
DISTRIBUTION BY ORIGINAL TERM
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
ORIGINAL TERM (MONTHS) RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ---------------------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
1 - 12.................................... 48 0.30% $ 46,045.99 0.03%
13 - 24.................................... 386 2.42 732,585.23 0.40
25 - 36.................................... 562 3.52 1,878,381.32 1.03
37 - 48.................................... 1,344 8.42 4,807,275.82 2.64
49 - 60.................................... 1,148 7.19 7,834,265.00 4.31
61 - 72.................................... 573 3.59 5,276,269.12 2.90
73 - 84.................................... 2,988 18.72 23,103,801.07 12.71
85 - 96.................................... 271 1.70 3,424,380.82 1.88
97 - 108.................................... 60 0.38 646,992.49 0.36
109 - 120.................................... 5,080 31.83 62,342,820.75 34.30
121 - 132.................................... 10 0.06 168,233.30 0.09
133 - 144.................................... 2,513 15.74 44,776,907.85 24.63
145 - 156.................................... 7 0.04 117,607.94 0.06
157 - 168.................................... 8 0.05 188,410.99 0.10
169 - 180.................................... 964 6.04 26,437,147.94 14.54
------ ------ --------------- ------
Total.............................. 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
17
<PAGE> 18
DISTRIBUTION BY REMAINING TERM
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
REMAINING TERM (MONTHS) RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----------------------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
0- 12...................................... 464 2.91% $ 471,809.42 0.26%
13- 24...................................... 709 4.44 1,851,298.58 1.02
25- 36...................................... 1,092 6.84 4,454,720.25 2.45
37- 48...................................... 1,696 10.63 8,999,319.08 4.95
49- 60...................................... 862 5.40 7,457,620.48 4.10
61- 72...................................... 1,420 8.90 12,988,087.89 7.14
73- 84...................................... 2,328 14.58 22,661,469.69 12.47
85- 96...................................... 399 2.50 5,447,638.26 3.00
97-108...................................... 1,294 8.11 17,586,676.40 9.67
109-120...................................... 2,755 17.26 36,847,207.08 20.27
121-132...................................... 391 2.45 7,174,849.95 3.95
133-144...................................... 1,695 10.62 32,427,974.51 17.84
145-156...................................... 21 0.13 552,622.14 0.30
157-168...................................... 140 0.88 3,795,976.84 2.09
169-180...................................... 696 4.36 19,063,855.06 10.49
------ ------ --------------- ------
Total.............................. 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY ORIGINAL RECEIVABLE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
ORIGINAL RECEIVABLE PRINCIPAL BALANCE ($) RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
----------------------------------------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
0.01- 5,000.00.......................... 1,670 10.46% $ 3,601,677.49 1.98%
5,000.01-10,000.00.......................... 3,680 23.05 21,826,530.25 12.01
10,000.01-15,000.00.......................... 5,369 33.64 56,787,494.03 31.24
15,000.01-20,000.00.......................... 3,042 19.06 46,848,820.16 25.77
20,000.01-25,000.00.......................... 1,226 7.68 24,887,105.93 13.69
25,000.01-30,000.00.......................... 603 3.78 15,314,749.43 8.42
30,000.01-35,000.00.......................... 198 1.24 6,004,814.56 3.30
35,000.01-40,000.00.......................... 102 0.64 3,516,078.51 1.93
40,000.01-45,000.00.......................... 47 0.29 1,861,982.49 1.02
45,000.01-50,000.00.......................... 25 0.16 1,131,872.78 0.62
------ ------ --------------- ------
Total.............................. 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
18
<PAGE> 19
DISTRIBUTION BY REMAINING RECEIVABLE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
REMAINING RECEIVABLE PRINCIPAL BALANCE ($) RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ------------------------------------------ ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C>
0.00 - 5,000.00...................... 3,142 19.68% $ 8,362,206.80 4.60%
5,000.01 - 10,000.00....................... 4,251 26.63 32,584,957.33 17.93
10,000.01 - 15,000.00....................... 4,436 27.79 54,571,985.38 30.02
15,000.01 - 20,000.00....................... 2,363 14.80 40,603,685.20 22.34
20,000.01 - 25,000.00....................... 993 6.22 22,121,137.24 12.17
25,000.01 - 30,000.00....................... 475 2.98 12,852,032.84 7.07
30,000.01 - 35,000.00....................... 175 1.10 5,646,047.38 3.11
35,000.01 - 40,000.00....................... 72 0.45 2,645,581.98 1.46
40,000.01 - 45,000.00....................... 38 0.24 1,595,940.14 0.88
45,000.01 - 50,000.00....................... 17 0.11 797,551.34 0.44
------ ------ --------------- ------
Total............................. 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY AGE
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
MONTHS SINCE ORIGINATION RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ------------------------ ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C>
0 ..................................... 1,881 11.78% $ 25,708,897.92 14.14%
1 - 6..................................... 4,153 26.02 54,901,677.88 30.20
7 - 12..................................... 4,312 27.01 47,153,017.66 25.94
13 - 18..................................... 1,914 11.99 20,475,426.31 11.26
19 - 24..................................... 21 0.13 127,929.70 0.07
25 - 30..................................... 9 0.06 88,364.07 0.05
31 - 36..................................... 310 1.94 3,054,133.89 1.68
37 - 42..................................... 438 2.74 4,345,267.32 2.39
43 - 48..................................... 2,396 15.01 21,320,127.80 11.73
49 - 54..................................... 528 3.31 4,606,283.08 2.53
------ ------ --------------- ------
Total............................. 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
19
<PAGE> 20
DISTRIBUTION BY QUARTER OF ORIGINATION
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
ORIGINATION QUARTER (YEAR/QUARTER) RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ---------------------------------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
93/1................................... 528 3.31% $ 4,606,283.08 2.53%
93/2................................... 1,192 7.47 10,488,877.74 5.77
93/3................................... 1,204 7.54 10,831,250.06 5.96
93/4................................... 380 2.38 3,720,575.86 2.05
94/1................................... 58 0.36 624,691.46 0.34
94/2................................... 291 1.82 2,889,330.98 1.59
94/3................................... 19 0.12 164,802.91 0.09
94/4................................... 2 0.01 47,123.03 0.03
95/1................................... 7 0.04 41,241.04 0.02
95/2................................... 10 0.06 47,029.05 0.03
95/3................................... 11 0.07 80,900.65 0.04
95/4................................... 128 0.80 1,420,329.61 0.78
96/1................................... 1,786 11.19 19,055,096.70 10.48
96/2................................... 2,719 17.03 28,928,120.88 15.91
96/3................................... 1,593 9.98 18,224,896.78 10.03
96/4................................... 690 4.32 7,651,372.50 4.21
97/1................................... 3,463 21.70 47,250,305.38 25.99
97/2................................... 1,881 11.78 25,708,897.92 14.14
------ ------ --------------- ------
Total........................ 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY NEW AND USED COLLATERAL
<TABLE>
<CAPTION>
PERCENT OF
TOTAL AGGREGATE PERCENT OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL POOL
NEW OR USED COLLATERAL RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ---------------------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
New.................................... 14,303 89.61% $166,371,090.17 91.52%
Used................................... 1,659 10.39 15,410,035.46 8.48
------ ------ --------------- ------
Total........................ 15,962 100.00% $181,781,125.63 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
MATURITY AND PREPAYMENT ASSUMPTIONS
Full and partial prepayments on the Receivables will have the effect of
reducing the weighted average life of the Certificates, while delinquencies by
Obligors under the Receivables, as well as extensions and deferrals on the
Receivables, will have the effect of increasing the weighted average life of the
Certificates. The Receivables may be prepaid at any time without penalty and the
mandatory prepayment of a Receivable may result from, among other things, the
sale, insured loss or other disposition of the Boat financed by the Receivable
or the Receivable becoming a Defaulted Receivable. While no assurance can be
given as to the rate of prepayments or as to whether there will be a significant
amount of prepayments, NationsCredit Commercial has experienced substantial
levels of prepayments on its portfolios of marine contracts in the past. Based
on the historical performance of NationsCredit Commercial's portfolio of marine
contracts, the average effective term of such contracts is approximately
one-third of their scheduled contractual term. NationsCredit Commercial's
historical prepayment experience on its portfolio of marine contracts has also
reflected seasonal variations due to the seasonal nature of the retail marine
finance business, with higher levels of prepayments in the beginning of the
boating season during the spring and early summer. Although NationsCredit
Commercial expects significant levels of prepayments to continue, no assurance
can be given as to the level or timing of prepayments because prepayments are
affected by numerous social, economic and other factors and because historical
prepayment
20
<PAGE> 21
experience is not necessarily indicative of future prepayments.
Certificateholders will bear all reinvestment risk resulting from prepayments on
the Receivables.
CERTIFICATE FACTORS AND TRADING INFORMATION
The "Certificate Factor" is a seven-digit decimal figure, which the
Servicer will compute each month, equal to the Certificate Balance on such date
of determination, divided by the initial Certificate Balance. The Certificate
Factor will be 1.0000000 as of the Cutoff Date; thereafter, the Certificate
Factor will decline to reflect reductions in the Certificate Balance. The amount
of a Certificateholder's pro rata share of the Certificate Balance for a given
month can be determined by multiplying the original denomination of such
holder's Certificate by the Certificate Factor for that month. The Certificate
Factor will be made available on the eighth business day of each month (the
"Determination Date").
Pursuant to the Agreement, Certificateholders will receive monthly reports
concerning the payments received on the applicable Receivables, the Certificate
Balance, the Certificate Factor, and various other items of information.
Certificateholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "The Certificates -- Statements to Certificateholders".
USE OF PROCEEDS
The net proceeds to be received by the Trust from the sale of the
Certificates will be applied to the purchase of the Receivables.
THE DEPOSITOR
The Depositor, NationsCredit Securitization Corporation, is a wholly-owned
subsidiary of NationsCredit Commercial Corporation of America, which, in turn,
is indirectly wholly-owned by NationsCredit Corporation ("NationsCredit"). The
Depositor was incorporated in Delaware in 1995. The Depositor is organized for
the limited purpose of purchasing, among other things, retail marine installment
sale contracts and transferring such contracts to third parties and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes. The principal executive offices of the Depositor are located at
225 E. John Carpenter Freeway, Irving, TX 75062-2731 and its telephone number is
(972) 506-5026.
The Depositor will take steps in structuring the transaction contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by NationsCredit Commercial under the United States Bankruptcy Code
or similar applicable state law ("Insolvency Laws") will not result in
consolidation of the assets and liabilities of the Depositor with those of
NationsCredit Commercial. These steps include or will include the creation of
the Depositor as a separate, limited-purpose subsidiary pursuant to a
certificate of incorporation or an amendment thereto containing certain
limitations, including restricting the nature of the Depositor's business,
requiring the Depositor to maintain records and books of account separate from
those of NationsCredit Commercial, to refrain from commingling its assets with
those of NationsCredit Commercial and to refrain from holding itself out as
having agreed to pay, or being liable for, the debts of NationsCredit
Commercial. In addition, the Depositor's certificate of incorporation will
contain a restriction on the Depositor's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior unanimous affirmative vote
of all of its directors, including at least one outside director. The Depositor
intends to follow these and other procedures related to maintaining its separate
corporate identity. However, there can be no assurance that a court would not
conclude that the assets and liabilities of the Depositor should be consolidated
with those of NationsCredit Commercial. If a court were to reach such a
conclusion, or a filing were made under any Insolvency Law by or against the
Depositor, or if an attempt were made to litigate any of the foregoing issues,
delays in distributions on the Certificates (and possible reductions in the
amount of such distributions) could occur.
21
<PAGE> 22
THE SERVICER
The Servicer, NationsCredit Commercial Corporation of America
("NationsCredit Commercial"), was incorporated in 1992 under the laws of the
State of North Carolina. NationsCredit Commercial engages in the financing of
dealer inventory of consumer goods which include such products as boats, boat
motors and trailers, musical instruments, consumer electronics and appliances,
residential heating and air conditioning equipment, lawn and garden equipment,
manufactured housing units, and recreational vehicles. In support of its
inventory financing of boat dealers, NationsCredit Commercial purchases marine
installment sale contracts. NationsCredit Commercial is an indirect wholly-owned
subsidiary of NationsCredit, which in turn is a wholly-owned subsidiary of
NationsBank Corporation.
On February 1, 1993, NationsBank Corporation, through its subsidiary
NationsBanc Financial Services Corporation, acquired certain of the assets and
assumed certain of the liabilities of Chrysler First Inc., a subsidiary of
Chrysler Financial Corporation. NationsCredit Commercial represents operations
which were formerly subsidiaries of Chrysler First Inc. None of the Receivables
were originated prior to the acquisition of the assets and liabilities of
Chrysler First Inc.
The principal office of the Servicer is located at 3350 Cumberland Circle,
N.W., Suite 1000 Atlanta, GA 30339.
THE SURETY BOND ISSUER
CapMAC is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance. CapMAC
is licensed in 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures structured
asset-backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. CapMAC also provides financial guarantee
reinsurance for structured asset-backed, corporate, municipal and other
financial obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's, "AAA" by S&P,
"AAA" by Duff & Phelps Credit Rating Co. ("Duff & Phelps") and "AAA" by Nippon
Investors Service Inc. Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
CapMAC is a wholly-owned subsidiary of CapMAC Holdings Inc. ("Holdings").
NEITHER HOLDINGS NOR ANY OF ITS STOCKHOLDERS IS OBLIGATED TO PAY ANY CLAIMS
UNDER ANY SURETY BOND ISSUED BY CAPMAC OR ANY DEBTS OF CAPMAC OR TO MAKE
ADDITIONAL CAPITAL CONTRIBUTIONS.
CapMAC is regulated by the Superintendent of Insurance of the State of New
York. In addition, CapMAC is subject to regulation by the insurance laws and
regulations of the other jurisdictions in which it is licensed. Such insurance
laws regulate, among other things, the amount of net exposure per risk that
CapMAC may retain, capital transfers, dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and acquisitions.
CapMAC is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC's obligations under the Surety Bond may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the Surety
Bond.
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK STATE INSURANCE LAW.
As of December 31, 1996 and 1995, CapMAC had qualified statutory capital
(which consists of policyholders' surplus and contingency reserve) of
approximately $260 million and $240 million, respectively, and had not incurred
any debt obligations. Article 69 of the New York State Insurance Law requires
CapMAC to establish and maintain the contingency reserve, which is available to
cover claims under surety bonds issued by CapMAC.
22
<PAGE> 23
The financial statements of CapMAC prepared in accordance with generally
accepted accounting principles as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996 are made part of this
Prospectus. Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted accounting
principles, and filed with the Insurance Department of the State of New York are
available upon request from CapMAC.
CapMAC is located at 885 Third Avenue, New York, New York 10022, and its
telephone number is (212) 755-1155.
THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to the Agreement.
Copies of the Agreement (without exhibits) may be obtained by Certificateholders
upon request in writing to the Trustee at Bankers Trust Company, 4 Albany
Street, New York, New York 10006; Attn: Corporate Trust and Agency Group
Structured Transactions. The following summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Agreement.
GENERAL
The Certificates will be available for purchase in book-entry form in
minimum denominations representing $1,000 of initial principal balance of the
Receivables and in integral multiples thereof, and will represent an undivided
fractional interest in the Trust equal to the percentage obtained by dividing
the denomination of the Certificate by such initial principal balance.
In general, it is intended that Certificateholders receive, on each
Distribution Date, the aggregate payments of principal, consisting of the
aggregate collected principal payments, full and partial prepayments on the
Receivables (other than Receivables for which the Servicer or NationsCredit
Commercial has made a payment of the Purchase Amount in a Collection Period
prior to the related Collection Period) received by the Servicer during the
preceding calendar month (the "Collection Period"), the principal balance of
Defaulted Receivables which became Defaulted Receivables during the related
Collection Period and interest at one-twelfth the Pass-Through Rate on the
Certificate Balance as of the close of business on the prior Distribution Date.
A prepayment of a Receivable may be made by or on behalf of the respective
Obligor by application of certain insurance proceeds, as a result of a
repurchase by NationsCredit Commercial or a purchase by the Servicer, as a
result of payments made in respect of Defaulted Receivables under the Reserve
Account, the Surety Bond, or, if payments are not made as required under the
Surety Bond, upon the repossession of the Boat, or other enforcement measure
taken with respect to a Defaulted Receivable. See "The Certificates -- Sale and
Assignment of Receivables", "-- The Surety Bond", "-- The Reserve Account" and
"-- Servicing Procedures".
The Certificates will initially be represented by one or more certificates
registered in the name of the nominee of The Depository Trust Company ("DTC",
and together with any successor depository selected by the Depositor, the
"Depository") except as set forth below. The Depositor has been informed by DTC
that DTC's nominee will be Cede & Co. ("Cede"). Accordingly, Cede is expected to
be the holder of record of the Certificates. Unless and until Definitive
Certificates are issued under the limited circumstances described herein, no
Certificate Owner will be entitled to receive a certificate representing such
person's interest in the Certificates. All references herein to action by
Certificateholders shall refer to actions taken by DTC upon instructions from
its participating organizations (the "Participants") and all references herein
to distributions, notices, reports and statements to Certificateholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Certificates, as the case may be, for distribution to
Certificate Owners in accordance with DTC procedures. See "-- Book-Entry
Registration" and "-- Definitive Certificates".
BOOK-ENTRY REGISTRATION
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
23
<PAGE> 24
was created to hold securities for its participating organizations ("Direct
Participants") and to facilitate the clearance and settlement of securities
transactions between Direct Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Direct
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly (the
"Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificate Owners will receive all distributions of principal and
interest from the Trustee through Direct Participants and Indirect Participants.
Under a book-entry format Certificateholders may experience some delay in their
receipt of principal and interest distributions with respect to the Certificates
since distributions with respect to the Certificateholders will be forwarded by
Bankers Trust Company as paying agent, or its successor in such capacity (the
"Paying Agent") to Cede, the nominee of DTC will then forward such distributions
to its Direct Participants who in turn will forward them to Indirect
Participants or Certificate Owners. It is anticipated that the only
"Certificateholder" will be Cede, as nominee of DTC. Certificate Owners will not
be recognized by the Trustee as Certificateholders, as such term is used in the
Agreement and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Direct Participants and
Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers among
Direct Participants and is required to receive and transmit distributions of
principal of, and interest on, the Certificates. Direct Participants and
Indirect Participants with which Certificate Owners have accounts with respect
to the Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Certificate
Owners.
Because DTC can only act on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain banks, trust companies and other
persons approved by it the ability of a Certificate Owner to pledge Certificates
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such Certificates, may be limited due to the absence
of physical certificates for such Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Direct Participants to whose accounts with DTC the Certificates are
credited. Additionally, DTC has advised the Depositor that it will take such
actions with respect to specified percentages of the Certificate Balance only at
the direction of and on behalf of Participants whose holdings include undivided
interests that satisfy such specified percentages. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Direct Participants whose holdings include such
undivided interests.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form (the
"Definitive Certificates"), to Certificate Owners or their nominees rather than
to DTC or its nominee, only if (i) the Depositor advises the Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Depository with respect to the Certificates, and the Trustee or the Depositor
is unable to locate a qualified successor, (ii) the Depositor, at its option,
elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of an Event of Default, Certificate Owners representing in the
aggregate not less than 50% of the Certificate Balance advise the Trustee and
DTC through Direct Participants in writing that the continuation of a book-entry
system through any Depository is no longer in the best interest of the
Certificate Owners.
Upon the occurrence of any events described in the immediately preceding
paragraph, the Trustee shall notify all Certificate Owners through DTC of the
occurrence of any such event and of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the global certificates representing the
Certificates and instructions for re-registration, the Trustee will issue the
Certificates as Definitive Certificates, and thereafter the
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Trustee will recognize the registered holders of such Definitive Certificates as
Certificateholders under the Agreement (the "Holders").
If Definitive Certificates are issued, distributions of principal of, and
interest on, the Definitive Certificates will be made by the Trustee directly to
Holders in accordance with the procedures set forth herein and in the Agreement.
Distributions of principal and interest on each Distribution Date will be made
to Holders in whose names the Definitive Certificates were registered at the
close of business on the preceding Record Date. Such distributions will be made
by check mailed to the address of such Holder as it appears on the register
maintained by the Trustee. The final payment on any Definitive Certificate,
however, will be made only upon presentation and surrender of such Definitive
Certificate at the office or agency specified in the notice of final
distribution mailed to Holders.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee in New York, New York. No service charge will be imposed
for any registration of transfer or exchange, but the Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith. Bankers Trust Company will initially be
designated as the registrar for the Certificates.
Certificates held by the Depositor or the Servicer shall not be counted in
any vote or action requiring the consent of Certificateholders under the
Agreement.
SALE AND ASSIGNMENT OF RECEIVABLES
On the date of issuance of the Certificates (the "Closing Date"), the
Depositor will cause the Trust to purchase the Receivables directly or
indirectly from NationsCredit Commercial or its affiliates. Each Receivable
purchased by the Trust will be identified in a schedule appearing as an exhibit
to the Agreement. The Trustee will, concurrently with such purchase, execute,
authenticate and deliver the Certificates.
The representations and warranties, with respect to the Receivables made by
either NationsCredit Commercial or the Depositor shall include, among others,
that such Receivable (a) shall have been originated in the United States by a
Dealer for the retail sale of a Boat in the ordinary course of such Dealer's
business, shall have been fully and properly executed by the parties thereto,
shall be denominated in U.S. dollars, (b) shall have created or shall create a
valid, subsisting and enforceable first priority perfected security interest in
favor of NationsCredit Commercial in the related Boat, (other than in the case
of boat motors subject to certificate of title statutes that provide for
perfection of the security interests in such boat motors by the filing of a
UCC-1 financing statement), which security interest has been assigned to the
Depositor and shall be validly assignable by the Depositor to the Trustee, (c)
shall contain customary and enforceable provisions such that the rights and
remedies of the holder thereof shall be adequate for realization against the
collateral of the benefits of the security, (d) shall provide for level monthly
payments (provided that the payment in the first or last month in the life of
the Receivable may be minimally different from the level payment) that fully
amortize the Amount Financed by maturity and yield interest at the Annual
Percentage Rate, (e) shall provide for, in the event that such contract is
prepaid, a prepayment that fully pays the Principal Balance and includes accrued
but unpaid interest due through the date of prepayment in an amount at least
equal to the Annual Percentage Rate, (f) and the sale of the related Boat shall
have complied at the time it was originated or made, and at the date of issuance
of the Certificates shall comply, in all material respects with all requirements
of applicable Federal, State, and local laws and regulations thereunder,
including, without limitation, usury laws, the Federal Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Trade Commission Credit
Practices Rule, State unfair and deceptive trade practice laws, and State
adaptations of the National Consumer Act and of the Uniform Consumer Credit
Code, and any other applicable consumer credit, equal credit opportunity and
disclosure laws, and (g) shall represent the genuine, legal, valid and binding
payment obligation in writing of the Obligor, enforceable by the holder thereof
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and similar laws relating to creditors'
rights generally and subject to general principles of equity. As of the second
(or, at the Depositor's or NationsCredit Commercial's option, as applicable, the
first) Record Date following the discovery by or notice to the Depositor or
NationsCredit Commercial of a breach of any representation or warranty made by
the Depositor or
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NationsCredit Commercial, as applicable, that materially and adversely affects
the interests of the Certificateholders in a Receivable, the Depositor or
NationsCredit Commercial, as applicable, unless it cures the breach, will
repurchase or purchase the Receivable from the Trustee, at a price equal to the
unpaid principal balance owed by the Obligor plus accrued interest calculated at
a rate equal to the sum of the Pass-Through Rate plus the Servicing Fee Rate
(the "Purchase Amount"). The repurchase and the purchase obligations are a
general and unsecured obligation of the Depositor and NationsCredit Commercial,
respectively, and will constitute the sole remedy available to the
Certificateholders or the Trustee for any such uncured breach. Any failure on
the part of NationsCredit Commercial or the Depositor to pay the Purchase Amount
of any Receivable when required will not be covered by collections from
Receivables or payments under the Surety Bond.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee, on behalf of the Trust, will appoint
NationsCredit Commercial as custodian of all the Receivables. NationsCredit
Commercial's and its applicable affiliate's accounting records and computer
systems will reflect the ultimate sale and assignment of the Receivables to the
Trustee. UCC-1 financing statements reflecting the sale and assignment of the
Receivables to the Trustee will be filed. Because the Receivables will remain in
NationsCredit Commercial's possession and will not be stamped or otherwise
marked to reflect the assignment to the Trustee, if a subsequent purchaser were
able to take physical possession of the Receivables in the ordinary course of
its business without knowledge of the assignment, the Trustee's interest in the
Receivables could be defeated. See "Risk Factors -- Lack of First Priority
Security Interests in the Receivables." Due to the administrative burden and
expense: the certificates of title, in the case of Boats financed in states
where security interests in boats are subject to certificate of title statutes,
will not be endorsed; and the UCC-1 financing statements, in the case of Boats
financed in states where security interests in boats are perfected by filing a
UCC-1 financing statement, will not be amended. In the absence of such
procedures, the Trust may not have a perfected security interest in the Boats
financed in certificate of title or UCC states, but the failure to make such
endorsements, filings or recordations will not affect the validity of the
original security interest as against the Obligor in UCC states. With respect to
Boats documented under certificate of title states, the validity of the security
interest against the original Obligor is less clear. See "Risk Factors -- Lack
of Perfected Security Interests in Boats."
ACCOUNTS
The Servicer will establish and maintain with the Trustee one or more
accounts, in the name of the Trustee on behalf of the Certificateholders, into
which all payments made on or with respect to the Receivables will be deposited,
and from which all distributions with respect to the Receivables and the
Certificates will be made (collectively, the "Certificate Account"). The
Certificate Account shall be maintained with the Trustee so long as (i) the
Trustee's deposits have a rating acceptable to each Rating Agency or (ii) the
Certificate Account is maintained as a fully segregated trust account. If at any
time the conditions in clauses (i) or (ii) above are not satisfied, the Servicer
shall, with the Trustee's assistance as necessary, cause the Certificate Account
to be moved to a bank which can satisfy such conditions.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and, in a manner consistent with the Agreement, will
perform such collection procedures as it follows with respect to marine
contracts that it services for itself and others. See "Certain Legal Aspects of
the Receivables." Consistent with the Agreement, the Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend, rewrite or
otherwise modify the payment terms of a Receivable; provided, however, that the
Servicer may, with certain limitations set forth in the Agreement, extend a
Receivable for credit related reasons that would be acceptable to the Servicer
with respect to comparable marine contracts that it services for itself and
others and in accordance with its customary standards, policies and procedures
if the cumulative extensions with respect to any Receivable shall not cause the
term of such Receivable to extend beyond the last day of the Collection Period
preceding the Final Scheduled Distribution Date. See "NationsCredit Commercial's
Portfolio of Marine Contracts." Such arrangements may result in the Servicer
purchasing the Receivable for its Purchase Amount. If required payments under
the Surety Bond are not made, the Servicer would follow such normal collection
practices and procedures as it deems necessary or advisable to realize upon any
Receivable with respect to which
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the Servicer determines that eventual payment in full is unlikely. The Servicer
may sell the Boat securing the Receivable at a public or private sale, or take
any other action permitted by applicable law.
The Servicer will covenant in the Agreement that: (i) the Servicer will not
release a Boat from the security interest granted by the related Receivable in
whole or in part, except upon payment in full by the related Obligor; (ii) the
Servicer will not impair the rights of the Certificateholders in any
Receivables; (iii) the Servicer will not increase or decrease the amount of any
scheduled payment on a Receivable or the principal amount of a Receivable
(except with respect to a prepayment of a scheduled payment that does not result
in a deferral of any other scheduled payment); (iv) the Servicer will not change
the APR of any Receivable; (v) the Servicer will not sell, pledge, transfer,
deliver or otherwise dispose of any Receivable, except as provided in the
Agreement; (vi) the Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Receivables as and
when the same shall become due and shall follow such collection procedures as it
follows with respect to all comparable marine contracts that it services for
itself and others; and (vii) the Servicer will not extend, rewrite or otherwise
modify the payment terms of a Receivable; provided, however, that the Servicer
may, with certain limitations set forth in the Agreement, extend a Receivable
for credit related reasons that would be acceptable to the Servicer with respect
to comparable marine contracts that it services for itself and others and in
accordance with its customary standards, policies and procedures if the
cumulative extensions with respect to any Receivable shall not cause the term of
such Receivable to extend beyond the last day of the Collection Period preceding
the Final Scheduled Distribution Date.
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interests of the Certificateholders
and the Surety Bond Issuer in a Receivable, the Servicer, unless such breach has
been cured by the second Record Date (or, at the Servicer's election, the first
Record Date) following the date on which the Servicer becomes aware of, or
receives written notice of such breach or earlier in certain circumstances, will
be required to purchase the Receivable from the Trustee on the business day
prior to the Distribution Date related to such Record Date or earlier under
certain circumstances. The purchase price will be the Purchase Amount as of the
last day of the Collection Period preceding the date of such purchase. The
purchase obligation is a general unsecured obligation of the Servicer and will
constitute the sole remedy available to the Certificateholders, the Trust or the
Trustee against the Servicer for any such uncured breach, except with respect to
certain indemnities of the Servicer under the Agreement related thereto. Any
failure of the Servicer to pay the Purchase Amount of any Receivable when
required will not be covered by collections from Receivables or payments under
the Surety Bond.
COLLECTIONS ON RECEIVABLES
While NationsCredit Commercial or an entity (a) into which NationsCredit
Commercial is merged or consolidated, (b) which succeeds to the properties and
assets of the Servicer substantially as a whole or (c) more than 50% of the
voting stock of which is, directly or indirectly, owned by NationsBank
Corporation, which has executed an agreement of assumption to perform the
obligations of the Servicer under the Insurance Agreement and the Agreement, is
the Servicer, the Servicer may commingle collections held by it and may use such
funds for its own purposes prior to the business day preceding each Distribution
Date provided that all of the following conditions are satisfied: (i) there
exists no Event of Default (as described below); (ii) if the Servicer does not
have a short-term rating or deposit rating of at least A-1 from S&P and P-1 from
Moody's, a guaranty, letter of credit, surety bond or other similar instrument
is issued covering collections held by NationsCredit Commercial or such
successor, which is acceptable to the Rating Agencies and the Surety Bond Issuer
and is issued by an entity which has a short-term debt or deposit rating, as
applicable, of at least A-1 from S&P and P-1 from Moody's; and (iii) the
Servicer, the Trustee, the Depositor and the Surety Bond Issuer shall not have
received notice from S&P or Moody's that failure to separate such funds will
result in a reduction or withdrawal of the then current rating on the
Certificates by either S&P or Moody's. If all the conditions contained in the
preceding sentence are not met, the Servicer will deposit all payments on
Receivables (from whatever source) and all proceeds of Receivables collected
during each Collection Period into the Certificate Account not later than the
second business day after receipt. It is anticipated that on the Closing Date,
NationsBank Corporation will furnish a guaranty that will permit NationsCredit
Commercial to commingle funds. The Depositor or the Servicer, as applicable,
will deposit the aggregate Purchase Amount of Receivables repurchased by the
Depositor or
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purchased by the Servicer into the Certificate Account on or before the business
day preceding the applicable Distribution Date. Pending deposit into the
Certificate 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.
See "Risk Factors -- Commingling Risk."
In accordance with NationsCredit Commercial's normal practices and
procedures, payments made by or on behalf of an Obligor on a Receivable during a
Collection Period shall be applied first to late payment fees and extension
fees, second to interest accrued on the Receivable, third to principal due on
the Receivable, fourth to administrative charges, if any, and fifth to the
remaining principal balance. Late payment and extension fees, if any, and other
administrative fees will be included as part of the Trust's assets; provided
however that the Trustee will agree to hold any such amounts for the benefit of
the Servicer and any payments received with respect thereto will not be passed
through to Certificateholders, but will instead be promptly remitted to the
Servicer upon receipt.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Monthly Servicing Fee with
respect to each Distribution Date, equal to the product of one-twelfth the
Servicing Fee Rate multiplied by the Pool Balance as of the last day of the
prior Collection Period (or, in the case of the first Distribution Date, the
Initial Pool Balance). The Trustee, as provided above, will remit to the
Servicer any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables.
Payments by or on behalf of Obligors will be allocated to payments of principal,
interest and late fees in accordance with the Servicer's normal practices and
procedures.
The Monthly Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of marine retail installment sale contracts
as an agent for their beneficial owner, including collecting and posting all
payments, responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment statements to Obligors, reporting tax information
to Obligors, paying costs of disposition of defaults, and monitoring the
collateral. The Monthly Servicing Fee also will compensate the Servicer for
administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Trustee with respect to
distributions, and providing information to the appropriate party relating to
Federal income taxes. The Monthly Servicing Fee also will reimburse the Servicer
for certain taxes, accounting fees, outside auditor fees, data processing costs
and other costs incurred in connection with administering the Receivables. The
Trust will not be responsible for fees and expenses of any subservicer.
DISTRIBUTIONS ON CERTIFICATES
On or before the Determination Date, the Servicer will inform the Trustee
of the amount of aggregate collections on the Receivables (other than
Receivables purchased by the Servicer or repurchased by NationsCredit
Commercial) including all refunds received by the Servicer with respect to any
refunded portion of any extended warranty protection plan costs, or of physical
damage, credit life or disability insurance premiums included in the principal
amount of the Receivables; the aggregate Purchase Amount of Receivables required
to be repurchased by NationsCredit Commercial or required to be purchased by the
Servicer; the aggregate amounts to be drawn on the Reserve Account; the
aggregate payments to be made under the Surety Bond; and the Monthly Servicing
Fee; all with respect to the preceding Collection Period.
On the Distribution Date, the Trustee will distribute from the Certificate
Account pro rata to the Certificateholders of record as of the preceding Record
Date, the Servicer, the Surety Bond Issuer, the Collateral Agent and the
Depositor the following amounts in the following order of priority:
(i) to the Certificateholders, an amount equal to one-twelfth of the
product of (x) the Pass-Through Rate and (y) the Certificate Balance as of
the close of business on the prior Distribution Date (the "Monthly Interest
Payment"), and any carry-over Monthly Interest Payment from prior
Distribution Dates;
(ii) if NationsCredit Commercial or an affiliate thereof is not the
Servicer, to the Servicer, an amount equal to one-twelfth of the product of
(x) the Servicing Fee Rate and (y) the Pool Balance as of the last day
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of the prior Collection Period (or, in the case of the first Distribution
Date, the Initial Pool Balance) ("Monthly Servicing Fee") and any
carry-over Monthly Servicing Fee from prior Distribution Dates;
(iii) to the Certificateholders, (x) on any Distribution Date, except
the Final Scheduled Distribution Date (a) that portion of all collections
received by the Servicer during the related Collection Period on
Receivables allocable to principal (which shall not include the principal
portion of proceeds from any recoveries or liquidations in respect of
Defaulted Receivables), (b) Purchase Amounts allocable to principal and
paid by the Depositor or the Servicer, (c) the principal balance of
Defaulted Receivables, which became Defaulted Receivables during the
related Collection Period and (y) on the Final Scheduled Distribution Date,
after giving effect to the distribution of amounts set forth in (a) through
(c) of this clause (iii), an amount necessary to reduce the Certificate
Balance to zero on such Distribution Date (collectively, the "Monthly
Principal Payment") and any carry-over Monthly Principal Payment from prior
Distribution Dates;
(iv) if NationsCredit Commercial or an affiliate thereof is the
Servicer, to the Servicer, the Monthly Servicing Fee and any carry-over
Monthly Servicing Fee from prior Distribution Dates;
(v) to the Surety Bond Issuer, any amounts owing to the Surety Bond
Issuer under the Insurance Agreement and the Agreement and not paid;
(vi) to the Collateral Agent, an amount up to the Specified Reserve
Account Requirement for deposit into the Reserve Account; and
(vii) to the Depositor, any remaining amounts.
"Defaulted Receivable" means a Receivable as to which either (x) the
Servicer has determined, in accordance with its customary servicing procedures,
that eventual payment in full is unlikely or (y) (1) 90 or more days have
elapsed since the related Boat has been repossessed by the Servicer, in the case
of any Receivable with a Principal Balance of $10,000 or less as of the day such
Boat was repossessed by the Servicer or (2) 180 or more days have elapsed since
the related Boat has been repossessed by the Servicer, in the case of any
Receivable with a Principal Balance of greater than $10,000 as of the day such
Boat was repossessed by the Servicer.
The aggregate amount of Monthly Principal Payments will not exceed the
unpaid principal balance of the Certificates.
The Surety Bond Issuer will unconditionally and irrevocably guarantee
payment of the distributions described in clauses (i) through (iii). See "-- The
Surety Bond."
The Monthly Interest Payment is calculated on the Certificate Balance,
which shall decline by the amount of principal distributions made on the
Certificates. To the extent that payments on the Receivables and amounts on
deposit in the Reserve Account are not sufficient to cover the entire principal
amount of Defaulted Receivables and payments under the Surety Bond are not made,
Certificateholders will incur a loss and interest will not be paid on the amount
of such loss.
As an administrative convenience, the Servicer will be permitted to make
the deposit of (a) collections and the aggregate Purchase Amount for or with
respect to the Collection Period and (b) the Purchase Amount for any optional
purchase of the Receivables (as described herein) net of distributions to be
made to the Servicer with respect to the Collection Period. The Servicer,
however, will account for the amount of any such purchase to the Trustee and to
the Certificateholders as if all deposits, distributions and transfers were made
individually.
Any amounts released to the Depositor pursuant to clause (vii) above shall
not be property of the Trust thereafter, and the Depositor shall have no
obligation to return such amounts to the Trust in the event insufficient funds
are available on any subsequent Distribution Date to distribute to
Certificateholders the Monthly Interest Payment, any carry-over Monthly Interest
Payment, the Monthly Principal Payment or any carry-over Monthly Principal
Payment.
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The following chart sets forth the application of the foregoing provisions
to the June 1997 distribution:
May 1-May 31............... Collection Period. The Servicer receives monthly
payments, prepayments and other proceeds in respect
of the Receivables.
June 11.................... Determination Date. The Servicer notifies the
Trustee of the amounts to be distributed on the
Distribution Date.
June 13.................... Record Date. Distributions on the Distribution Date
are made to Certificateholders of record at the
close of business on this date.
June 16.................... Distribution Date. The Trustee distributes to
Certificateholders amounts payable in respect of
the Certificates as described in clauses (i) and
(iii) above, and transfers the balance as described
in clause (vii) above.
THE SURETY BOND
On or before the Closing Date, the Depositor will cause the Surety Bond to
be issued by the Surety Bond Issuer pursuant to the provisions of the Agreement
and the Insurance and Reimbursement Agreement (the "Insurance Agreement") among
the Depositor, the Servicer and the Surety Bond Issuer. The Surety Bond will
unconditionally and irrevocably guarantee the timely payment of (i) the Monthly
Interest Payment, (ii) if NationsCredit Commercial or an affiliate thereof is
not the Servicer, the Monthly Servicing Fee and (iii) the Monthly Principal
Payment.
The Trustee will demand payment under the Surety Bond (or the Surety Bond
Issuer will otherwise make available) with respect to any Distribution Date to
the extent there are not sufficient amounts available from collections on
Receivables or on deposit in the Reserve Account, to make distributions in
respect of (i) the Monthly Interest Payment, (ii) if NationsCredit Commercial or
an affiliate thereof is not the Servicer, the Monthly Servicing Fee and (iii)
the Monthly Principal Payment.
Without duplication of any of the foregoing, on the Final Scheduled
Distribution Date, the Surety Bond will unconditionally guarantee the payment of
the outstanding Certificate Balance (after giving effect to all other amounts
distributed and allocable to principal on such Distribution Date).
In the event the Reserve Account is exhausted or otherwise unavailable, in
the absence of payments under the Surety Bond, Certificateholders will directly
bear the credit and other risks associated with their undivided interest in the
Trust.
In the event the Surety Bond Issuer's claims paying ratings have been
reduced by any of the Rating Agencies, the Depositor may, but it is not
obligated to, upon payment of all amounts required to be paid to the Surety Bond
Issuer pursuant to the Insurance Agreement and the Agreement either (i) replace
the Surety Bond with a financial guaranty insurance policy issued by another
surety bond issuer, provided that the ratings on the claims paying ability of
such replacement surety bond issuer are higher than those of the surety bond
issuer sought to be replaced (after giving effect to such reduction) or (ii)
eliminate or provide another form of credit enhancement; provided that in the
case of clause (ii), the Rating Agencies consent thereto and confirmation that
the ratings of the Certificates will be increased from their then current levels
(after giving effect to such reduction) as a result of such action shall have
been obtained.
So long as a Surety Bond Issuer Default has occurred and is continuing, any
provision giving the Surety Bond Issuer the right to direct, appoint or consent
to, approve of, or take any action under this Agreement shall be inoperative
during the period of such Surety Bond Issuer Default and such right shall
instead vest in the Trustee acting at the direction of the Certificateholders
evidencing not less than 51% of the Certificate Balance as of the most recent
Record Date.
"Surety Bond Issuer Default" means the failure of the Surety Bond Issuer to
make a payment required under the Surety Bond in accordance with its terms.
Payment of claims under the Surety Bond will be made by the Surety Bond
Issuer following Receipt by the Surety Bond Issuer of the appropriate notice for
payment on the later to occur of (a) 11:00 a.m., New York City
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time, on the second Business Day following Receipt of such notice for payment,
and (b) 11:00 a.m., New York City time, on the Business Day immediately
preceding the relevant Distribution Date.
The terms "Receipt" and "Received," with respect to the Surety Bond, means
actual delivery to the Surety Bond Issuer, prior to 2:00 p.m., New York City
time, on a Business Day; delivery either on a day that is not a Business Day or
after 2:00 p.m., New York City time, shall be deemed to be Receipt on the next
succeeding Business Day.
If a payment guaranteed by the Surety Bond Issuer is voided pursuant to a
final and non-appealable order (a "Preference Event") under any applicable
bankruptcy, insolvency, receivership or similar law in an Insolvency Proceeding,
and, as a result of such a Preference Event, the Trustee is required to return
such voided payment, or any portion of such voided payment, made in respect of
the Certificates (an "Avoided Payment"), the Surety Bond Issuer will pay an
amount equal to such Avoided Payment, upon receipt by the Surety Bond Issuer
from the Trustee of (x) a certified copy of a final order of a court exercising
jurisdiction in such Insolvency Proceeding to the effect that the Trustee is
required to return any such payment or portion thereof during the term of the
Surety Bond because such payment was voided under applicable law, with respect
to which order the appeal period has expired without an appeal having been filed
(the "Final Order"), (y) an assignment, in form reasonably satisfactory to the
Surety Bond Issuer, irrevocably assigning to the Surety Bond Issuer all rights
and claims of the Trustee relating to or arising under such Avoided Payment and
(z) a notice for payment appropriately completed and executed by the Trustee.
Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Final Order and not
to the Trustee directly.
Notwithstanding the foregoing, in no event shall the Surety Bond Issuer be
obligated to make any payment in respect of any Avoided Payment, which payment
represents a payment of the principal amount of the Certificates, prior to the
time the Surety Bond Issuer would have been required to make a payment in
respect of such principal in the absence of such Preference Event.
The Surety Bond Issuer shall make payments due in respect of Avoided
Payments prior to 1:00 p.m., New York City time, on the second Business Day
following the Surety Bond Issuer's Receipt of the documents required under
clauses (x) through (z) of the second preceding paragraph.
Under the Surety Bond, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York and the State of Georgia are authorized or obligated by law
or executive order to be closed.
"Insolvency Proceeding" means the commencement, after the Closing Date, of
any bankruptcy, insolvency, readjustment of debt, reorganization, marshaling of
assets and liabilities or similar proceedings by or against any person, or the
commencement, after the Closing Date, of any proceedings by or against any
Person for the winding up or liquidation of its affairs, or the consent after
the date hereof to the appointment of a trustee, conservator, receiver or
liquidator in any bankruptcy, insolvency, readjustment of debt, reorganization,
marshaling of assets and liabilities or similar proceedings of or relating to
any Person.
The terms of the Surety Bond cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution of
the Trust, the Depositor or the Servicer. The Surety Bond by its terms may not
be canceled or revoked prior to the time it is terminated in accordance with its
express terms. The Surety Bond is governed by the laws of the State of New York.
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK STATE INSURANCE LAW.
THE RESERVE ACCOUNT
The Depositor will establish and maintain with the Collateral Agent an
account (the "Reserve Account"). The Reserve Account will not be part of the
Trust, but will be pledged to the Trustee for the benefit of the
Certificateholders and the Surety Bond Issuer. On the Closing Date an initial
deposit will be made into the Reserve Account and thereafter will be augmented
on each Distribution Date from payments on Receivables allocable to interest on
deposit in the Certificate Account with respect to the preceding Collection
Period after
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distributions on such Distribution Date in respect of the Monthly Interest
Payment and any carry-over Monthly Interest Payment, the Monthly Servicing Fee
and any carry-over Monthly Servicing Fee (if NationsCredit Commercial or an
affiliate thereof is not the Servicer), the Monthly Principal Payment and any
carry-over Monthly Principal Payment and any amounts owing to the Surety Bond
Issuer under the Insurance Agreement and the Agreement and not paid, until the
amount on deposit in the Reserve Account is equal to a specified amount to be
determined by the Surety Bond Issuer and the Rating Agencies (the "Specified
Reserve Account Requirement"). Amounts, if any, on deposit in the Reserve
Account on any Distribution Date (after giving effect to all distributions to be
made on such Distribution Date) in excess of the Specified Reserve Account
Requirement will be released to the Depositor. The Specified Reserve Account
Requirement and amounts on deposit or to be deposited into the Reserve Account
may be reduced, including to zero, or distributed in a different manner than
described herein with the consent of the Surety Bond Issuer as long as such
reduction or change does not cause a downgrade or withdrawal of the then-current
rating of the Certificates by either Moody's or S&P, but without prior notice to
or the consent of the Certificateholders. Prospective purchasers of the
Certificates should not rely on any amounts being deposited into or being
available from the Reserve Account in making a decision on whether to purchase
the Certificates.
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder of record, a statement to Certificateholders furnished
pursuant to the Agreement, setting forth for the Collection Period relating to
such Distribution Date the following information (stated in the case of items
(i), (ii) and (iii), on the basis of $1,000 initial principal amount) as of such
Distribution Date:
(i) the amount of the Certificateholder's distribution which
constitutes the Monthly Principal Payment (including any carry-over Monthly
Principal Payment);
(ii) the amount of the Certificateholder's distribution which
constitutes the Monthly Interest Payment (including any carry-over Monthly
Interest Payment);
(iii) the Certificateholder's pro rata portion of the Monthly
Servicing Fee (including any carry-over Monthly Servicing Fee);
(iv) the Certificate Balance and the Certificate Factor as of the
close of business on such Distribution Date; and
(v) the Pool Balance as of the last day of the Collection Period.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Trustee shall
mail to each Person who at any time during such calendar year shall have been a
Certificateholder of record a statement containing the annual total for the
amounts described in (i) through (iii) above for the purposes of such
Certificateholder's preparation of Federal income tax returns. See "Certain
Federal Income Tax Consequences."
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee and the Surety Bond Issuer on or before March 31 of
each year, beginning March 31, 1998, a statement as to compliance by the
Servicer during the preceding twelve months ended December 31 of the preceding
year with certain standards relating to the servicing of the Receivables.
The Agreement will also provide for delivery to the Trustee and the Surety
Bond Issuer, on or before March 31 of each year, commencing March 31, 1998 of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under such Agreement throughout the preceding twelve
months ended December 31 or, if there has been a default in the fulfillment of
any such obligation, describing each such default. The Servicer has agreed to
give the Trustee notice of certain Events of Default under the Agreements.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Trustee.
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CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that NationsCredit Commercial may not resign
from its obligations and duties as Servicer thereunder, except upon
determination that the performance of such duties by NationsCredit Commercial is
no longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor servicer has assumed NationsCredit
Commercial's servicing obligations and duties under the Agreement. The Servicer
may delegate all or any part of its servicing obligations under the Agreement to
another person provided that no such delegation shall relieve the Servicer of
any of its obligations or liabilities under the Agreement. NationsCredit
Commercial employs NationsCredit Financial Services Corporation to collect on
charged-off marine contracts including in respect of any Receivables.
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees and agents shall be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of its duties or
by reason of reckless disregard of obligations and duties thereunder. In
addition, the Agreement will provide that the Servicer is under no obligation to
appear in, prosecute or defend any legal action that is not incidental to its
servicing responsibilities under such Agreement and that, in its opinion, may
involve it in any expense or liability. The Servicer may, however, undertake any
reasonable action that it may deem necessary or desirable in respect of the
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder.
Under the circumstances specified in the Agreement, any entity into which
the Servicer may be merged or consolidated, or any entity resulting from any
merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer, or, with respect to its obligations
as Servicer, any corporation 50% or more of the voting stock of which is owned,
directly or indirectly, by NationsBank Corporation, which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Agreement.
EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of: (i) any failure by
the Servicer to deliver to the Trustee for distribution to the
Certificateholders any proceeds or payment required to be delivered under the
terms of the Certificates and the Agreement, which failure continues unremedied
for three business days after written notice from the Trustee is received by the
Servicer or after discovery by an officer of the Servicer; (ii) any failure by
the Servicer or the Depositor, as the case may be, duly to observe or to perform
in any material respect any other covenant or agreement set forth in the
Certificates or the Agreement which failure materially and adversely affects the
rights of Certificateholders and which continues unremedied for 60 days after
the giving of written notice of such failure (1) to the Servicer or the
Depositor, as the case may be, by the Trustee or (2) to the Servicer or the
Depositor, as the case may be, and to the Trustee by the Surety Bond Issuer;
(iii) certain events of bankruptcy, insolvency, readjustment of debt, marshaling
of assets and liabilities, or similar proceedings with respect to the Servicer
or the Depositor and certain actions by the Servicer or the Depositor indicating
its insolvency, reorganization pursuant to bankruptcy proceedings, or inability
to pay its obligations and (iv) any representation or warranty by the Servicer
in the Agreement shall prove to have been incorrect in any material respect when
made which continues to be incorrect in any material respect for a period of 60
days after the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Surety Bond Issuer, and as a result of which the
interests hereunder of Certificateholders are materially and adversely affected.
The Surety Bond Issuer may give the Trustee notice of any Event of Default under
the Agreement.
RIGHTS UPON EVENT OF DEFAULT; SERVICER TRANSFER
As long as an Event of Default under the Agreement remains unremedied, the
Surety Bond Issuer may terminate all the rights and obligations of the Servicer
under the Agreement (a "Servicer Transfer"), whereupon a successor servicer
appointed by the Trustee and consented to by the Surety Bond Issuer in writing
or the Trustee
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will succeed to all the responsibilities, duties and liabilities of the Servicer
under the Agreement and will be entitled to similar compensation arrangements.
In the event that the Trustee is unwilling or unable so to 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 marine retail installment sale contracts. The Trustee
may make such arrangements for compensation to be paid on each Distribution
Date, which shall be negotiated on an arms-length basis, but in no event may be
greater than the product of one-twelfth of 1.0% and the Certificate Balance as
of such Distribution Date.
In addition, the Agreement will also provide that the Surety Bond Issuer,
with notice in writing to the Servicer, may effect a Servicer Transfer upon the
occurrence of any of the following events: (a) the Depositor or Servicer, as the
case may be, shall fail to pay when due any amount payable by it or for the
benefit of the Surety Bond Issuer; (b) an Event of Default occurs under the
Agreement; (c) the Surety Bond Issuer determines that the performance of the
Servicer under the Agreement is not, in the opinion of the Surety Bond Issuer,
in conformity with the Servicing Standards; (d) if, with respect to any
Distribution Date, the average of the Net Credit Loss Ratio for the three
preceding calendar months exceeds 3.5%; (e) the Servicer shall enter into any
merger, consolidation or other corporate transaction pursuant to which the debt
of the surviving entity (or if such debt is not rated, the debt of its ultimate
parent) is rated below investment grade by either Rating Agency; (f) NationsBank
Corporation ceases to maintain a majority ownership interest in NationsCredit
Corporation and the debt of the new holder of the majority ownership interest in
NationsCredit Corporation is rated below investment grade by either Rating
Agency; (g) NationsCredit Corporation shall enter into any merger, consolidation
or other corporate transaction pursuant to which the debt of the surviving
entity (or if such debt is not rated, the debt of its ultimate parent) is rated
below investment grade by either Rating Agency; or (h) NationsCredit Corporation
ceases to maintain a direct or indirect majority ownership interest in the
Servicer and the debt of the new holder of the majority ownership interest in
the Servicer is rated below investment grade by either Rating Agency.
"Net Credit Loss Ratio" means, for any Collection Period, an amount
expressed as an annualized percentage equal to (i) the aggregate gross losses
with respect to the Receivables recognized in such Collection Period, as
determined in accordance with the Servicer's normal practices, less any
recoveries received during such Collection Period, divided by (ii) the average
of the Pool Balances as of the last day of the prior Collection Period and as of
the last day of such Collection Period.
"Servicing Standards" means, at any time, the quality of the Servicer's (or
in the event that a subservicer performs servicing operations on behalf of the
Servicer, such subservicer's) performance with respect to (i) compliance with
the terms and conditions of the Agreement, and (ii) adequacy, measured in
accordance with industry standards and current and historical standards of the
Servicer (or such subservicer) in respect of all receivables serviced by the
Servicer (or such subservicer), regardless of whether such receivables are owned
by the Servicer (or such subservicer), of the Servicer's (or such subservicer's)
servicing of the Receivables. The Surety Bond Issuer may audit the Servicer's
books, records and procedures to determine the Servicer's compliance with the
Agreement.
WAIVER OF PAST DEFAULTS
So long as no Surety Bond Issuer Default has occurred and is continuing,
the Surety Bond Issuer may, on behalf of all the Certificateholders, waive any
default by the Servicer in the performance of its obligations under the
Agreement and its consequences, except a default in making any required deposits
to or payments to the respective Certificate Account in accordance with the
Agreement. No such waiver shall impair such Certificateholders' rights or the
Surety Bond Issuer's rights with respect to subsequent defaults.
AMENDMENT
The Agreement may be amended by the Depositor, the Servicer and the
Trustee, without the consent of the Certificateholders or the Surety Bond
Issuer, to cure any ambiguity, correct or supplement any provision therein,
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or to add any other provisions with respect to matters or questions arising
under the Agreement which are not inconsistent with the provisions of the
Agreement; provided that such action will not, in the opinion of counsel
satisfactory to the Trustee, materially and adversely affect the interest of any
Certificateholder or the Surety Bond Issuer. The Agreement may also be amended
by the Depositor, the Servicer and the Trustee with the consent of the Surety
Bond Issuer and Certificateholders evidencing not less than 51% of the
Certificate Balance as of the most recent Record Date for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Agreement or of modifying in any manner the rights of the
Certificateholders or the Surety Bond Issuer; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on Receivables or distributions
that are required to be made on any Certificate or (ii) reduce the aforesaid
percentage required to consent to any such amendment, in each case without the
consent of the holders of all Certificates then outstanding.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Servicer or the Surety Bond Issuer, the Trustee
will provide to the Servicer or the Surety Bond Issuer within 15 days after
receipt of such request, a list of the names and addresses of all
Certificateholders of record of the Trust as of the most recent Record Date.
Upon written request by three or more Certificateholders or by Holders of
Certificates evidencing not less than 25% of the Certificate Balance as of the
most recent Record Date, and upon compliance by such Certificateholders with
certain other provisions of the Agreement, the Trustee will afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under the Agreement.
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
TERMINATION
The respective obligations of the Servicer, the Depositor, the Trustee and
the Trust created pursuant to the Agreement will terminate upon (i) the payment
in full or other liquidation of the last Receivable and the disposition of any
amounts received upon liquidation of any remaining Receivables or (ii) the
payment to the Certificateholders of all amounts required to be paid to them
pursuant to the Agreement and the payment to the Surety Bond Issuer of all
amounts required to be paid to it pursuant to the Agreement and the
Reimbursement Agreement or (iii) disposition of all property held by the Trust.
In order to avoid excessive administrative expense, the Servicer or its
successor may purchase all the Receivables in the Trust as of any Record Date on
which the Pool Balance shall decline to 5% or less of the Initial Pool Balance,
at a purchase price equal to the aggregate Purchase Amount of the Receivables,
as of the beginning of the Collection Period related to such Record Date plus
the appraised value of any other property held by the Trust less the amount of
all collections on the Receivables received by the Servicer during such
Collection Period; provided however that the Servicer may not make any such
purchase on any date on which there are outstanding amounts under the
Reimbursement Agreement and the Agreement, which have not been paid to the
Surety Bond Issuer. Exercise of such right will effect early retirement of the
Certificates. The Trustee will give written notice of termination to each
Certificateholder of record of the Trust. The final distribution to any
Certificateholder will be made only upon surrender and cancellation of such
Holder's Certificate at any office or agency of the Trustee specified in the
notice of termination. Any funds remaining in the Trust, after the Trustee has
taken certain measures to locate a Certificateholder and such measures have
failed, will be distributed to the United Way of Metropolitan Dallas.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Agreement, the Certificates (other than the authentication of the
Certificates), or any Receivables or related documents, and is not accountable
for the use or application by the Depositor or the Servicer of any funds paid to
the Depositor or the Servicer in respect of the Certificates or the Receivables,
or the investment of any monies by the Servicer before such monies are deposited
into a Certificate Account. The Trustee has not independently verified the
Receivables. If no Event of Default has occurred, the Trustee is required to
perform only those duties specifically required of it under the Agreement.
Generally, those duties are limited to the receipt of the various certificates,
reports or other instruments required to be furnished to the Trustee under the
Agreement, in which case it is only required to
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examine them to determine whether they conform to the requirements of the
Agreement. The Trustee shall not be charged with knowledge of a failure by the
Servicer to perform its duties under the Agreement which failure constitutes an
Event of Default unless the Trustee obtains actual knowledge of such failure as
specified in the Agreement.
The Trustee is under no obligation to exercise any of the rights or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No Certificateholder will have any
right under the Agreement to institute any proceeding with respect to the
Agreement, unless such holder previously has given to the Trustee written notice
of default and unless the Certificateholders evidencing not less than 25% of the
Certificate Balance as of the most recent Record Date have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 30 days has neglected or refused to institute any such proceedings.
THE TRUSTEE
Bankers Trust Company is the Trustee under the Agreement. The Trustee, in
its individual capacity or otherwise, may hold Certificates in its own name or
as pledgee. For the purpose of meeting the legal requirements of certain
jurisdictions, the Servicer and the Trustee acting jointly (or in some
instances, the Trustee acting alone) shall have the power to appoint co-trustees
or separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Agreement shall be conferred or imposed upon the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties and obligations solely at the direction of the
Trustee.
The Trustee may resign at any time. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, becomes legally unable to act, or becomes insolvent. In any such
circumstances, the Servicer will be obligated to appoint a successor trustee.
Any such successor must be an eligible Servicer or an affiliate of an eligible
Servicer, which eligible Servicer is willing to act as Servicer upon a Servicer
Transfer, and such successor or affiliate must have a net worth of at least
$50,000,000 and its regular business must include the servicing of marine retail
installment sale contracts. Any resignation or removal of the Trustee and
appointment of a successor trustee does not become effective until acceptance of
the appointment by the successor trustee and with the prior written consent of
the Surety Bond Issuer.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will further provide that the Trustee will be entitled to
indemnification by the Depositor and the Servicer for, and will be held harmless
against, any loss, liability, fee, disbursement or expense incurred by the
Trustee not resulting from the Trustee's own willful misfeasance, bad faith or
negligence (other than by reason of a breach of any of its representations or
warranties set forth in the Agreement). The Agreement will further provide that
the Depositor and the Servicer will indemnify the Trustee for certain taxes that
may be asserted in connection with the transaction.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
LACK OF FIRST PRIORITY SECURITY INTERESTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC in effect in the
States of Texas and Georgia. Pursuant to the UCC, for most purposes, a sale of
chattel paper is treated in a manner similar to a transaction creating a
security interest in chattel paper. The Servicer will cause the filing of an
appropriate UCC-1 financing statement to be made with the appropriate
governmental authorities in the States of Texas and Georgia and other
appropriate jurisdictions to give notice of the Trust's purchase of the
Receivables. Certain liens, including a lien arising prior in time to the
recording and endorsement of a preferred mortgage on a vessel, landlords',
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warehousemens' and materialmens' liens and certain tax liens, may, as a matter
of law, have priority over perfected, first priority liens. In addition, if
another person purchased any of the Receivables for new value without knowledge
of the Trust's security interest and acquired possession of the Receivables in
the ordinary course of such person's business, the Purchaser's interest would be
superior to the interest of the Trust.
Pursuant to the Agreement, the Servicer will have custody of the
Receivables following the sale of the Receivables to the Trust. The original
Receivables will not be physically marked to indicate that such Receivables have
been sold to the Trust. If, through inadvertence or otherwise, another party
purchased (including the taking of a security interest in) the Receivables for
new value in the ordinary course of its business, without actual knowledge of
the Trust's interest and took possession of the Receivables, the purchaser may
acquire an interest in the Receivables superior to the interest of the Trust.
The Servicer will, however, indicate in its computer records that the
Receivables have been sold and assigned to the Trust.
Under the Agreement, the Servicer will be obligated from time to time to
take such actions as are necessary to protect and perfect the Trust's interest
in the Receivables and their proceeds. See "Risk Factors -- Lack of First
Priority Security Interests in the Receivables".
LACK OF PERFECTED SECURITY INTERESTS IN BOATS
The Receivables were originated by Dealers. NationsCredit Commercial
acquired the Receivables directly or indirectly from Dealers or finance
subsidiaries of manufacturers and directly or indirectly sold the Receivables to
the Trust. NationsCredit Commercial is the assignee and secured party under the
Receivables. NationsCredit Commercial takes actions as it deems prudent under
the laws of the state in which the Boat is located to perfect NationsCredit
Commercial's security interest in the Boat. In connection with the sale of the
Receivables to the Trust, NationsCredit Commercial's rights as secured party
have been assigned to the Trust. Because NationsCredit Commercial continues to
service the Receivables, the Obligors on the Receivables are not notified of the
purchase of the Receivables by the Trust and no action is taken to record the
transfer of the security interests from NationsCredit Commercial to the Trust.
Generally, security interests in boats may be perfected in one of three
ways: in "title" states, a security interest is perfected by notation of the
secured party's lien on the certificate of title issued by an applicable state
motor vehicle department or other appropriate state agency; in other states, a
security interest may be perfected by filing a UCC-1 financing statement,
however, a purchase money lien in consumer goods is perfected without any filing
requirement and if a boat is required to be documented under Federal law, a
preferred mortgage may be obtained under the Ship Mortgage Act by filing the
mortgage with the Coast Guard, which is the exclusive method for perfectly
securing interests in documented boats. The Servicer will represent and warrant
in the Agreement that none of the Boats are required to be documented under the
Ship Mortgage Act.
NationsCredit Commercial takes such measures as it deems prudent to perfect
its security interest in each Boat under the laws of the state in which the Boat
is registered. Typically, a Dealer will make proper and prompt application to
any applicable state motor vehicle department or other appropriate state agency
to have a notation of the lien made on the certificate of title of each Boat at
the time of sale if the Boat is subject to a title statute. When a UCC-1
financing statement is filed, the Dealer is required to obtain the necessary
signature on the UCC-1 financing statement to allow filing by NationsCredit
Commercial. Where under state law a filing or other action is required to
perfect a security interest and if NationsCredit Commercial, because of clerical
error or otherwise, has failed to take such action with respect to a Boat,
NationsCredit Commercial will not have a perfected security interest in the Boat
under such law and its security interest may be subordinate to the interest of,
among others, subsequent purchasers of the Boat, holders of perfected security
interests and the bankruptcy trustee of the Obligor. NationsCredit Commercial's
state law security interest may also be subordinate to such third parties in the
event of fraud or forgery by the Obligor or administrative error by state
recording officials. In addition, under certain certificate of title statutes
NationsCredit Commercial must perfect its security interest in boat motors
otherwise subject to certificate of title statutes under the UCC. NationsCredit
Commercial as a general matter does not separately perfect its interest in such
boat motors under the UCC and therefore NationsCredit Commercial does not
generally have a perfected security interest in motors used on Boats where the
perfection of a security interest in the Boats themselves are otherwise
determined under certificate of title statutes.
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Approximately 70.58% of the Initial Pool Balance ($128,304,277.06) relates to
Receivables which are billed to Obligors in certificate of title states and
approximately 29.39% of the Initial Pool Balance ($53,432,375.92) relates to
Receivables which are billed to Obligors in UCC states. Boats are not
necessarily registered in the states where Obligors are billed.
Security interests perfected under state law may have to be refiled if the
Obligor moves to a state other than the state in which a security interest is
originally perfected and in addition if the security interest is perfected under
the UCC, a new filing must be made under the UCC in order to continue the
perfected security interest.
If the security interest in the Boat is perfected under a title statute and
an Obligor moves to a state other than the state in which the Boat is
registered, under the laws of most title states the perfection of the security
interest in the Boat would continue for a brief period of time after such
relocation. A majority of states issuing certificates of title on boats require
surrender of a certificate of title to re-register a boat. In those states that
also provide for possession of the certificate of title by the secured party,
NationsCredit Commercial must surrender possession of the certificate of title
for the Boat to be re-registered. Some states do not give the secured party
possession of the certificate of title, but indicate the secured party on the
certificate of title and provide notice to such secured party of surrender of
the certificate of title by another person. If either NationsCredit Commercial
is in possession of a certificate of title that must be surrendered to
re-register the Boat or NationsCredit Commercial receives notice of any
surrender of the certificate of title by another person, NationsCredit
Commercial would then have the opportunity to continue the perfection of the
security interest in the Boat in the state of registration. If the Obligor moves
to a state which does not require surrender of a certificate of title for
re-registration of a Boat, re-registration could defeat perfection. In the
ordinary course of servicing its portfolio of marine contracts, NationsCredit
Commercial generally takes steps to effect such perfection upon receipt of
notice of surrender or information from the Obligor as to relocation in those
states that require any action to be taken. Similarly, when an Obligor sells a
Boat, under the laws of many states, the purchaser cannot re-register the Boat
unless NationsCredit Commercial surrenders possession of the certificate of
title and accordingly NationsCredit Commercial will have an opportunity to
require satisfaction of the related Receivable before release of the lien.
If NationsCredit Commercial has perfected NationsCredit Commercial's
security interest by the filing of a UCC-1 financing statement, or the Obligor
moves from a title state to a non-title state, NationsCredit Commercial files a
UCC-1 financing statement in the new state of the Obligor as soon as possible
after receiving notice of the Obligor's change of residence. UCC-1 financing
statements expire after five years. When the term of a loan exceeds five years,
the filing must be continued in order to maintain NationsCredit Commercial's
perfected security interest. NationsCredit Commercial takes steps to effect such
continuation. In the event that an Obligor moves to a state other than the state
in which the UCC-1 financing statement is filed or in certain states to a
different county in such state, under the laws of most states the perfection of
the security interest in the Boat would continue for four months after such
relocation, unless the perfection in the original jurisdiction would have
expired earlier. A new financing statement must be filed in the state of
relocation or, if such state is a title state, a notation on the certificate of
title must be made in order to continue NationsCredit Commercial's security
interest. NationsCredit Commercial generally takes steps to effect such
re-perfection upon notification of an address change. Generally, in both title
states and in non-title states, NationsCredit Commercial will not re-perfect a
state law security interest which has expired or where the Obligor has moved if
the Receivable has a small balance, a short remaining term and the Obligor has a
good payment record.
Under the laws of many states, liens for storage and repairs performed on a
boat and certain tax liens take priority even over a perfected state law
security interest. The Servicer will represent and warrant in the Agreement with
respect to the Receivables sold to the Trust that, as of the Closing Date, to
the best of the Servicer's knowledge, no such liens or claims are pending or
threatened with respect to a Boat which may be or become prior to or equal with
the lien of the related Receivable. In the event of a material adverse breach of
such warranty, the only recourse of the Trust would be to require the Servicer
to repurchase the Receivable secured by such Boat.
Due to the administrative burden and expense (estimated by NationsCredit
Commercial to be $400,000, excluding associated labor costs) of (i) endorsing
the certificate of title of each Boat to reflect the Trust's interest therein
and delivering each such certificate of title to the Trustee for filing (and the
payment of related filing fees),
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in the case of Boats licensed in states where security interests in boats are
subject to certificate of title statutes; and (ii) filing amendments to UCC-1
financing statements relating to each Boat (and the payment of related filing
fees) to reflect the Trust's interest therein, in the case of Boats licensed in
states where security interests in boats are perfected by filing a UCC-1
financing statement, none of such certificates of title will be endorsed,
delivered and filed, or UCC-1 financing statements amended. In the absence of
such procedures, the Trust may not have a perfected security interest in the
Boats licensed in certificate of title or UCC states, but the failure to make
such endorsements, filings or recordations will not affect the validity of the
original security interest as against the Obligor under a Receivable in UCC
states.
NationsCredit Commercial's security interests in the Boats will be assigned
to the Trust. However, because of the administrative burden and expense, the
certificates of title relating to the Boats will not be endorsed to reflect the
Trust's interest therein, nor will any certificates of title in NationsCredit
Commercial's possession be delivered to the Trust. Accordingly, NationsCredit
Commercial will continue to be named as the secured party on the certificates of
title relating to the Boats registered in "title" states. In most such states,
such an assignment would be an effective conveyance of such a security interest
and the new secured party would succeed to NationsCredit Commercial's rights as
the secured party. In the absence of fraud or forgery by the Obligor or
administrative error by Federal, state or local recording officials, the
notation of the lien of NationsCredit Commercial's on the certificate of title
will be sufficient to protect the Trust against the rights of subsequent
purchasers of a Boat or subsequent lenders who take a security interest in the
Boat. There exists a risk, however, in not identifying the Trust as the new
secured party on the certificate of title, that the Trust may in some states
(such as California) be subordinate to claims of creditors or the receiver of
NationsCredit Commercial in the event of the insolvency of NationsCredit
Commercial and that, through fraud or negligence, the security interest of such
Trust could be released by NationsCredit Commercial as security holder of
record.
The Servicer will represent and warrant in the Agreement with respect to
the Trust that there shall exist a valid, subsisting and enforceable first
priority perfected security interest in each Boat in favor of the Trust, as of
the Closing Date, and that such security interest will be assigned to the Trust.
In the event of a material adverse breach of such warranty, the only recourse of
the Trust against the Servicer would be to require the Servicer to repurchase
the Receivable secured by the Boat involved. See "The Certificates -- Sale and
Assignment of Receivables".
ENFORCEMENT OF SECURITY INTEREST IN BOATS
In the event that required payments under the Surety Bond are not made, the
Servicer on behalf of such Trust may take action to enforce the security
interest in Boats securing Defaulted Receivables by repossession and resale of
the Boats. Under the UCC and consumer protection laws applicable in most states,
a creditor can, without prior notice to the debtor, repossess a boat securing a
defaulted contract by the obligor's voluntary surrender, by "self-help"
repossession that does not involve a breach of the peace and by judicial
process. However, 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 to cure may be exercised a limited
number of times in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party 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 and that any such
sale be conducted in a commercially reasonable manner.
The obligor has the right to redeem the collateral prior to actual sale by
paying the secured party the delinquent payments of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus in some jurisdictions, reasonable
attorneys' fees, or in some states, by payment of the unpaid balance.
In the event of such a repossession and resale of a Boat, the Servicer, on
behalf of the Trust, would be entitled to be paid the full amount of the
Obligor's indebtedness out of the sale proceeds before such proceeds could be
applied to the payment of the claims of the holders of junior security interests
in the Boats, unsecured creditors, or thereafter, to the debtor.
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Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from an obligor for any deficiency on repossession
and resale of the boat securing the unpaid balance of such obligor's contract.
However, some states may impose prohibitions or limitations on deficiency
judgments. If a deficiency judgment were granted, the judgment would be a
personal judgment against the obligor for the shortfall, and a defaulting
obligor may 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.
Certain statutory provisions, including Federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell collateral or obtain a deficiency judgment. Certain other factors,
including the value of a repossessed Boat, may limit the amount realized on the
sale of the collateral to less than the amount due on a Receivable.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose requirements upon creditors and servicers involved in consumer financing
applicable to the origination and servicing of the Receivables. These laws and
regulations include the Truth-in-Lending Act, the Equal Credit Opportunity Act,
the Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and Z, the Federal Trade
Commission Credit Practices Rule, state unfair and deceptive trade practice
laws, state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code and state motor vehicle retail installment sales acts, retail
installment sales acts, and other similar laws. Also, state laws may impose
finance charge ceilings and other restrictions on consumer credit transactions
and require contract disclosures in addition to those required under Federal
law. These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could affect
the ability of an assignee such as the Trustee to enforce consumer finance
contracts such as the Receivables.
The so-called "Holder-in-Due-Course-Rule" of the Federal Trade Commission
(the "FTC Rule"), has the effect of subjecting any assignee of the seller in a
consumer credit transaction to all claims and defenses which the obligor in the
credit sale 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. The FTC Rule is generally
duplicated by the Uniform Consumer Credit Code, other state statutes or the
common law in certain states. Most of the Receivables will be subject to the
requirements of the FTC Rule. Accordingly, NationsCredit Commercial, as assignee
of the Dealers, and the Trust, as indirect assignee of NationsCredit Commercial
and as holder of the Receivables, will be subject to any claims or defenses that
the Obligor who purchased the related financed Boat may assert against the
Dealer who sold the financed Boat.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
NationsCredit Commercial will represent and warrant that each Receivable
complies with all requirements of law in all material respects. Accordingly, if
an Obligor has a claim against the Trustee for violation of any law and such
claim materially and adversely affects the Trustee's interest in a Receivable,
such violation would constitute a breach of warranty under the related Agreement
and would create an obligation of NationsCredit Commercial to repurchase the
Receivable unless the breach were cured. In the event of such a material adverse
breach of warranty, the only recourse of a Trust against NationsCredit
Commercial would be to require
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NationsCredit Commercial to repurchase each Receivable involved. See "The
Certificates -- Sale and Assignment of Receivables".
OTHER MATTERS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the Federal bankruptcy law, a court may prevent a
creditor from repossessing a boat or recreational vehicle and, as a part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the boat or recreational 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 an installment sale contract or
change the rate of interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax consequences
of the purchase, ownership, and disposition of Certificates. This summary is
based upon laws, regulations, rulings, and decisions currently in effect, all of
which are subject to change. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). Prospective investors should note
that no rulings have been or will be sought from the Internal Revenue Service
(the "IRS") with respect to any of the Federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary
positions. However, Special Federal Tax Counsel (as defined below) is of the
opinion that the statements in this Prospectus under the headings "Prospectus
Summary -- Tax Status" and "Certain Federal Income Tax Consequences," accurately
describe the material federal income tax consequences generally applicable to
investors.
BECAUSE TAX CONSEQUENCES MAY VARY BASED ON THE STATUS OR TAX ATTRIBUTES OF
THE CERTIFICATE OWNER, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS TO
DETERMINE THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES RESULTING FROM
INDIVIDUAL CHARACTERISTICS OR CIRCUMSTANCES.
TAX STATUS OF THE TRUST; SCOPE OF TAX OPINION
In the opinion of Stroock & Stroock & Lavan LLP, special federal tax
counsel to the Depositor ("Special Federal Tax Counsel"), the Trust will not be
classified as an association taxable as a corporation for Federal income tax
purposes, but will be classified as a grantor trust, and each Certificate Owner
will be subject to Federal income taxation as if it owned directly its interest
in each asset owned by the Trust and paid directly its share of reasonable
expenses paid by the Trust.
TREATMENT OF CERTIFICATE OWNERS' INTEREST IN TRUST ASSETS
Each Certificate Owner could be considered to own either (i) an undivided
interest in a single debt obligation held by the Trust and having a principal
amount equal to the total stated principal amount of the Receivables and an
interest rate equal to the Pass-Through Rate, or (ii) an interest in each of the
Receivables and in the other assets of the Trust. The Agreement will express the
intent of the Depositor to cause the Trust to purchase the Receivables (other
than the Retained Yield (as defined below)) and the Depositor, the
Certificateholders, and each Certificate Owner, by accepting a beneficial
interest in a Certificate, will agree to treat the Certificates as ownership
interests in the Receivables.
Treatment as Debt Obligation. If a Certificate Owner were considered to
own an undivided interest in a single debt obligation, rather than reporting its
share of the interest accrued on each Receivable it would, in
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general, be required to include in income interest accrued or received on the
principal amount of its Certificates at the Pass-Through Rate in accordance with
its usual method of accounting.
The Certificates would be subject to the original issue discount ("OID")
rules, generally in the manner discussed below. However, in determining whether
such OID is de minimis, the weighted average life of the Certificates would be
determined using a reasonable assumption regarding anticipated prepayments (a
"Prepayment Assumption"). OID includible in income for any accrual period
(generally, the period between payment dates) would generally be calculated
using a Prepayment Assumption and an anticipated yield established as of the
date of initial sale of the Certificates, and would increase or decrease to
reflect prepayments at a faster or slower rate than anticipated. The
Certificates would also be subject to the market discount provisions of the
Code, to the extent that a Certificate Owner purchased such Certificates at a
discount from the initial issue price (as adjusted to reflect prior accruals of
original issue discount).
Income on Receivables. The remainder of the discussion herein assumes and
Special Federal Tax Counsel is of the opinion that a Certificate Owner will be
treated as owning an interest in each Receivable (and the proceeds thereof).
For Federal income tax purposes, the Depositor will be treated as having
retained a fixed portion of the interest due on each Receivable equal to the
difference between (x) the APR of the Receivable and (y) the sum of the
Pass-Through Rate and the Servicing Fee (the "Retained Yield"). The Retained
Yield will be treated as "stripped coupons" within the meaning of section 1286
of the Code, and the Receivables will be treated as "stripped bonds".
Accordingly, each Certificate Owner will be treated as owning its pro rata
percentage interest of the principal payable on each Receivable (the "Receivable
Principal") and its pro rata percentage interest of the interest payable on each
Receivable minus the Retained Yield (the "Receivable Interest", and as to each
Receivable, the respective Receivable Principal and Receivable Interest referred
to herein as a "Stripped Receivable"). Accordingly, each Certificate Owner will
be treated as owning its pro rata percentage interest in the principal of, and
interest payable on, each Stripped Receivable (minus the Retained Yield).
Each Certificate Owner will be required to report on its Federal income tax
return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Stripped Receivables, original issue
discount, investment earnings on amounts held pending distribution, and any gain
upon collection or disposition of the Stripped Receivables. Such income (other
than original issue discount) would be includible in income in accordance with a
Certificate Owner's usual method of accounting. Accordingly, interest would be
includible in a Certificate Owner's gross income at the time it accrues on the
Stripped Receivables, or, in the case of Certificate Owners who are cash basis
taxpayers, when received by the Servicer on behalf of Certificate Owners.
Because (i) interest accrues on the Stripped Receivables over differing monthly
periods and is paid in arrears and (ii) interest collected on a Stripped
Receivable is generally paid to Certificate Owners in the following month, the
amount of interest accruing to or received by the Servicer on behalf of a
Certificate Owner during any month will not equal the interest distributed in
that month. Any amounts received by a Certificate Owner from the Surety Bond or
the Reserve Account will be treated, for Federal income tax purposes, as having
the same characteristics as the payments they replace.
A Certificate Owner will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 162 or 212 of the Code. If
a Certificate Owner is an individual, estate or trust, the deduction for such
holder's share of such fees will be allowed only to the extent that all of such
holder's miscellaneous itemized deductions, including such holder's share of
such fees, exceed 2% of such holder's adjusted gross income. In addition, in the
case of Certificate Owners who are individuals, certain otherwise allowable
itemized deductions will be reduced, but not by more than 80%, by an amount
equal to 3% of such holder's adjusted gross income in excess of a statutorily
defined threshold. The Servicer will not report to Certificate Owners the amount
of income or deductions attributable to interest earned on collections (which is
includible in gross income, but deduction of which is subject to the foregoing
limitations) and, accordingly, such a holder will not have sufficient
information from the report itself to accurately reflect the holder's net
taxable income.
For administrative convenience, the Servicer intends to report information
with respect to the Certificates on an aggregate basis (as though all of the
Stripped Receivables were a single obligation), rather than on an asset-by-
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asset basis. The amount and, in some instances, character, of the income
reported to a Certificate Owner may differ under this method for a particular
period from that which would be reported if income were reported on a precise
asset-by-asset basis. Accordingly, the IRS could require that a Certificate
Owner calculate its income either (i) on an asset-by-asset basis, accounting
separately for each Receivable or (ii) aggregating all Stripped Receivables
under the aggregation rule described below. See Original Issue Discount.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Stripped Receivables on a separate basis.
DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased a Receivable with
OID or market discount, a portion of the purchase price of a Certificate should
be allocated to the Certificate Owner's undivided interest in accrued but unpaid
interest and to amounts collected at the time of purchase but not distributed.
As a result, the portion of the purchase price allocable to a Certificate
Owner's undivided interest in the Stripped Receivables (the "Purchase Price")
will be decreased and the potential OID on the Receivables could be increased.
Original Issue Discount. Because the Stripped Receivables represent
stripped bonds, Stripped Receivables will be subject to the OID rules of the
Code. Under Treasury Regulations issued under Section 1286 of the Code (the
"Section 1286 Regulations"), it appears that the portion of the interest on each
Stripped Receivable payable to the Certificate Owners may be treated as
"qualified stated interest". As a result, the amount of OID on a Stripped
Receivable (or Stripped Receivables) will equal the amount by which the Purchase
Price is less than the portion of the remaining principal balance of the
Stripped Receivable (or Stripped Receivables) allocable to the interest
acquired.
The Underwriters will calculate OID, if any, on all of the Stripped
Receivables on an aggregate basis and without the use of a prepayment
assumption. Regulations issued under the OID provisions of the Code (the "OID
Regulations"), suggest that all payments on each Stripped Receivable allocable
to the Certificates may be aggregated in determining whether each Stripped
Receivable will be treated as having OID. In addition, it is not clear whether
use of a prepayment assumption is required in computing OID. If the Servicer
were to require that OID be computed on a Stripped Receivable-by-Stripped
Receivable basis, or that a prepayment assumption be used, the character and
timing of a Certificate Owner's income could be adversely affected. Because
under the stripped bond rules, each sale of a Certificate results in a
recalculation of OID, a Certificate Owner will not be subject to the market
discount provisions of the Code with respect to Stripped Receivables.
The tax treatment of a Stripped Receivable (or the Stripped Receivables in
the aggregate) will depend upon whether the amount of OID on the Stripped
Receivable or Stripped Receivables in the aggregate is less than a statutorily
defined de minimis amount. In general, under the Section 1286 Regulations the
amount of OID on a Stripped Receivable (or Receivables in the aggregate) will be
de minimis if it is less than 1/4 of one percent for each full year of weighted
average maturity remaining after the purchase date until the maturity of the
Stripped Receivable (or Receivables in the aggregate) (although it is not clear
whether expected prepayments are taken into account). If the amount of OID is de
minimis under this rule, a Stripped Receivable (or Receivables in the aggregate)
would not be treated as having OID. The actual amount of discount on a Stripped
Receivable would be includible in income as principal payments are received on
the Stripped Receivable, in the proportion that each principal payment bears to
the total principal amount of the Stripped Receivable.
If the OID on a Stripped Receivable (or Receivables in the aggregate) is
not treated as being de minimis, in addition to the amounts described above, a
Certificate Owner will be required to include in income any OID as it accrues on
a daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield to maturity on the Stripped Receivable (or
Receivables in the aggregate). Accrued OID would increase a Certificate Owner's
tax basis in the Certificate (and the applicable Stripped Receivables).
Distributions of principal and other items attributable to accrued OID (other
than payments of interest on the Stripped Receivables at the sum of the
Pass-Through Rate and the Servicing Fee) would reduce a Certificate Owner's tax
basis. Application of the OID rules, particularly if a prepayment assumption is
required and the Stripped Receivables are not aggregated, would be complex and
could significantly affect the timing of inclusion of income on a Certificate.
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The Underwriters intend to account for OID, if any, reportable by
Certificateholders by reference to the price paid for a Certificate by an
initial purchaser, although the amount of OID will differ for subsequent
purchasers. Such subsequent purchasers should consult their tax advisors
regarding the proper calculation of OID on the interest in the Stripped
Receivables represented by the Certificates.
Premium. In the event that a Stripped Receivable is treated as purchased
at a premium (i.e., its Purchase Price exceeds the portion of the remaining
principal balance of such Receivable allocable to the Certificate Owner), such
premium will be amortizable by the Certificate Owner as an offset to interest
income (with a corresponding reduction in the Certificate Owner's basis) under a
constant yield method over the term of the Stripped Receivable if an election
under Section 171 of the Code is made with respect to the interests in the
Stripped Receivables represented by the Certificates or was previously in
effect. Any such election will also apply to all debt instruments held by the
Certificate Owner during the year in which the election is made and all debt
instruments acquired thereafter.
RULE OF 78'S RECEIVABLES
The annual statement regularly furnished to Certificateholders for Federal
income tax purposes will include information based on the actuarial method of
accounting for interest and principal on certain of the Stripped Receivables,
and for a portion of the amount of the fees paid to the Servicer and others.
Certificate Owners should generally be permitted to account for interest on such
Stripped Receivables using the actuarial method. However, these Stripped
Receivables provide that, upon a prepayment in full, the amount payable by the
Obligor will be determined under the Rule of 78's (the "Rule of 78's
Receivables"). Prospective investors should consult their tax advisors as to
whether they may be required or permitted to use the Rule of 78's method to
account for interest on the Rule of 78's Receivables. A Certificateholder will
be furnished information for Federal income tax purposes enabling him to report
interest on the Stripped Receivables under the Rule of 78's method of accounting
only upon written request to the Trustee, and payment of the actual costs of
producing the same.
If a Rule of 78's Receivable is prepaid, any amount received by the Trust
upon prepayment in excess of the account balance using the actuarial method
would constitute income to a Certificate Owner who had reported income with
respect to such Rule of 78's Receivable on the actuarial method, and an amount
equal to such excess will be paid to the Servicer and will be deductible only to
the extent described above.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificate Owner's
adjusted basis in the Stripped Receivables and any other assets held by the
Trust. A Certificate Owner's adjusted basis will equal the Certificate Owner's
cost for the Certificate, increased by any discount previously included in
income, and decreased by any deduction previously allowed for accrued premium
and by the amount of principal payments previously received on the Stripped
Receivables. Any gain or loss not attributable to accrued interest will be
capital gain or loss if the Certificate was held as a capital asset.
FOREIGN CERTIFICATE OWNERS
Interest attributable to Stripped Receivables which is payable to a foreign
Certificate Owner will generally not be subject to the 30% withholding tax
generally imposed with respect to such payments, provided that such Certificate
Owner is not engaged in a trade or business in the United States and that such
Certificate Owner fulfills certain certification requirements. Under such
certification requirements, the Certificate Owner must certify, under penalties
of perjury, that it is not a "United States person" and that it is the
beneficial owner of the Certificates, and must provide its name and address. For
this purpose, "United States person" means a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust treated as a U.S. person under Code Section 7701.
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BACKUP WITHHOLDING
In general, if the Certificate Owner fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code, payments made on the Certificates and proceeds from the sale of
Certificates will be subject to a "backup" withholding tax of 31%.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested that are
subject to ERISA and the Code (all of which are hereinafter referred to as a
"Plan") and on persons who are fiduciaries with respect to such Plans. Moreover,
based on the reasoning of the United States Supreme Court in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of the Plans investing
in the general account (e.g., through the purchase of an annuity contract), and
the insurance company might be treated as a fiduciary with respect to such plans
by virtue of such investment. In accordance with ERISA's general fiduciary
standards, before investing in a Certificate, a Plan fiduciary should determine
whether such an investment is permitted under the governing Plan instruments and
is appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Other provisions of ERISA and
the Code prohibit certain transactions involving the assets of a Plan and
persons who have certain specified relationships to the Plan ("parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). Thus, a Plan fiduciary considering an investment in
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the Trust, might
be prohibited transactions under ERISA and the Code. There may also be an
improper delegation of the responsibility to manage Plan assets if Plans that
purchase the Certificates are deemed to own an interest in the underlying assets
of the Trust. Neither ERISA nor the Code defines the term "plan assets". Under
Section 2510.3-101 of the United States Department of Labor ("DOL") regulations
(the "Regulation"), a Plan's assets may include an interest in the underlying
assets of an entity (such as a trust) for certain purposes, including the
prohibited transaction provisions of ERISA and the Code, if the Plan acquires an
"equity interest" in such entity.
EXEMPTION FOR CERTIFICATES
The DOL has issued an individual exemption, Prohibited Transaction
Exemption 93-31, to NationsBank Corporation and its affiliates (the
"Exemption"). Pursuant to the Exemption a Plan may purchase, hold and transfer
the Certificates. The Exemption generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions pursuant to Section 4975(a) and (b) of
the Code and Section 502(i) of ERISA certain transactions relating to the
initial purchase, holding and subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements set forth in the
Exemption. The receivables covered by the Exemption include fixed rate simple
interest retail marine installment sale contracts and retail marine installment
loans such as the Receivables. The Exemption will apply to the acquisition,
holding and resale of the Certificates by a Plan, provided that specified
conditions (certain of which are described below) are met. The Depositors
believe that the Exemption will apply to the acquisition and holding of the
Certificates by a Plan and that all conditions of the Exemption other than those
within the control of the investors have been or will be met.
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The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the acquisition of the Certificates by a Plan to be
eligible for the 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 arms'-length transaction with an
unrelated party;
(2) the rights and interests evidenced by the Certificates acquired by
a Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust;
(3) the Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories of S&P, Moody's, Duff & Phelps or Fitch Investors
Service, L.P.;
(4) the Trustee is not an affiliate of any other member of the
"Restricted Group," which consists of the Underwriter, the Depositor, the
Servicer, the Trustee, the Surety Bond Issuer and any Obligor with respect
to the Receivables included in the Trust constituting more than 5% of the
aggregate unamortized principal balance of the assets of the Trust as of
the date of initial issuance of the Certificates, and any affiliate of such
parties;
(5) the sum of all payments made to and retained by the Underwriter in
connection with the distribution or placement of the Certificates
represents not more than reasonable compensation for underwriting or
placing the Certificates. The sum of all payments made to and retained by
the Depositor pursuant to the sale of the Receivables to the Trust
represents not more than the fair market value of such Receivables. The sum
of all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith; and
(6) the Plan investing in the Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
In addition the Trust must satisfy the following requirements:
(a) the corpus of the Trust must consist solely of assets of the
type which have been included in other investment pools.
(b) certificates in such other investment pools must have been
rated in one of the three highest generic rating categories of S&P,
Moody's, Duff & Phelps or Fitch Investors Service, L.P. for at least one
year prior to the Plan's acquisition of the Certificates, and
(c) certificates evidencing interests in such other investments
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of the Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Sections 406(a) and 407(a) of
ERISA as well as the excise taxes imposed by Sections 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, transfer or holding of the
Certificates by a Plan. 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 any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by Sections 406(b)(1)
and (b)(2) and 407(a) of ERISA and the taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of the Certificates
in the initial issuance of the Certificates between the Depositor or Underwriter
and a Plan other than an Excluded Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in the Certificates is (a) an Obligor with respect to 5% or less of the
fair market value of the Receivables or (b) an affiliate of such person.
46
<PAGE> 47
The Exemption also applies to transactions in connection with the
servicing, management and operation of the Trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding pooling and servicing agreement and
(b) the pooling and servicing agreement is provided to, or described in all
material respects in the prospectus provided to, investing Plans before their
purchase of the Certificates issued by the Trust. The Agreement is a pooling and
servicing agreement as defined in the Exemption. All transactions relating to
the servicing, management and operations of the Trust will be carried out in
accordance with the Agreement. See "The Certificates."
The Exemption also may provide relief from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA and the taxes imposed by 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 a Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of such Plan's ownership of the Certificates.
Any Plan fiduciary considering whether to purchase a Certificate on behalf
of a Plan should consult with experienced legal counsel regarding the
applicability of the Exemption and other applicable issues and whether the
Certificates are an appropriate investment for a Plan under ERISA and the Code.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") dated May 15, 1997, between the Depositor and the
Underwriters, the Depositor has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, the principal amount of the Certificates
set forth on the cover page of this Prospectus.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates offered
hereby if any Certificates are purchased. The Depositor has been advised by the
Underwriters that the Underwriters propose initially to offer the Certificates
to the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of .20% of the principal amount of the Certificates. The Underwriters may allow
and such dealers may reallow a concession not in excess of .15% of such
principal amount. After the initial public offering, the public offering price
and such concessions may be changed.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof.
NationsBanc Capital Markets, Inc. ("NCMI"), one of the Underwriters, is an
affiliate of the Depositor. Under Section 2720 of the National Association of
Securities Dealers Conduct Rules ("Section 2720"), when a National Association
of Securities Dealers, Inc. (the "NASD") member, such as NCMI, participates in
the distribution of an affiliated company's securities, the offering must be
conducted in accordance with the applicable provisions of Section 2720. The
Depositor is considered to be an "affiliate" (as such term is defined in Section
2720) of NCMI. The offer and sale of any Certificates by NCMI will comply with
the requirements of Section 2720 regarding the underwriting of securities of
affiliates. Pursuant to such compliance, it is contemplated that only securities
rated "investment grade" by a rating service acceptable to the NASD will be
offered hereby. In addition, such offers and sales will comply with any
restrictions as may be imposed on NCMI by the Federal Reserve Board. Under
Section 2720, no NASD member participating in offers and sales of the
Certificates may execute a transaction in the Certificates in a discretionary
account without the specific prior written approval of the member's customer.
While NCMI is an affiliate of the Depositor, NCMI is a registered
broker/dealer. Any obligations of NCMI are the sole responsibility of NCMI and
do not create any obligation or guarantee on the part of any affiliate of NCMI.
47
<PAGE> 48
EXPERTS
The financial statements of Capital Markets Assurance Corporation as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 are included herein beginning on page F-3 and have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, as
set forth in their report thereon and are included in reliance upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriters by Stroock & Stroock & Lavan LLP, Special
Counsel of the Depositor and the Underwriters. Certain legal matters relating to
the Federal tax consequences of the issuance and ownership of the Certificates
will be passed upon by Stroock & Stroock & Lavan LLP.
48
<PAGE> 49
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
accredited investor......................................... 46
APR......................................................... 13
Agreement................................................... 1
Avoided Payment............................................. 31
Boats....................................................... 3
Business Day................................................ 31
CapMAC...................................................... 5
Cede........................................................ 23
Certificate................................................. 3
Certificate(s).............................................. 1
Certificate Account......................................... 10
Certificate Balance......................................... 4
Certificate Factor.......................................... 21
Certificateholders.......................................... 1
Certificate Owner........................................... 2
Closing Date................................................ 25
Code........................................................ 41
Collateral Agent............................................ 1
Collection Period........................................... 23
Commission.................................................. 2
Cutoff Date................................................. 1
Dealer...................................................... 8
Dealer Agreements........................................... 10
Defaulted Receivable........................................ 29
Definitive Certificates..................................... 24
delinquency cure............................................ 12
Depositor................................................... 1
Depository.................................................. 23
Determination Date.......................................... 21
Direct Participants......................................... 24
disqualified persons........................................ 45
Distribution Date........................................... 1
DOL......................................................... 45
DTC......................................................... 2
Duff & Phelps............................................... 22
ERISA....................................................... 6
Events of Default........................................... 33
Exchange Act................................................ 2
Excluded Plan............................................... 46
Exemption................................................... 45
Final Order................................................. 31
Final Scheduled Distribution Date........................... 1
FTC Rule.................................................... 40
Holders..................................................... 25
Holdings.................................................... 22
Indirect Participants....................................... 24
Initial Pool Balance........................................ 1
Insolvency Laws............................................. 21
Insolvency Proceeding....................................... 31
Insurance Agreement......................................... 4
IRS......................................................... 41
marine contracts............................................ 10
Marine Contract Portfolio................................... 13
Monthly Interest Payment.................................... 3
Monthly Principal Payment................................... 4
Monthly Servicing Fee....................................... 29
Moody's..................................................... 6
NASD........................................................ 47
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NCMI........................................................ 47
NationsCredit............................................... 3
NationsCredit Commercial.................................... 3
Net Credit Loss Ratio....................................... 34
Obligor..................................................... 8
OID......................................................... 42
OID Regulations............................................. 43
Participants................................................ 23
parties in interest......................................... 45
Paying Agent................................................ 24
Plan........................................................ 45
Pool Balance................................................ 1
Preference Event............................................ 31
Prepayment Assumption....................................... 42
Purchase Amount............................................. 26
Purchase Price.............................................. 43
Rating Agencies............................................. 6
Rating Agency............................................... 6
Receipt..................................................... 31
Received.................................................... 31
Receivable Interest......................................... 42
Receivable Principal........................................ 42
Receivables................................................. 1
Record Date................................................. 1
Regulation.................................................. 45
Reserve Account............................................. 4
Restricted Group............................................ 46
Retained Yield.............................................. 42
Rule of 78's Receivables.................................... 44
Rules....................................................... 24
S&P......................................................... 6
Section 2720................................................ 47
Securities Act.............................................. 2
Section 1286 Regulations.................................... 43
Servicer.................................................... 1
Servicer Transfer........................................... 33
Servicing Fee Rate.......................................... 4
Servicing Standards......................................... 34
Ship Mortgage Act........................................... 14
Special Federal Tax Counsel................................. 41
Specified Reserve Account Requirement....................... 4
Stripped Receivable......................................... 42
Surety Bond................................................. 1
Surety Bond Issuer.......................................... 1
Surety Bond Issuer Default.................................. 30
Trust....................................................... 1
Trustee..................................................... 1
UCC......................................................... 7
Underwriter(s).............................................. 7
Underwriting Agreement...................................... 47
United States person........................................ 44
</TABLE>
50
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995..................................... F-3
Consolidated Statements of Income for each of the years
in the three-year period ended December 31, 1996...... F-4
Consolidated Statements of Stockholder's Equity for
each of the years in the three-year period ended
December 31, 1996..................................... F-5
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31,
1996.................................................. F-6
Notes to Financial Statements.......................... F-7
</TABLE>
F-1
<PAGE> 52
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
The Board of Directors
Capital Markets Assurance Corporation:
We have audited the accompanying balance sheets of Capital Markets Assurance
Corporation as of December 31, 1996 and 1995 and the related statements of
income, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Markets Assurance
Corporation as of December 31, 1996 and 1995 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 29, 1997
F-2
<PAGE> 53
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
------
December 31 December 31
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Bonds at fair value (amortized cost $294,861 at December 31, 1996
and $210,651 at December 31, 1995) $297,893 215,706
Short-term investments (at amortized cost which approximates fair
value) 16,810 68,646
- --------------------------------------------------------------------------------------------------
Total investments 314,703 284,352
- --------------------------------------------------------------------------------------------------
Cash 371 344
Accrued investment income 3,807 3,136
Deferred acquisition costs 45,380 35,162
Premiums receivable 5,141 3,540
Prepaid reinsurance 18,489 13,171
Other assets 6,424 3,428
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $394,315 343,133
==================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Unearned premiums $ 68,262 45,767
Reserve for losses and loss adjustment expenses 10,985 6,548
Ceded reinsurance 1,738 2,469
Accounts payable and other accrued expenses 8,019 10,844
Current income taxes 679 136
Deferred income taxes 15,139 11,303
- --------------------------------------------------------------------------------------------------
Total liabilities 104,822 77,067
- --------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY:
Common stock - $1.00 par value per share; 15,000,000 shares are
authorized, issued and outstanding at December 31, 1996 and 1995 15,000 15,000
Additional paid-in capital 208,475 205,808
Unrealized appreciation on investments, net of tax 1,970 3,286
Retained earnings 64,048 41,972
- --------------------------------------------------------------------------------------------------
Total stockholder's equity 289,493 266,066
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $394,315 343,133
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 54
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31,1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Direct premiums written $ 71,752 56,541 43,598
Assumed premiums written 1,086 935 1,064
Ceded premiums written (15,104) (15,992) (11,069)
- -------------------------------------------------------------------------------------------------
Net premiums written 57,734 41,484 33,593
Increase in unearned premiums (17,177) (12,242) (10,490)
- -------------------------------------------------------------------------------------------------
Net premiums earned 40,557 29,242 23,103
Net investment income 16,992 11,953 10,072
Net realized capital gains 236 1,301 92
Other income 146 2,273 120
- -------------------------------------------------------------------------------------------------
Total revenues 57,931 44,769 33,387
- -------------------------------------------------------------------------------------------------
EXPENSES:
Losses and loss adjustment expenses 4,815 3,141 1,429
Underwriting and operating expenses 14,613 13,808 11,833
Policy acquisition costs 7,824 7,203 4,529
- -------------------------------------------------------------------------------------------------
Total expenses 27,252 24,152 17,791
- -------------------------------------------------------------------------------------------------
Income before income taxes 30,679 20,617 15,596
- -------------------------------------------------------------------------------------------------
INCOME TAXES:
Current income tax 5,235 2,113 865
Deferred income tax 3,368 3,102 2,843
- -------------------------------------------------------------------------------------------------
Total income taxes 8,603 5,215 3,708
- -------------------------------------------------------------------------------------------------
Net Income $ 22,076 15,402 11,888
=================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 55
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31,1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $ 15,000 15,000 15,000
- ------------------------------------------------------------------------------------------------------
Balance at end of year 15,000 15,000 15,000
- ------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 205,808 146,808 146,808
Capital contribution 2,667 59,000 -
- ------------------------------------------------------------------------------------------------------
Balance at end of year 208,475 205,808 146,808
- ------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENTS, NET OF TAX:
Balance at beginning of year 3,286 (5,499) 3,600
Unrealized appreciation (depreciation)
on investments (1,316) 8,785 (9,099)
- ------------------------------------------------------------------------------------------------------
Balance at end of year 1,970 3,286 (5,499)
- ------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 41,972 26,570 14,682
Net income 22,076 15,402 11,888
- ------------------------------------------------------------------------------------------------------
Balance at end of year 64,048 41,972 26,570
- ------------------------------------------------------------------------------------------------------
Total stockholder's equity $289,493 266,066 182,879
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 56
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLAR IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,076 15,402 11,888
- ------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses 4,437 1,357 1,429
Unearned premiums, net 22,496 19,862 15,843
Deferred acquisition costs (10,218) (10,302) (9,611)
Premiums receivable (1,601) (161) (2,103)
Accrued investment income (671) (390) (848)
Income taxes payable 3,911 3,621 2,611
Net realized capital gains (236) (1,301) (92)
Accounts payable and other accrued expenses 1,020 472 3,726
Prepaid reinsurance (5,318) (7,620) (5,352)
Other, net (3,396) 992 689
- ------------------------------------------------------------------------------------------------------
Total adjustments 10,424 6,530 6,292
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,500 21,932 18,180
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (199,989) (158,830) (77,980)
Proceeds from sales of investments 57,210 49,354 39,967
Proceeds from maturities of investments 110,306 28,803 19,665
- ------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (32,473) (80,673) (18,348)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution - 59,000 -
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 59,000 -
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 27 259 (168)
Cash balance at beginning of year 344 85 253
- ------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF YEAR $ 371 344 85
======================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 4,525 1,450 1,063
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 57
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1) BACKGROUND
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a
New York-domiciled monoline stock insurance company which engages only
in the business of financial guarantee and surety insurance. CapMAC
is a wholly owned subsidiary of CapMAC Holdings Inc. ("Holdings").
CapMAC is licensed in all 50 states in addition to the District of
Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate, municipal and other
financial obligations in the U.S. and international capital markets.
CapMAC also provides financial guarantee reinsurance for structured
asset-backed, corporate, municipal and other financial obligations
written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Group
("S&P"), "AAA" by Duff & Phelps Credit Rating Co. ("Duff & Phelps"),
and "AAA" by Nippon Investors Service, Inc., a Japanese rating agency.
Such ratings reflect only the views of the respective rating agencies,
are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
2) SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements are as follows:
A) BASIS OF PRESENTATION
The accompanying financial statements are prepared on the
basis of generally accepted accounting principles ("GAAP").
Such accounting principles differ from statutory reporting
practices used by insurance companies in reporting to state
regulatory authorities.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Management believes the most
significant estimates relate to deferred acquisition costs,
reserve for losses and loss adjustment expenses and
disclosures of financial guarantees outstanding. Actual
results could differ from those estimates.
B) INVESTMENTS
As of December 31, 1996 and 1995, all of the Company's
securities have been classified as available- for-sale.
Available-for-sale securities are recorded at fair value.
Fair value is generally based upon quoted market prices.
Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of
stockholder's equity until realized. Transfers of securities
between categories are recorded at fair value at the date of
transfer. A decline in the fair value of any
available-for-sale security below cost that is deemed other
than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
F-7
<PAGE> 58
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Short-term investments are those investments having a maturity
of less than one year at purchase date. Short-term
investments are carried at amortized cost which approximates
fair value.
Premiums and discounts are amortized or accreted over the life
of the related security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned. Realized gains and losses are
included in earnings and are derived using the FIFO (first-in,
first-out) method for determining the cost of securities sold.
C) PREMIUM REVENUE RECOGNITION
Premiums which are payable monthly to CapMAC are reflected in
income when due, net of amounts payable to reinsurers.
Premiums which are payable quarterly, semi-annually or
annually are reflected in income, net of amounts payable to
reinsurers, on an equal monthly basis over the corresponding
policy term. Premiums that are collected as a single premium
at the inception of the policy and have a term longer than one
year are earned, net of amounts payable to reinsurers, by
allocating premium to each bond maturity based on the
principal amount and earning it straight-line over the term of
each bond maturity. For the years ended December 31, 1996 and
1995, 91% of net premiums earned were attributable to premiums
payable in installments and 9% were attributable to premiums
collected on an up-front basis.
D) DEFERRED ACQUISITION COSTS
Certain costs incurred by CapMAC, which vary with and are
primarily related to the production of new business, are
deferred. These costs include direct and indirect expenses
related to underwriting, marketing and policy issuance, rating
agency fees and premium taxes, net of reinsurance ceding
commissions. The deferred acquisition costs are amortized
over the period in proportion to the related premium earnings.
The actual amount of premium earnings may differ from
projections due to various factors such as renewal or early
termination of insurance contracts or different run-off
patterns of exposure resulting in a corresponding change in
the amortization pattern of the deferred acquisition costs.
E) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists
of a supplemental loss reserve ("SLR") and a case basis loss
reserve. The SLR is established for expected levels of losses
resulting from credit failures on currently insured issues and
reflects the estimated portion of earned premiums required to
cover those losses.
A case basis loss reserve is established for insured
obligations when, in the judgment of management, a default in
the timely payment of debt service is imminent. For defaults
considered temporary, a case basis loss reserve is established
in an amount equal to the present value of the anticipated
defaulted debt service payments over the expected period of
default. If the default is judged not to be temporary, the
present value of all remaining defaulted debt service payments
is recorded as a case basis loss reserve. Anticipated salvage
recoveries are considered in establishing case basis loss
reserves when such amounts are reasonably estimable. Case
basis loss reserves may be allocated from any SLR outstanding
at the time the case basis reserves are established.
F-8
<PAGE> 59
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Management believes that the current level of reserves is
adequate to cover the ultimate net cost of claims and the
related expenses with respect to financial guarantees issued
by CapMAC. The establishment of the appropriate level of loss
reserves is an inherently uncertain process involving
estimates and subjective judgments by management, and
therefore there can be no assurance that ultimate losses in
CapMAC's insured portfolio will not exceed the current
estimate of loss reserves.
F) DEPRECIATION
Leasehold improvements, furniture, fixtures and electronic
data processing equipment are being amortized or depreciated
over the lease term or useful life, whichever is shorter,
using the straight-line method.
G) INCOME TAXES
Deferred income taxes are provided with respect to temporary
differences between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the period that includes the
enactment date.
F-9
<PAGE> 60
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
3) INSURED PORTFOLIO
At December 31, 1996 and 1995, the principal amount of financial
obligations insured by CapMAC was $24.5 billion and $16.9 billion,
respectively, and net of reinsurance (net principal outstanding), was $19.7
billion and $12.6 billion, respectively, with a weighted average life of 6.4
years and 6.0 years, respectively. CapMAC's insured portfolio was broadly
diversified by geographic distribution and type of insured obligations, with
no single insured obligation in excess of statutory single risk limits,
after giving effect to any reinsurance and collateral, which are a function
of CapMAC's statutory qualified capital (the sum of statutory capital and
surplus and mandatory contingency reserve). At December 31, 1996 and 1995,
the statutory qualified capital was approximately $260 million and $240
million, respectively.
<TABLE>
<CAPTION>
Net Principal Outstanding
December 31, 1996 December 31, 1995
--------------------- ---------------------
Type of Obligations Insured ($ in millions) Amount % Amount %
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer receivables $10,362 52.8 $ 6,959 55.1
Trade and other corporate
obligations 8,479 43.1 4,912 38.9
Municipal/government obligations 814 4.1 757 6.0
- --------------------------------------------------------------------------------------------------------
TOTAL $19,655 100.0 $12,628 100.0
========================================================================================================
</TABLE>
At December 31, 1996 and 1995, the principal and interest amount of
financial obligations insured by CapMAC was $29.8 billion and $20.3 billion,
respectively, and net of reinsurance (net principal and interest
outstanding) was $23.3 billion and $15.1 billion, respectively. At December
31, 1996, approximately 93% of CapMAC's insured portfolio was comprised of
structured asset-backed transactions. Under these structures, a pool of
assets covering at least 100% of the principal amount guaranteed under its
insurance contract is sold or pledged to a special purpose bankruptcy remote
entity. CapMAC's primary risk from such insurance contracts is the
impairment of cash flows due to delinquency or loss on the underlying
assets. CapMAC, therefore, evaluates all the factors affecting past and
future asset performance by studying historical data on losses,
delinquencies and recoveries of the underlying assets. Each transaction is
reviewed to ensure that an appropriate legal structure is used to protect
against the bankruptcy risk of the originator of the assets. Along with the
legal structure, an additional level of first loss protection is also
created to protect against losses due to credit or dilution. This first
level of loss protection is usually available from reserve funds, excess
cash flows, overcollateralization, or recourse to a third party. The level
of first loss protection depends upon the historical losses and dilution of
the underlying assets, but is typically several times the normal historical
loss experience for the underlying type of assets.
During 1995, the Company sold without recourse its interest in
potential cash flows from transactions included in its insured portfolio and
recognized $2,200,000 of income which has been included in other income in
the accompanying financial statements.
The following entities each accounted for, through referrals and
otherwise, 10% or more of total revenues for each of the periods presented:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
% of % of % of
Revenues Revenues Revenues
----------------- ----------------- -----------------
<S> <C> <C> <C>
Citicorp 14.5 15.2 16.3
</TABLE>
F-10
<PAGE> 61
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
4) INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses
and estimated fair value for available-for- sale securities by major
security type at December 31, 1996 and 1995 were as follows ($ in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
- --------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-sale Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,059 10 - 4,069
Mortgage-backed securities of
U.S. government instrumentalities
and agencies 109,436 265 1,160 108,541
Obligations of states, municipalities
and political subdivisions 177,811 4,602 555 181,858
Corporate and asset-backed
securities 20,365 23 153 20,235
- --------------------------------------------------------------------------------------------------
TOTAL $311,671 4,900 1,868 314,703
==================================================================================================
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-sale Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,153 55 - 4,208
Mortgage-backed securities of
U.S. government instrumentalities and
agencies 100,628 313 79 100,862
Obligations of states, municipalities
and political subdivisions 166,010 4,809 82 170,737
Corporate and asset-backed
securities 8,506 45 6 8,545
- --------------------------------------------------------------------------------------------------
TOTAL $279,297 5,222 167 284,352
==================================================================================================
</TABLE>
F-11
<PAGE> 62
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The amortized cost and estimated fair value of investments in debt securities at
December 31, 1996 by contractual maturity are shown below ($ in thousands):
<TABLE>
<CAPTION>
December 31, 1996
- -------------------------------------------------------------------------------------------------
Amortized Estimated
Securities Available-for-sale Cost Fair Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 11,627 11,644
Due after one year through five years 31,821 32,815
Due after five years through ten years 76,450 78,200
Due after ten years 82,337 83,503
- -------------------------------------------------------------------------------------------------
Sub-total 202,235 206,162
Mortgage-backed securities 109,436 108,541
- -------------------------------------------------------------------------------------------------
TOTAL $311,671 314,703
=================================================================================================
</TABLE>
Actual maturities may differ from contractual maturities because borrowers may
call or prepay obligations with or without call or prepayment penalties.
Proceeds from sales of investment securities were approximately $57.2 million,
$49.3 million and $39.9 million in 1996, 1995 and 1994, respectively. Gross
realized capital gains of $772,000, $1,320,000 and $714,000, and gross realized
capital losses of $536,000, $19,000 and $622,000 were realized on those sales
for the years ended December 31, 1996, 1995 and 1994, respectively.
Investments include bonds having a fair value of approximately $3,884,000 and
$3,985,000 which are on deposit at December 31, 1996 and 1995, respectively,
with state regulators as required by law.
Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $15,726 11,105 9,193
Short-term investments 1,534 1,245 484
Mutual funds - (162) 579
Investment expenses (268) (235) (184)
- -------------------------------------------------------------------------------------------------
TOTAL $16,992 11,953 10,072
=================================================================================================
</TABLE>
F-12
<PAGE> 63
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The change in unrealized appreciation (depreciation) on
available-for-sale securities is included as a separate component of
stockholder's equity as shown below:
<TABLE>
<CAPTION>
Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 3,286 (5,499)
Change in unrealized (depreciation) appreciation (2,024) 13,386
Income tax effect 708 (4,601)
- -------------------------------------------------------------------------------------------------
Net change (1,316) 8,785
- -------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 1,970 3,286
=================================================================================================
</TABLE>
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 2% of stockholder's equity as of
December 31, 1996 and 1995, respectively.
5) DEFERRED ACQUISITION COSTS
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $35,162 24,860 15,249
Additions 18,042 17,505 14,140
Amortization (policy
acquisition costs) (7,824) (7,203) (4,529)
- -------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $45,380 35,162 24,860
=================================================================================================
</TABLE>
6) EMPLOYEE BENEFITS
CapMAC has a service agreement with CapMAC Financial Services, Inc. ("CFS").
Under the service agreement, CFS has agreed to provide various services,
including underwriting, reinsurance, marketing, data processing and other
services to CapMAC in connection with the operation of CapMAC's insurance
business. CapMAC pays CFS a fee for providing such services, but not in
excess of CFS's cost for such services. CFS incurred, on behalf of CapMAC,
total compensation expenses, excluding bonuses, of $13,374,000, $13,484,000
and $11,081,000 in 1996, 1995 and 1994, respectively.
The Company, through CFS, maintains an incentive compensation plan for
its employees. The plan is an annual discretionary bonus award. For the
years ended December 31, 1996, 1995 and 1994, the Company had provided
approximately $8,810,000, $7,804,000 and $5,253,000, respectively, for the
plan. CFS also provides health and welfare benefits to substantially all of
its employees. The Company incurred $551,943, $598,530, and $562,508 of
expense for the years ended December 31, 1996, 1995 and 1994, respectively,
for such plan. The Company also has a defined contribution retirement plan
which allows participants to make voluntary contributions by salary reduction
pursuant to section 401 (k) of the Internal Revenue Code. The Company
provides for the administrative cost for the 401 (k) plan.
F-13
<PAGE> 64
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
On June 25, 1992, certain officers of CapMAC were granted 182,633
restricted stock units ("RSU") at $13.33 a share in respect of certain
deferred compensation. On December 7, 1995, the RSU's were converted to cash
in the amount of approximately $3.7 million, and such officers agreed to
defer receipt of such cash amount in exchange for receiving the same number
of new shares of restricted stock of Holdings as the number of RSU's such
officers previously held. During 1995 and 1994, the expense was $1.3 million
and $0.1 million, respectively. During 1996, Holdings assumed the liability
of $3.7 million less the related deferred tax asset of $1.1 million as
capital contribution. The cash amount is held by Holdings and invested in
accordance with certain guidelines. Such amount, including the investment
earnings thereon, will be paid to each officer upon the occurrence of certain
events but no later than December 2000.
7) EMPLOYEE STOCK OWNERSHIP PLAN
Holdings maintains an Employee Stock Ownership Plan ("ESOP") to provide
its employees the opportunity to obtain beneficial interests in the stock of
Holdings through a trust (the "ESOP Trust"). Compensation expense related to
the ESOP and allocated to CapMAC was approximately $2,764,000, $2,087,000 and
$2,086,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-14
<PAGE> 65
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a case
basis loss reserve and the SLR.
In 1995, CapMAC incurred its first claim on a financial guarantee
policy. Based on its current estimate, the Company expects the aggregate
amount of claims and related expenses not to exceed $2.7 million, although no
assurance can be given that such claims and related expenses will not exceed
that amount. Such loss amount was covered through a recovery under a quota
share reinsurance agreement of $0.2 million and a reduction in the SLR of
$2.5 million. The portion of such claims and expenses not covered under the
quota share agreement is being funded through payments to CapMAC from the
Lureco Trust Account (see note 12).
The following is a summary of the activity in the case basis loss
reserve account and the components of the reserve for losses and loss
adjustment expenses ($ in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASE BASIS LOSS RESERVE:
Net balance at January 1 $ 620 - -
- -------------------------------------------------------------------------------------------------
INCURRED RELATED TO:
Current year - 2,473 -
Prior years - - -
- -------------------------------------------------------------------------------------------------
Total incurred - 2,473 -
- -------------------------------------------------------------------------------------------------
PAID RELATED TO:
Current year - 1,853 -
Prior years 309 - -
- -------------------------------------------------------------------------------------------------
Total paid 309 1,853 -
- -------------------------------------------------------------------------------------------------
Net balance at December 31 311 620 -
Reinsurance recoverable - 69 -
- -------------------------------------------------------------------------------------------------
GROSS BALANCE AT DECEMBER 31 311 689 -
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL LOSS RESERVE
Balance at January 1 5,859 5,191 3,762
- -------------------------------------------------------------------------------------------------
Additions to supplemental loss reserve 4,815 3,141 1,429
Allocated to case basis reserve - (2,473) -
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 10,674 5,859 5,191
- -------------------------------------------------------------------------------------------------
TOTAL RESERVE FOR LOSSES AND LOSS ADJUSTMENT
EXPENSES $10,985 6,548 5,191
=================================================================================================
</TABLE>
F-15
<PAGE> 66
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
9) INCOME TAXES
Pursuant to a tax sharing agreement with Holdings, the Company is included in
Holdings' consolidated U.S. Federal income tax return. The Company's annual
Federal income tax liability is determined by computing its pro rata share of
the consolidated group Federal income tax liability.
Total income tax expense differed from the amount computed by applying
the U.S. Federal income tax rate of 35% in 1996 and 1995 and 34% in 1994:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31,1995 December 31, 1994
$ in thousands Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed at
the statutory rate $10,738 35.0 $7,216 35.0 $5,303 34.0
Increase (decrease) in tax
resulting from:
Tax-exempt interest (2,916) (9.5) (2,335) (11.3) (1,646) (10.6)
Other, net 781 2.5 334 1.6 51 0.4
- -------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 8,603 28.0 $5,215 25.3 $3,708 23.8
=================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
$ in thousands December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Deferred compensation $ 200 1,901
Losses and loss adjustment expenses 1,527 1,002
Unearned premiums 866 852
Other, net 96 98
- ------------------------------------------------------------------------------------------------
Total gross deferred tax assets 2,689 3,853
- ------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs 15,883 12,307
Unrealized capital gains on investments 1,061 1,769
Other, net 884 1,080
- ------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 17,828 15,156
- ------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $15,139 11,303
================================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
that the deferred tax assets will be fully realized in the future.
F-16
<PAGE> 67
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
10) INSURANCE REGULATORY RESTRICTIONS
CapMAC is subject to insurance regulatory requirements of the State of
New York and other states in which it is licensed to conduct business.
Generally, New York insurance laws require that dividends be paid from
earned surplus and restrict the amount of dividends in any year that may be
paid without obtaining approval for such dividends from the Superintendent
of Insurance to the lower of (i) net investment income as defined or (ii)
10% of statutory surplus as of December 31 of the preceding year. No
dividends were paid by CapMAC to Holdings during the years ended December
31, 1996, 1995 and 1994. No dividends could be paid during these periods
because CapMAC had negative earned surplus. Statutory surplus at December
31, 1996 and 1995 was approximately $193,726,000 and $195,018,000,
respectively. Statutory surplus differs from stockholder's equity
determined under GAAP principally due to the mandatory contingency reserve
required for statutory accounting purposes and differences in accounting for
investments, deferred acquisition costs, SLR and deferred taxes provided
under GAAP. Statutory net income was $18,737,000, $9,000,000 and $4,543,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
Statutory net income differs from net income determined under GAAP
principally due to deferred acquisition costs, SLR and deferred income
taxes.
11) COMMITMENTS AND CONTINGENCIES
The Company's lease agreement for the space occupied in New York expires
on November 20, 2008. CapMAC has a lease agreement for its London office,
which expires on October 1, 2002. As of December 31, 1996, future minimum
payments under the lease agreements are as follows:
<TABLE>
<CAPTION>
$ in thousands Payment
- --------------------------------------------------------------------------------------------------
<S> <C>
1997 $ 2,647
1998 2,715
1999 3,077
2000 3,152
2001 and thereafter 28,660
- --------------------------------------------------------------------------------------------------
TOTAL $40,251
==================================================================================================
</TABLE>
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1996, 1995 and 1994 amounted to $1,618,000, $1,939,000 and
$2,243,000, respectively.
CapMAC has available a $150,000,000 standby corporate liquidity facility
(the "Liquidity Facility") scheduled to terminate in September 1999. The
Liquidity Facility is provided by a consortium of banks, headed by Bank of
Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and Moody's,
respectively. Under the Liquidity Facility, CapMAC will be able, subject to
satisfying certain conditions, to borrow funds from time to time in order to
enable it to fund any claim payments or payments made in settlement or
mitigation of claim payments under its insurance contracts. There have been
no draws under the Liquidity Facility.
CapMAC has agreed to make an investment of 50 million French Francs
(approximately $10 million U.S. dollars) in CapMAC Assurance, S.A., an
insurance subsidiary to be established in Paris, France. This investment is
anticipated to be made in 1997.
F-17
<PAGE> 68
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
12) REINSURANCE
In the ordinary course of business, CapMAC cedes exposure under various
treaty and facultative reinsurance contracts, both on a pro rata and excess
of loss basis, primarily designed to minimize losses from large risks and
protect the capital and surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
------------------- ------------------- -------------------
$ in thousands Written Earned Written Earned Written Earned
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 71,752 48,835 56,541 36,853 43,598 28,561
Assumed 1,086 1,508 935 761 1,064 258
Ceded (15,104) (9,786) (15,992) (8,372) (11,069) (5,716)
- -------------------------------------------------------------------------------------------------
Net premiums $ 57,734 40,557 41,484 29,242 33,593 23,103
=================================================================================================
</TABLE>
The reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders. A contingent liability exists with
respect to the aforementioned reinsurance arrangements, which may become a
liability of CapMAC in the event the reinsurers are unable to meet
obligations assumed by them under the reinsurance contracts. At December
31, 1996 and 1995, CapMAC had ceded loss reserves of $0 and $69,000,
respectively, and had ceded unearned premiums of $18,489,000 and
$13,171,000, respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco
Treaty") with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a
European-based reinsurer. The agreement is renewable annually at the
Company's option, subject to satisfying certain conditions. The agreement
reinsured and indemnified the Company for any loss incurred by CapMAC during
the agreement period up to the limits of the agreement. The Lureco Treaty
provides that the annual reinsurance premium payable by CapMAC to Lureco,
after deduction of the reinsurer's fee payable to Lureco, be deposited in a
trust account (the "Lureco Trust Account") to be applied by CapMAC, at its
option, to offset losses and loss expenses incurred by CapMAC in connection
with incurred claims. Amounts on deposit in the Lureco Trust Account which
have not been applied against claims are contractually due to CapMAC at the
termination of the treaty.
The premium deposit amounts in the Lureco Trust Account have been
reflected as assets by CapMAC during the term of the agreement. Premiums in
excess of the deposit amounts have been recorded as ceded premiums in the
statements of income. For the 1996 policy year, the agreement provides $7
million of loss coverage in excess of the premium deposit amount of $5
million retained in the Lureco Trust Account. Additional coverage is
provided for losses incurred in excess of 200% of the net premiums earned up
to $4 million for any one agreement year. In September 1995, a claim of
approximately $2.5 million on an insurance policy was applied against the
Lureco Trust Account.
F-18
<PAGE> 69
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
In addition to its capital (including statutory contingency reserves),
CapMAC has other reinsurance available to pay claims under its insurance
contracts. Effective November 30, 1995, CapMAC entered into a Stop-loss
Reinsurance Agreement with Mitsui Marine and Fire Insurance Co. (the "Mitsui
Stop-loss Agreement"). Under the Mitsui Stop-loss Agreement, Mitsui Marine
and Fire Insurance Co. ("Mitsui") will be required to pay any losses in
excess of $100 million in the aggregate incurred by CapMAC during the term
of the Mitsui Stop-loss Agreement on the insurance policies in effect on
December 1, 1995 and written during the one-year period thereafter, up to an
aggregate limit payable under the Mitsui Stop-loss Agreement of $50 million.
The Mitsui Stop-loss Agreement has a term of seven years and is subject to
early termination by CapMAC in certain circumstances. Effective January 1,
1997 the stop-loss reinsurance coverage increased to $75 million in excess
of incurred losses of $150 million increasing annually based on increases in
CapMAC's statutory qualified capital. The new stop-loss reinsurance is
provided by Mitsui, AXA Re Finance S.A. ("AXA Re") and Munchener
Ruckversicherungs- Gesellschaft ("Munich Re").
On November 30, 1995, CapMAC canceled the quota share reinsurance
agreement with Winterthur Swiss Insurance Company ("Winterthur") pursuant to
which Winterthur had the right to reinsure on a quota share basis 10% of
each policy written by CapMAC. As a result, CapMAC reassumed approximately
$1.4 billion of principal insured by Winterthur on January 1, 1996. In
connection with the commutation, Winterthur returned $2.0 million of
unearned premiums, net of ceding commission and Federal excise tax.
13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and
1995. The fair value amounts were determined by the Company using
independent market information when available, and appropriate valuation
methodologies when market information was not available. Such valuation
methodologies require significant judgment and are not necessarily
indicative of the amount the Company could recognize in a current market
exchange.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
$ in thousands Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSESTS:
Available-for-sale securities $314,703 314,703 284,352 284,352
- -------------------------------------------------------------------------------------------------
OFF-BALANCE-SHEET INSTRUMENTS:
Financial guarantees outstanding $ - 219,989 - 147,840
Less: ceding commission - 65,997 - 44,352
- -------------------------------------------------------------------------------------------------
Net financial guarantees outstanding $ - 153,992 103,488
=================================================================================================
</TABLE>
F-19
<PAGE> 70
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments summarized above:
AVAILABLE-FOR-SALE SECURITIES
The fair values of fixed maturities are based upon quoted market prices.
The fair value of short-term investments approximates amortized cost.
FINANCIAL GUARANTEES OUTSTANDING
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the
fair value of installment revenue which is derived by calculating the
present value of the estimated future cash inflow to CapMAC of policies in
force having installment premiums, net of amounts payable to reinsurers, at
a discount rate of 7% at December 31, 1996 and 1995. The amount calculated
is assumed to be equivalent to the consideration that would be paid by
CapMAC under market conditions prevailing at the reporting dates to transfer
CapMAC's financial guarantee business to a third party under reinsurance and
other agreements. Ceding commission represents the expected amount that
would be paid to CapMAC to compensate CapMAC for originating and servicing
the insurance contracts. In constructing estimated future cash inflows,
management makes assumptions regarding prepayments for amortizing
asset-backed securities which are consistent with relevant historical
experience. For revolving programs, assumptions are made regarding program
utilization based on discussions with program users. The amount of future
installment revenue actually realized by the Company could be reduced in the
future due to factors such as early termination of insurance contracts,
accelerated prepayments of underlying obligations or lower than anticipated
utilization of insured structured programs, such as commercial paper
conduits. Although increases in future installment revenue earnings due to
renewals of existing insurance contracts historically have been greater than
reductions in future installment revenue due to factors such as those
described above, there can be no assurance that future circumstances might
not cause a material net reduction in the future installment revenue.
14) CAPITALIZATION
In 1995, $59.0 million of the proceeds received by Holdings from the
sale of shares in connection with an initial public offering and private
placements were contributed to CapMAC.
F-20
<PAGE> 71
============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THE
DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE DEPOSITOR OR THE RECEIVABLES SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
Reports to Certificateholders by the
Trustee.................................. 2
Prospectus Summary......................... 3
Risk Factors............................... 7
The Trust.................................. 10
NationsCredit Commercial's Portfolio of
Marine Contracts......................... 10
The Receivables Pool....................... 14
Certificate Factors and Trading
Information.............................. 21
Use of Proceeds............................ 21
The Depositor.............................. 21
The Servicer............................... 22
The Surety Bond Issuer..................... 22
The Certificates........................... 23
Certain Legal Aspects of the Receivables... 36
Certain Federal Income Tax Consequences.... 41
ERISA Considerations....................... 45
Underwriting............................... 47
Experts.................................... 48
Legal Matters.............................. 48
Index...................................... 49
Index to Financial Statements.............. F-1
</TABLE>
Until August 13, 1997, all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
============================================================
============================================================
[NATIONSCREDIT GRANTOR LOGO]
NATIONSCREDIT
GRANTOR TRUST 1997-1
$181,781,125.63
6.75% MARINE RECEIVABLE-
BACKED CERTIFICATES
NATIONSCREDIT
SECURITIZATION CORPORATION
DEPOSITOR
NATIONSCREDIT COMMERCIAL
CORPORATION OF AMERICA
SERVICER
-------------------
PROSPECTUS
-------------------
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
Dated May 15, 1997
============================================================
<PAGE> 72
[NATIONSCREDIT GRANTOR LOGO] [ALTERNATE PAGE]
NATIONSCREDIT GRANTOR TRUST 1997-1
$181,781,125.63
% MARINE RECEIVABLE-BACKED CERTIFICATES
NATIONSCREDIT SECURITIZATION CORPORATION
DEPOSITOR
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA
SERVICER
Each % Marine Receivable-Backed Certificate (the "Certificates")
offered hereby will represent a fractional undivided interest in the
NationsCredit Grantor Trust 1997-1 (the "Trust"). the Trust will be formed
pursuant to a Pooling and Servicing Agreement (the "Agreement") to be entered
into among NationsCredit Securitization Corporation, as Depositor (the
"Depositor"), NationsCredit Commercial Corporation of America, as Servicer (the
"Servicer"), and Bankers Trust Company, as Trustee and as Collateral Agent (in
such capacities, the "Trustee" and the "Collateral Agent", respectively). The
property of the Trust will include a pool of marine retail installment sale
contracts secured by new and used boats, boat motors and any accompanying boat
trailers (the "Receivables"), all payments received or due thereunder after
April 30, 1997 (the "Cutoff Date"), security interests in the boats and marine
equipment financed thereby, an irrevocable surety bond (the "Surety Bond"),
guaranteeing the Monthly Interest Payment (as defined herein) and the Monthly
Principal Payment (as defined herein), issued by Capital Markets Assurance
Corporation (the "Surety Bond Issuer") and certain other property. The Servicer
will be responsible for servicing and maintaining custody of the Receivables.
The aggregate principal balance of the Receivables (the "Pool Balance") as of
the Cutoff Date was $181,781,125.63 (the "Initial Pool Balance").
The Certificate Balance (as defined herein) as of the Closing Date will
equal $181,781,125.63. Principal and interest to the extent of the Pass-Through
Rate of % per annum on the Certificates will be distributed to holders of
the Certificates ("Certificateholders") as of the day prior to each Distribution
Date (each a "Record Date") on the 15th day of each month (or, if such day is
not a business day, the next following business day), beginning June 16, 1997
(each a "Distribution Date"). The Final Scheduled Distribution Date on the
Certificates will be on August 15, 2013, (the "Final Scheduled Distribution
Date").
FOR INFORMATION CONCERNING THE RISKS OF AN INVESTMENT IN THE CERTIFICATES,
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
---------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF NATIONSCREDIT SECURITIZATION CORPORATION,
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA OR ANY AFFILIATE THEREOF.
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.
THIS PROSPECTUS IS TO BE USED BY NATIONSBANC CAPITAL MARKETS, INC. ("NCMI") AN
AFFILIATE OF THE SELLER IN CONNECTION WITH OFFERS AND SALES RELATED TO
MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES IN WHICH NCMI ACTS AS PRINCIPAL.
NCMI MAY ALSO ACT AS AGENT IN SUCH TRANSACTIONS. SALES WILL BE MADE AT PRICES
RELATED TO THE PREVAILING PRICES AT THE TIME OF SALE.
---------------------
May 15, 1997
<PAGE> 73
[ALTERNATE PAGE]
UNDERWRITING
This Prospectus is to be used by the Underwriter, an affiliate of the
Seller, in connection with offers and sales related to market-making
transactions in the Certificates in which the Underwriter acts as principal. The
Underwriter may also act as agent in such transactions. Sales will be made at
prices related to the prevailing prices at the time of sale. Any obligations of
the Underwriter are the sole obligations of the Underwriter and do not create
any obligations on the part of any affiliate of the Underwriter.
EXPERTS
The financial statements of Capital Markets Assurance Corporation as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 are included herein beginning on page F-3 and have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, as
set forth in their report thereon and are included in reliance upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriters by Stroock & Stroock & Lavan LLP, Special
Counsel of the Depositor and the Underwriters. Certain legal matters relating to
the Federal tax consequences of the issuance and ownership of the Certificates
will be passed upon by Stroock & Stroock & Lavan LLP.
<PAGE> 74
[ALTERNATE PAGE]
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THE
DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE DEPOSITOR OR THE RECEIVABLES SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
Reports to Certificateholders by the
Trustee.................................. 2
Prospectus Summary......................... 3
Risk Factors............................... 7
The Trust.................................. 10
NationsCredit Commercial's Portfolio of
Marine Contracts......................... 10
The Receivables Pool....................... 14
Certificate Factors and Trading
Information.............................. 21
Use of Proceeds............................ 21
The Depositor.............................. 21
The Servicer............................... 22
The Surety Bond Issuer..................... 22
The Certificates........................... 23
Certain Legal Aspects of the Receivables... 36
Certain Federal Income Tax Consequences.... 41
ERISA Considerations....................... 45
Underwriting............................... 47
Experts.................................... 48
Legal Matters.............................. 48
Index...................................... 49
Index to Financial Statements.............. F-1
</TABLE>
Until August 13, 1997, all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
============================================================
============================================================
[NATIONSCREDIT GRANTOR LOGO]
NATIONSCREDIT
GRANTOR TRUST 1997-1
$181,781,125.63
% MARINE RECEIVABLE-
BACKED CERTIFICATES
NATIONSCREDIT
SECURITIZATION CORPORATION
DEPOSITOR
NATIONSCREDIT COMMERCIAL
CORPORATION OF AMERICA
SERVICER
-------------------
PROSPECTUS
-------------------
NATIONSBANC CAPITAL MARKETS, INC.
Dated May 15, 1997
============================================================
