<PAGE> 1
Filed Pursuant to Rule 424(B)(1)
PROSPECTUS NATIONSCREDIT LOGO Registration Nos. 333-33441
333-33441-01
$169,190,255.16
NationsCredit Grantor Trust 1997-2
$120,803,719.92 6.35% Marine Receivable-Backed Certificates
$48,386,535.24 6.25% Recreational Vehicle Receivable-Backed Certificates
NationsCredit Securitization Corporation
DEPOSITOR
NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA
SERVICER
The certificates issued by NationsCredit Grantor Trust 1997-2 (the "Trust")
and offered hereby will consist of (i) 6.35% Marine Receivable-Backed
Certificates (the "Marine Certificates") and (ii) 6.25% Recreational Vehicle
Receivable-Backed Certificates (the "RV Certificates" and together with the
Marine Certificates, the "Certificates"). 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 be comprised of three separate sub-trusts. The first
sub-trust will include a pool of marine retail installment sale contracts,
secured by new and used boats, boat motors and boat trailers (the "Marine
Contract Group" and each marine retail installment sale contract included in the
Marine Contract Group being a "Marine Receivable"), all payments received
thereunder after September 30, 1997 (the "Cutoff Date"), security interests in
the boats and marine equipment financed by the Marine Receivables and certain
other property as described under "The Trust." The second sub-trust will include
a pool of recreational vehicle retail installment sale contracts secured by new
and used recreational vehicles (the "RV Contract Group" and each recreational
vehicle retail installment sale contract included in the RV Contract Group being
a "RV Receivable" and each of the RV Receivables and the Marine Receivables
being, the "Receivables"), all payments received thereunder after the Cutoff
Date, security interests in the recreational vehicles financed by the RV
Receivables and certain other property as described under "The Trust". The third
sub-trust will include 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").
(Continued on following page)
FOR INFORMATION CONCERNING THE RISKS OF AN INVESTMENT IN THE CERTIFICATES,
SEE "RISK FACTORS" COMMENCING ON PAGE 11.
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 Marine Receivable-Backed Certificate........... 99.99388% .30000% 99.69388%
- ------------------------------------------------------------------------------------------------------------------------
Per Recreational Vehicle Receivable-Backed
Certificate...................................... 99.95337% .27500% 99.67837%
- ------------------------------------------------------------------------------------------------------------------------
Total.............................................. $169,160,299.33 $495,474.13 $168,664,825.20
========================================================================================================================
</TABLE>
(1) Plus interest calculated at the applicable Pass-Through Rate from October
15, 1997.
(2) Before deducting expenses payable by the Depositor estimated at $480,000.00.
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 October 23,
1997.
NATIONSBANC MONTGOMERY SALOMON BROTHERS INC
October 16, 1997
<PAGE> 2
(Continued from preceding page)
The Certificates will represent interests in the assets of the Trust as
described under "The Trust." Except under the limited circumstances described
under "The Certificates -- Distributions on Certificates" and "Credit
Enhancement," payments to the Marine Certificateholders will be based on
payments from the Marine Contract Group and payments to the RV
Certificateholders will be based on payments from the RV Contract Group. The
Servicer will be responsible for servicing and maintaining custody of the
Receivables. The aggregate principal balance of the Marine Receivables (the
"Marine Pool Balance") as of the Cutoff Date was $120,803,719.92 (the "Initial
Marine Pool Balance") and the aggregate principal balance of the RV Receivables
(the "RV Pool Balance" and together with the Marine Pool Balance, the "Pool
Balance") as of the Cutoff Date was $48,386,535.24 (the "Initial RV Pool
Balance" and together with the Initial Marine Pool Balance, the "Initial Pool
Balance").
The Marine Certificate Balance (as defined herein) as of the Closing Date
(as defined herein) will equal $120,803,719.92 and the RV Certificate Balance
(as defined herein) as of the Closing Date will equal $48,386,535.24. Principal
and interest to the extent of the Pass-Through Rate of (i) 6.35% per annum on
the Marine Certificates will be distributed to holders of the Marine
Certificates ("Marine Certificateholders") and (ii) 6.25% per annum on the RV
Certificates will be distributed to holders of the RV Certificates ("RV
Certificateholders" and together with the Marine Certificateholders, the
"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 November 17, 1997 (each a
"Distribution Date"). The final scheduled Distribution Date of the Marine
Certificates will be on April 15, 2014 (the "Marine Final Scheduled Distribution
Date") and the final scheduled Distribution Date of the RV Certificates will be
on November 15, 2013 (the "RV Final Scheduled Distribution Date").
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 1997-2, 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.
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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 September 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."
3
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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 of the definitions of certain capitalized terms
used herein.
Issuer:....................... NationsCredit Grantor Trust 1997-2 (the
"Trust") will be formed by the Depositor. The
assets of the Trust will include the Marine
Contract Group and the RV Contract Group and
all payments received thereunder after
September 30, 1997 (the "Cutoff Date");
security interests in new and used boats, boat
motors and boat trailers financed by the Marine
Contract Group (collectively, "Boats");
security interests in the new and used
recreational vehicles financed by the RV
Contract Group (collectively, "RVs"); certain
bank accounts and the proceeds thereof, the
Surety Bond described below; and certain other
property described under "The Trust." See "The
Trust," "NationsCredit Commercial's Portfolio
of Marine Contracts and Recreational Vehicle
Contracts" and "Risk Factors -- Lack of
Perfected Security Interests in Boats and RVs."
The Depositor shall cause the Trust to purchase
the Receivables 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 6.35% Marine Receivable-Backed Certificate
(a "Marine Certificate") and each 6.25%
Recreational Vehicle Receivable-Backed
Certificate (a "RV Certificate" and together
with the Marine Certificates, the
"Certificates") represents an interest in the
assets of the Trust, in each case, as described
under "The Trust." Except under the limited
circumstances described under "The
Certificates -- Distributions on Certificates"
and "Credit Enhancement," payments to Marine
Certificateholders will be based on payments
from the Marine Contract Group and payments to
RV Certificateholders will be based on payments
from the RV Contract Group. Except under the
limited circumstances described herein, the
Certificates will be issued pursuant to the
Agreement in book-entry form only and shall be
available in denominations of $1,000 and
integral multiples thereof. See "The
Certificates -- General," "-- Book-Entry
Registration" and "-- Definitive Certificates."
Pass-Through Rate:............ The Pass-Through Rate for the Marine
Certificates shall equal 6.35% per annum and
the Pass-Through Rate for the RV Certifi-
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<PAGE> 5
cates shall equal 6.25% per annum, in each case
payable monthly at one-twelfth of the
applicable 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 Business Day prior to such
Distribution Date (the "Record Date") of
interest in an aggregate amount equal to one-
twelfth of the product of the applicable
Pass-Through Rate and the Marine Certificate
Balance, in the case of the Marine
Certificateholders, or the RV Certificate
Balance, in the case of the RV
Certificateholders, in each case as of the
close of business on the prior Distribution
Date (or in case of the first Distribution
Date, the Marine Certificate Balance or the RV
Certificate Balance, as applicable, as of the
Closing Date). The amount of interest required
to be distributed to the Marine
Certificateholders being, the "Monthly Marine
Interest Payment" and the amount of interest
required to be distributed to the RV
Certificateholders being, the "Monthly RV
Interest Payment." The sum of the Monthly
Marine Interest Payment and the Monthly RV
Interest Payment is referred to herein as the
"Monthly Interest Payment." See "The
Certificates -- Distributions on Certificates."
Principal:.................... The Trustee shall provide for a pro rata
distribution to the Marine Certificateholders
of record as of the related Record Date (x) on
each Distribution Date (except on the Marine
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 (as defined herein)
on Marine Receivables allocable to principal
(which shall not include the principal portion
of proceeds from any recoveries or liquidations
in respect of any Defaulted Marine Receivables
(as defined herein) received in any Collection
Period following the Collection Period in which
such Marine Receivable became a Defaulted
Marine Receivable), (b) Purchase Amounts (as
defined herein) in respect of Marine
Receivables allocable to principal and paid by
the Depositor or the Servicer and (c) the
principal balance of Defaulted Marine
Receivables, which became Defaulted Marine
Receivables during the related Collection
Period and (y) on the Marine Final Scheduled
Distribution Date, an amount necessary to
reduce the Marine Certificate Balance to zero
on such Distribution Date, (collectively, the
"Monthly Marine Principal Payment"). See "The
Certificates -- Distributions on
Certificates -- Marine Distributions."
The Trustee shall provide for a pro rata
distribution to the RV Certificateholders of
record as of the related Record Date (x) on
each Distribution Date (except on the RV 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 RV Receivables
allocable to principal (which shall not include
the principal portion of proceeds from any
recoveries or liquidations in respect of any
Defaulted RV Receivables (as defined herein),
received in any Collection Period following the
Collection Period in which such RV Receivable
became a De-
5
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faulted RV Receivable), (b) Purchase Amounts in
respect of RV Receivables allocable to
principal and paid by the Depositor or the
Servicer and (c) the principal balance of
Defaulted RV Receivables, which became
Defaulted RV Receivables during the related
Collection Period and (y) on the RV Final
Scheduled Distribution Date, an amount
necessary to reduce the RV Certificate Balance
to zero on such Distribution Date
(collectively, the "Monthly RV Principal
Payment" and together with the Monthly Marine
Principal payment, the "Monthly Principal
Payment"). See "The
Certificates -- Distributions on
Certificates -- RV Distributions."
Certificate Balance:.......... The "Marine Certificate Balance" shall equal on
the Closing Date, $120,803,719.92 and
thereafter shall equal the Marine Certificate
Balance as of the Closing Date reduced by all
principal distributions on the Marine
Certificates. The "RV Certificate Balance"
shall equal on the Closing Date, $48,386,535.24
and thereafter shall equal the RV Certificate
Balance as of the Closing Date reduced by all
principal distributions on the RV Certificates.
The sum of the Marine Certificate Balance and
the RV Certificate Balance shall equal the
"Certificate Balance."
Distribution Date:............ The 15th day of each month (or if such 15th day
is not a business day, the next following
business day) commencing November 17, 1997.
Monthly Marine 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 Marine Pool Balance as of the last day
of the prior Collection Period (or in the case
of the first Distribution Date, the Initial
Marine Pool Balance), plus certain late fees,
prepayment charges and other administrative
fees or similar charges. See "The
Certificates -- Distributions on
Certificates -- Marine Distributions."
Monthly RV 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 RV Pool Balance as of the last day of
the prior Collection Period (or in the case of
the first Distribution Date, the Initial RV
Pool Balance), plus certain late fees,
prepayment charges and other administrative
fees or similar charges. See "The
Certificates -- Distributions on
Certificates -- RV Distributions."
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 -- Credit
Enhancement -- The Surety Bond."
Marine Reserve Account:....... The Depositor will establish and maintain with
the Collateral Agent an account (the "Marine
Reserve Account"). The Marine 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 Marine Reserve Account and
thereafter on each Distribution Date, the
Marine Reserve Account will be augmented
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from payments in respect of Marine Receivables
(or under certain circumstances, RV
Receivables, as described under "The
Certificates -- Credit Enhancement") allocable
to interest received by the Servicer during the
preceding Collection Period after distributions
thereof in respect of the Monthly Marine
Interest Payment, the Monthly Marine Servicing
Fee (to the extent described herein), the
principal balance of any Defaulted Marine
Receivables (as defined herein), and any
amounts owing to the Surety Bond Issuer
allocable to the Marine Contract Group (as
defined herein) under the Insurance and
Reimbursement Agreement, dated as of September
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 Marine
Reserve Account is equal to a specified amount
to be determined by the Surety Bond Issuer and
the Rating Agencies (the "Specified Marine
Reserve Account Requirement"). Amounts, if any,
on deposit in the Marine Reserve Account on any
Distribution Date (after giving effect to all
distributions to be made on such Distribution
Date) in excess of the Specified Marine Reserve
Account Requirement will be released to the
Depositor. The Specified Marine Reserve Account
Requirement and amounts on deposit or to be
deposited into the Marine 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 downgrading or withdrawal of the then-current
rating of any of the Certificates by a Rating
Agency (as defined herein), but without prior
notice to or the consent of any of the
Certificateholders. Prospective purchasers of
the Marine Certificates should not rely on any
amounts being deposited into or available from
the Marine Reserve Account or the RV Reserve
Account (as defined below) in making a decision
as to whether to purchase the Marine
Certificates. See "The Certificates -- Credit
Enhancement -- The Marine Reserve Account" and
"Distributions on Certificates."
RV Reserve Account:........... The Depositor will establish and maintain with
the Collateral Agent an account (the "RV
Reserve Account"). The RV 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 RV Reserve Account and thereafter
on each Distribution Date, the RV Reserve
Account will be augmented from payments in
respect of RV Receivables (or under certain
circumstances, Marine Receivables, as described
under "The Certificates -- Credit Enhancement")
allocable to interest received by the Servicer
during the preceding Collection Period after
distributions thereof in respect of the Monthly
RV Interest Payment, the Monthly RV Servicing
Fee (to the extent described herein), the
principal balance of any RV Defaulted
Receivables (as defined herein), and any
amounts owing to the Surety Bond Issuer
allocable to the RV Contract Group (as defined
herein) under the Insurance Agreement and the
Agreement, and not paid, until the amount on
deposit in the RV Reserve Account is equal to a
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<PAGE> 8
specified amount to be determined by the Surety
Bond Issuer and the Rating Agencies (the
"Specified RV Reserve Account Requirement").
Amounts, if any, on deposit in the RV Reserve
Account on any Distribution Date (after giving
effect to all distributions to be made on such
Distribution Date) in excess of the Specified
RV Reserve Account Requirement will be released
to the Depositor. The Specified RV Reserve
Account Requirement and amounts on deposit or
to be deposited into the RV 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 downgrading or withdrawal of the then-current
rating of any of the Certificates by a Rating
Agency (as defined herein), but without prior
notice to or the consent of any of the
Certificateholders. Prospective purchasers of
the Certificates should not rely on any amounts
being deposited into or available from the RV
Reserve Account or the Marine Reserve Account
in making a decision as to whether to purchase
the RV Certificates. See "The
Certificates -- Credit Enhancement -- The RV
Reserve Account" and "Distributions on
Certificates."
Optional Purchase:............ The Servicer may purchase all the Marine
Receivables in the Trust as of any Record Date
on which the Marine Pool Balance shall decline
to 5% or less of the Initial Marine Pool
Balance, at a purchase price equal to the
aggregate Purchase Amount of the Marine
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."
The Servicer may purchase all the RV
Receivables in the Trust as of any Record Date
on which the RV Pool Balance shall decline to
5% or less of the Initial RV Pool Balance, at a
purchase price equal to the aggregate Purchase
Amount of the RV 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"). See "The Surety
Bond Issuer."
Trustee:...................... Bankers Trust Company (the "Trustee").
Lack of Perfected Security
Interests in Boats and RVs:... Pursuant to the Agreement, the Servicer will
represent and warrant that each Receivable
created a first priority perfected security
interest in the Boat or RV, as applicable,
financed thereby in favor of NationsCredit
Commercial. In connection with the sale of the
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<PAGE> 9
Receivables, the security interests of
NationsCredit Commercial in the Boats and RVs
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 or RVs financed in states where
security interests in boats or recreational
vehicles 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 or RVs financed in states where security
interests in boats or recreational vehicles are
perfected by filing a UCC-1 financing
statement, will not be amended to reflect the
assignment to the Trust. In most states, an
assignment such as that under the Agreement is
an effective conveyance of a security interest
without making any such endorsement or filing
any such amendment. However, in certain states,
in the absence of such procedures, the Trust
may not have a perfected security interest in
the Boats or RVs, but the failure to make such
endorsements, filings or recordations will not
affect the validity of the original security
interest as against the Obligor (as defined
herein). Moreover, statutory liens for repairs
or unpaid taxes may have priority over security
interests in Boats or RVs perfected under state
law. As a result, the Marine Certificateholders
or RV Certificateholders, as applicable, may be
subject to delays in payments and may incur
losses if any required payments under the
Surety Bond are not made. See "Risk
Factors -- Lack of Perfected Security Interests
in Boats and RVs" and "Certain Legal Aspects of
the Receivables."
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."
Rating:....................... As a condition of issuance of the Certificates,
the Marine Certificates and the RV 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 related Receivables. Any
rating assigned to the Certificates by a Rating
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<PAGE> 10
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 Surety Bond, the
characteristics of the related 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 Ratings."
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<PAGE> 11
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 Montgomery Securities, Inc. and Salomon Brothers 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 Marine Reserve Account or RV Reserve Account, as
applicable, 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. Under the Texas and Georgia UCC, security interests in the Receivables
may be perfected by possession of the Receivables or by the filing of a UCC-1
financing statement. To facilitate servicing and to minimize administrative
burden and expense, the Trustee will file UCC-1 financing statements to perfect
the Trust's security interests in the receivables and NationsCredit Commercial
as Servicer will maintain possession of all of the Receivables. Therefore, 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. A security
interest in the Receivables perfected by means of possession under certain
circumstances would generally have priority over a security interest in the
Receivables perfected by the filing of a UCC-1 financing statement. 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. But such
representations and warranties relate solely to the Receivables themselves and
do not include the Boats or RVs that secure such Receivables. Also, certain
liens, including 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. 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 and RVs. When originated,
each Marine Receivable and RV Receivable includes a security interest in the
Boat or RV financed thereby, as applicable, and such interest is
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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 and RVs, which
representations and warranties will be subject to any statutory liens arising
after the Closing Date. Due to the administrative burden and expense of (i)
endorsing the certificate of title of each Boat and RV 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 or RVs
licensed in states where security interests in boats or recreational vehicles,
as applicable, are subject to certificate of title statutes; and (ii) filing
amendments to UCC-1 financing statements relating to each Boat and RV (and the
payment of related filing fees) to reflect the Trust's interest therein, in the
case of Boats or RVs licensed in states where security interests in boats or
recreational vehicles, as applicable, 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 most states an assignment such
as that under the Agreement is an effective conveyance of a security interest
without making any such endorsements or filing any such amendments. However, in
certain states, in the absence of such procedures the Trust may not have a
perfected security interest in the Boats or RVs 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.
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 21.10% of the Initial Marine 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
Marine Certificateholders and RV Certificateholders may be subject to delays in
payments and may incur losses with respect to the Marine Receivables if any
required payments under the Surety Bond are not made. Boats registered in
California may not relate to the geographic concentration of Marine Receivables
in California because the concentration of such Marine 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
or RVs 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 can assert against the Servicer or the Trust
claims and defenses which the Obligor has against the seller of the Boat or RV,
as applicable (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 recreational vehicles
and on obtaining deficiency judgments following such sales. Even if a Boat or RV
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 RV or because the resale value of the Boat or RV may vary
significantly due to the limited markets for used boats or used recreational
vehicles, 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 or RV, 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, 21.10%, 9.80% and
9.11% of the Marine Receivables are billed to Obligors under Marine Receivables
with billing addresses in California, Texas and Florida, respectively. Based on
the Initial Pool Balance 23.04%, 10.92% and 8.29% of the RV Receivables are
billed to Obligors under RV Receivables with billing addresses in California,
Texas and Florida, respectively. An economic downturn may have an adverse effect
on the ability of Obligors in such states to meet their payment obligations
under the Marine Receivables or RV Receivables, as applicable. Because of the
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concentration of Receivables with Obligors with billing addresses in such
states, 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 Marine
Certificateholders or RV Certificateholders, as applicable.
Prepayment Considerations. Full or partial prepayments on the Marine
Receivables will have the effect of reducing the weighted average life of the
Marine Certificates, while delinquencies under the Marine Receivables by the
related Obligors and extensions of Marine Receivables by the Servicer will have
the effect of increasing the weighted average life (but not the final maturity)
of the Marine Certificates. Full or partial prepayments on the RV Receivables
will have the effect of reducing the weighted average life of the RV
Certificates, while delinquencies under the RV Receivables by the related
Obligors and extensions of RV Receivables by the Servicer will have the effect
of increasing the weighted average life (but not the final maturity) of the RV
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 or RV, a Marine Receivable or RV Receivable
becoming a Defaulted Receivable, the purchase of Marine Receivables or RV
Receivables due to material breaches of the Depositor's or NationsCredit
Commercial's representations and warranties or the exercise by the Servicer of
its option to purchase all the (x) Marine Receivables as of any Record Date on
which the Marine Pool Balance shall decline to 5% or less of the Initial Marine
Pool Balance or (y) RV Receivables as of any Record Date on which the RV Pool
Balance shall decline to 5% or less of the Initial RV Pool Balance. The actual
maturity of the Marine Certificates or the RV Certificates could occur earlier
than the Marine Final Scheduled Distribution Date and the RV Final Scheduled
Distribution Date, respectively, since the rate of payments on the Marine
Certificates and RV Certificates will depend on the rate of payments on the
Marine Receivables and RV Receivables, respectively. In addition because of the
cross-collateralization between the Marine Contract Group and the RV Contract
Group a more rapid rate of prepayments on one contract group will have the
effect of reducing the amount of excess spread available for
cross-collateralization of the other contract group. 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 and the recreational vehicle retail
financing business. Marine Certificateholders and RV Certificateholders will
bear all reinvestment risk resulting from prepayment of the Marine Receivables
and the RV Receivables, respectively. 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.
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Limitation on Credit Ratings. As a condition of issuance of the
Certificates, the Marine Certificates and the RV 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 related
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 related 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.
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 or RVs nor amend the
certificates of title of the Boats or RVs. 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 -- Credit Enhancement -- The
Surety Bond" and "The Certificates -- Distributions on Certificates."
The property of the Trust will be comprised of three separate sub-trusts.
The first sub-trust will include (i) a pool of marine retail installment sale
contracts secured by new and used boats, boat motors and boat trailers (the
"Marine Contract Group" and each marine retail installment sale contract
included in the Marine Contract Group being a "Marine Receivable") and all
payments received thereunder after the Cutoff Date, (ii) security interests in
the boats and marine equipment, (iii) such amounts as from time to time may be
held in one or more trust accounts for the benefit of the Marine
Certificateholders (collectively, the "Marine Certificate Account"), (iv) any
proceeds from recourse to dealers on Marine Receivables, (v) any proceeds from
claims on physical damage, credit life or disability insurance policies covering
the Boats or Obligors related to the Marine Receivables, (vi) any property that
shall have secured a Marine Receivable and that shall have been acquired by the
Trustee and (vii) the proceeds of all of the foregoing. The second sub-trust
will include (i) a pool of recreational vehicle retail installment sale
contracts secured by new and used recreational vehicles, (the "RV Contract
Group" and each recreational vehicle retail installment sale contract
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included in the RV Contract Group being a "RV Receivable" and each of the RV
Receivables and the Marine Receivables being, the "Receivables") and all
payments received thereunder after the Cutoff Date, (ii) security interests in
the boats and recreational vehicle equipment, (iii) such amounts as from time to
time may be held in one or more trust accounts for the benefit of the RV
Certificateholders (collectively, the "RV Certificate Account"), (iv) any
proceeds from recourse to dealers on RV Receivables, (v) any proceeds from
claims on physical damage, credit life or disability insurance policies covering
the RVs or Obligors related to the RV Receivables, (vi) any property that shall
have secured a RV Receivable and that shall have been acquired by the Trustee
and (vii) the proceeds of all of the foregoing. The third sub-trust will include
the Surety Bond and all its proceeds. The Marine Certificateholders will have a
fractional undivided ownership interest in all the assets of the first and third
sub-trusts, referred to above and the RV Certificateholders will have a
fractional undivided ownership interest in all of the assets of the second and
third sub-trusts referred to above.
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 or recreational vehicle retail installment
sale contract for any Receivable sold to the Trust.
NATIONSCREDIT COMMERCIAL'S PORTFOLIO OF MARINE CONTRACTS
AND RECREATIONAL VEHICLE CONTRACTS
GENERAL
The following describes certain general origination, servicing, and
collection policies and procedures applied by NationsCredit Commercial and its
predecessor companies with respect to marine retail installment sale contracts
("marine contracts") and recreational vehicle retail installment sale contracts
("recreational vehicle contracts"). Marine contracts and recreational vehicle
contracts are each referred to herein as "contracts."
NationsCredit Commercial purchases on a regular basis marine contracts and
recreational vehicle contracts directly or indirectly from approximately 1,500
retail boat dealers or finance subsidiaries of manufacturers who regularly
initiate and sell marine contracts to NationsCredit Commercial pursuant to the
terms of approved dealer agreements and approximately 300 retail recreational
vehicle dealers or finance subsidiaries of manufacturers who regularly initiate
and sell recreational vehicle contracts to NationsCredit Commercial pursuant to
the terms of approved dealer agreements, respectively. NationsCredit Commercial
services such contracts. No marine contract or recreational vehicle 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
(i) in the case of recreational vehicle contracts, the adequacy of the
recreational vehicle as collateral, or (ii) in the case of marine contracts, the
adequacy of the boat (which may include 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.
Recreational vehicles are either motor homes, travel trailers, or truck
campers.
Motor homes. Motor Homes are recreational vehicles built on or as an
integral part of a self-propelled motor vehicle chassis. A motor home may
provide kitchen, sleeping and bathroom facilities, may be equipped with the
ability to store and carry fresh water and sewage, and may be one of the
following types:
Motor Home, Class A: The living unit has been entirely constructed on
a bare, specially designed motor vehicle chassis. The unit comes equipped
with all conveniences such as sleeping, kitchen and toilet facilities,
110-volt electrical hookup, and fresh water and sewage storage.
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Van Camper, Class B: A panel-type truck to which the manufacturer adds
two or more of the following conveniences: sleeping, kitchen and toilet
facilities. The manufacturer also may add a 110-volt electrical hookup,
fresh water storage, city water hookup or a top extension to provide more
head room.
Motor Home, Class C: This unit is built on an automotive manufactured
van frame with an attached cab section. The manufacturer completes the body
section containing the living area and attaches it to the cab section.
Travel Trailers. Travel trailers are trailers designed to be towed by a
motorized vehicle (automobile, van or pickup truck) and are of such size and
weight as not to require a special highway movement permit. A travel trailer is
designed to provide temporary living quarters for recreational, camping or
travel use, does not require permanent on-site hookup, and can be one of the
following types:
Conventional Travel Trailer: This unit ranges typically from 12 feet
to 35 feet in length and is towed by means of a bumper or frame hitch
attached to the towing vehicle.
Fifth-Wheel Travel Trailer: This unit can be equipped the same as the
conventional travel trailer, but is constructed with a raised forward
section that allows a bi-level floor plan. This style is designed to be
towed by a pickup truck equipped with a device known as a fifth-wheel
hitch.
Folding Camper Trailer: This unit is smaller than a conventional
travel trailer. The unit, when unfolded, provides sleeping facilities and
sometimes other conveniences.
Truck Campers. Truck campers are units designed to be mounted in the bed of
a pickup truck and provide sleeping quarters and sometimes other conveniences.
UNDERWRITING
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 and recreational vehicle contracts purchased from Dealers. In response
to recessionary forces that adversely impacted marine and recreational vehicle
collateral values in 1990, 1991 and 1992, NationsCredit Commercial (as its
predecessor company) instituted tighter underwriting criteria in 1992, including
an increase in the downpayment requirements on both new and used boats and
recreational vehicles. Also, in 1992 NationsCredit Commercial (as its
predecessor company) 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 affecting credit approvals. NationsCredit Commercial's
current guidelines, which are based primarily 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
decisions. Consequently, certain 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 where deemed necessary, will confirm income and employment data, on each
applicant. Unless otherwise indicated the same servicing and collection
practices are used by NationsCredit Commercial on all marine contracts and
recreational vehicle contracts.
Each contract arises from a credit sale of a new or used boat or
recreational vehicle. In most cases, NationsCredit Commercial will not purchase
a contract relating to a new boat or new recreational vehicle if after at least
a 10% (0% for both marine contracts and recreational vehicle contracts
originated prior to January 1, 1990) downpayment by the obligor the amount
financed under the contract exceeds the sum of (a) (i) 115% of dealer invoice up
to $25,000 and (ii) 110% of dealer invoice over $25,000, plus (b) the cost to
the customer of any dealer-installed options, extended warranty plans, credit
life and disability insurance and sales tax.
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NationsCredit Commercial will generally not purchase a contract secured by
a used boat or used recreational vehicle after a downpayment by the obligor of
at least 10% if the amount financed under the contract exceeds 100% of the "NADA
(National Automobile Dealers Association) Wholesale Price" or if the amount
financed under the contract exceeds the total sales price to the obligor. While
NationsCredit Commercial reviews the sales price of each used boat or
recreational vehicle financed, resale prices for used boats or recreational
vehicles vary significantly based upon individual circumstances.
Each Dealer from which NationsCredit Commercial purchases marine contracts
or recreational vehicle 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
contracts and the security interests in the boats or recreational vehicles, as
applicable, relating thereto but not to the creditworthiness of the obligors or
the collectibility of such contracts. NationsCredit Commercial has a right of
recourse against such Dealers who breach such representations and warranties to
require them to repurchase such 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 Marine Receivables or RV Receivables only to the extent of such
customary practices.
Each contract has an original term of 180 payments or less and generally
provides for equal monthly payments which amortize the full amount of such
contract, however, under certain specialized programs the first payment can be
deferred beyond forty-five days. The contracts can be prepaid at any time
without prepayment penalty. All 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 both precomputed contracts and simple interest contracts 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").
SERVICING
Once NationsCredit Commercial has purchased a 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 or recreational vehicle contract. NationsCredit
Commercial's policy sets certain guidelines on such extensions which include the
following: (a) generally a contract may not be extended during the first six
months of its term; (b) each extension of a contract shall be for a period not
to exceed one month; (c) a contract may not be extended more than three times in
any twelve-month period; and (d) a 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 Marine Receivable or RV Receivable; provided, however, that
the Servicer may, with certain limitations set forth in the Agreement, extend a
Marine Receivable or RV Receivable for credit related reasons that would be
acceptable to the Servicer with respect to comparable marine contracts or
recreational vehicle 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 Marine
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Receivable or RV Receivable shall not cause the term of any such Receivable to
extend beyond the last day of the Collection Period preceding the Marine Final
Scheduled Distribution Date or the RV Final Scheduled Distribution Date, as
applicable.
Extensions represent the deferral of a monthly payment until the month
after the final maturity date of the marine contracts or recreational vehicle
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 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 or recreational vehicle
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 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 Marine Final Scheduled
Distribution Date or the RV Final Scheduled Distribution Date, as applicable.
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 or recreational vehicle 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 contract becomes ten days delinquent. After
a marine contract or recreational vehicle 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 or
recreational vehicle contract before the boat or recreational vehicle, as
applicable, 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 or recreational vehicle to be repossessed, a decline in the market value of
the boat or recreational vehicle at the time of repossession and liquidation or
the costs incurred by NationsCredit Commercial in effecting repossession and
liquidation. NationsCredit Commercial uses the following rules for recognizing
losses on delinquent marine contracts or recreational vehicle contracts: within
the first 91 days that a contract becomes past due the fair market value of the
boat or recreational vehicle 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 or recreational vehicle 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 or
recreational vehicle at the time of repossession is less than the total balance
outstanding on the contract, then a charge-off of that difference is incurred at
that time. If a repossessed boat or recreational vehicle that secures a 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 contract with a balance of greater than
$10,000, the entire carrying value of the boat or recreational vehicle will be
charged-off, and the contract will be written off in its entirety. If a
repossessed boat or recreational vehicle is resold within 90 or 180 days, as the
case may be, of repossession for less than the carrying value of the boat or
recreational vehicle, then a charge-off of such difference is incurred at that
time. When the boat or recreational vehicle 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 contract. Upon repossession of the boat or recreational vehicle, 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 or recreational vehicle
contracts to fair market value of the collateral at the time of repossession and
charge-off contract balances related to repossessed collateral not sold within
90 days of repossession. The charge-off policies and the
18
<PAGE> 19
servicing and collection practices of NationsCredit Commercial may change again
over time in accordance with NationsCredit Commercial's business judgment.
PHYSICAL DAMAGE INSURANCE
The marine contract or recreational vehicle contract requires the obligor
to maintain insurance covering physical damage to the boat or recreational
vehicle, respectively. Such insurance typically names NationsCredit Commercial
as loss payee and insures the boat or recreational vehicle 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 did not maintain adequate insurance coverage and the
outstanding balance and months remaining to maturity on the marine contract or
recreational vehicle contract were greater than $10,000 and 6 months,
respectively, NationsCredit Commercial may have purchased a collateral
protection insurance policy on behalf of the obligor. Such obligors are 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.
Since May 1, 1997, NationsCredit Commercial has not purchased collateral
protection insurance on behalf of obligors, but NationsCredit Commercial
requires obligors to maintain insurance covering physical damage to the boat or
recreational vehicle. Further, NationsCredit Commercial will not, during the
term of any 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 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 contracts,
third to principal due on the 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.
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 six months ended June
30, 1997 and June 30, 1996, for (i) marine contracts that were purchased by
NationsCredit Commercial from Dealers, and prior to January 1, 1993, were not
securitized (the "Marine Contract Portfolio") and (ii) recreational vehicle
contracts that were purchased by NationsCredit Commercial from Dealers (the "RV
Contract Portfolio" and together with the Marine Contract Portfolio, the
"Contract Portfolio"). As of June 30, 1997 there were 37,971 marine contracts in
the Marine Contract Portfolio with an aggregate principal balance of
approximately $427,422,000 and 4,481 recreational vehicle contracts in the RV
Contract Portfolio with an aggregate principal balance of approximately
$59,511,000. The delinquency experience and credit loss experience percentages
may be affected by the size and relative lack of seasoning of the marine
contracts and recreational vehicle contracts originated in 1995 and 1996 and the
first two quarters 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 Marine Receivables or RV 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.
19
<PAGE> 20
DELINQUENCY AND LOSS EXPERIENCE FOR THE MARINE CONTRACT PORTFOLIO
<TABLE>
<CAPTION>
MARINE CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------
AS OF JUNE 30, AS OF DECEMBER 31,
--------------------------------------------- ---------------------
1997 1996 1996(1)
--------------------- --------------------- ---------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF MARINE PRINCIPAL OF MARINE PRINCIPAL OF MARINE PRINCIPAL
CONTRACTS BALANCE CONTRACTS BALANCE CONTRACTS BALANCE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Portfolio............................... 37,971 $427,422 32,975 $366,938 34,207 $368,306
Period of Delinquency
30-59 Days.............................. 602 6,227 661 7,016 1,043 11,221
60-89 Days.............................. 125 1,144 104 986 231 2,211
90 Days or More......................... 178 1,920 127 1,162 286 3,275
------ -------- ------ -------- ------ --------
Total Delinquency....................... 905 $ 9,291 892 $ 9,164 1,560 $ 16,707
====== ======== ====== ======== ====== ========
Total Delinquency as a Percent of the
Portfolio............................. 2.17% 2.50% 4.54%
<CAPTION>
MARINE CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
---------------------------------------------
AS OF DECEMBER 31,
---------------------------------------------
1995 1994
--------------------- ---------------------
NUMBER AGGREGATE NUMBER AGGREGATE
OF MARINE PRINCIPAL OF MARINE PRINCIPAL
CONTRACTS BALANCE CONTRACTS 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>
MARINE CONTRACT CREDIT LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
----------------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Portfolio During the Period(1)...... $398,737 $362,190 $364,836 $366,736 $322,413
Average Number of Marine Contracts
Outstanding During the Period(2).......... 36,131 32,337 32,975 32,270 27,324
Net Losses.................................. $ 1,928 $ 1,623 $ 3,455 $ 3,645 $ 2,745
Annualized Net Losses as a Percent of
Average Amount Outstanding................ 0.97% 0.90% 0.95% 0.99% 0.85%
</TABLE>
- ---------------
(1) Calculated as the average of the principal balances of the marine contracts
at the end of each month during the period indicated.
(2) Calculated as the average number of outstanding marine contracts at the end
of each month during the period indicated.
DELINQUENCY AND LOSS EXPERIENCE FOR THE RV CONTRACT PORTFOLIO
<TABLE>
<CAPTION>
RV CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------
AS OF JUNE 30, AS OF DECEMBER 31,
--------------------------------------------- ---------------------
1997 1996 1996(1)
--------------------- --------------------- ---------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF RV PRINCIPAL OF RV PRINCIPAL OF RV PRINCIPAL
CONTRACTS BALANCE CONTRACTS BALANCE CONTRACTS BALANCE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Portfolio............................... 4,481 $59,511 4,346 $59,341 3,952 $52,625
Period of Delinquency
30-59 Days.............................. 70 928 121 2,067 126 1,611
60-89 Days.............................. 11 186 19 203 31 615
90 Days or More......................... 25 627 44 706 44 673
----- ------- ----- ------- ----- -------
Total Delinquency....................... 106 $ 1,741 184 $ 2,976 201 $ 2,899
===== ======= ===== ======= ===== =======
Total Delinquency as a Percent of the
Portfolio............................. 2.93% 5.02% 5.51%
<CAPTION>
RV CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
---------------------------------------------
AS OF DECEMBER 31,
---------------------------------------------
1995 1994
--------------------- ---------------------
NUMBER AGGREGATE NUMBER AGGREGATE
OF RV PRINCIPAL OF RV PRINCIPAL
CONTRACTS BALANCE CONTRACTS BALANCE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Portfolio............................... 4,792 $67,579 5,804 $84,661
Period of Delinquency
30-59 Days.............................. 152 2,123 144 1,919
60-89 Days.............................. 43 521 35 408
90 Days or More......................... 28 353 20 150
----- ------- ----- -------
Total Delinquency....................... 223 $ 2,997 199 $ 2,477
===== ======= ===== =======
Total Delinquency as a Percent of the
Portfolio............................. 4.43% 2.93%
</TABLE>
- ---------------
(1) A third party vendor error in billing statement distribution contributed to
a one month increase in delinquencies in December 1996.
20
<PAGE> 21
<TABLE>
<CAPTION>
RV CONTRACT CREDIT LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
-----------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average Portfolio During the Period(1)........... $55,065 $63,544 $59,749 $76,322 $93,855
Average Number of RV Contracts Outstanding During
the Period(2).................................. 4,147 4,583 4,362 5,305 6,319
Net Losses....................................... $ 592 $ 800 $ 1,490 $ 1,210 $ 2,253
Annualized Net Losses as a Percent of Average
Amount Outstanding............................. 2.15% 2.52% 2.49% 1.58% 2.40%
</TABLE>
- ---------------
(1) Calculated as the average of the principal balances of the recreational
vehicle contracts at the end of each month during the period indicated.
(2) Calculated as the average number of outstanding recreational vehicle
contracts at the end of each month during the period indicated.
THE RECEIVABLES POOL
MARINE CONTRACT GROUP
The Marine Contract Group includes marine contracts from NationsCredit
Commercial's Marine Contract Portfolio (other than marine contracts sold in
prior NationsCredit securitization transactions) meeting the following criteria
as of the Cutoff Date: (i) each Marine Receivable provides for level monthly
payments (provided that the payment in the first or last month in the life of
the Marine Receivable may be minimally different from the level payment) that
fully amortize the principal amount of such Marine Receivable (as long as each
scheduled payment is made when due) by maturity and pay interest at the APR;
(ii) each Marine Receivable provides for, in the event that such contract is
prepaid, a prepayment that fully pays the Principal Balance and includes any
accrued but unpaid interest due pursuant to the terms of the related marine
contract through the date of prepayment in an amount at least equal to the APR;
(iii) each Marine Receivable has an APR of not less than 8.0002% and not greater
than 19.0035%; (iv) each Marine Receivable has an original term of not more than
180 payments; (v) each Marine Receivable has a remaining term of not more than
180 payments; (vi) each Marine Receivable has a remaining principal balance of
not greater than $50,000; (vii) each Marine Receivable has been originated in
the United States by a Dealer for a retail sale of a Boat in the ordinary course
of such Dealer's business, has been fully and properly executed by the parties
thereto and is denominated in U.S. dollars; (viii) with respect to each Marine
Receivable, the related Obligor has obtained physical damage insurance covering
the Boat and such Obligor is required under the terms of the Marine Receivable
to maintain such insurance; (ix) each Marine Receivable constitutes "chattel
paper" under the UCC; and (x) no Boat related to any Marine Receivables shall be
required to be documented under the Ship Mortgage Act of 1920, as amended (the
"Ship Mortgage Act").
The receivable composition, geographic distribution, distribution by APR,
distribution by original term, distribution by remaining term, distribution by
original principal balance, distribution by remaining principal balance,
distribution by age, distribution by quarter of origination, distribution by new
and used collateral, distribution by contract type and distribution by period of
delinquency of the Marine Receivables as of the Cutoff Date are as set forth in
the following tables:
RECEIVABLE COMPOSITION -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
WEIGHTED NUMBER OF AVERAGE WEIGHTED WEIGHTED
AVERAGE INITIAL MARINE MARINE PRINCIPAL AVERAGE AVERAGE
APR POOL BALANCE RECEIVABLES BALANCE ORIGINAL TERM REMAINING TERM
- -------- --------------- ----------- ---------- --------------- --------------
<C> <C> <C> <C> <C> <C>
11.552% $120,803,719.92 10,957 $11,025.26 128.71 payments 99.98 payments
</TABLE>
21
<PAGE> 22
GEOGRAPHIC DISTRIBUTION -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
STATE(1) RECEIVABLES RECEIVABLES(2) BALANCE POOL BALANCE(2)
- -------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Alabama............................... 393 3.59% $ 4,619,445.27 3.82%
Alaska................................ 14 0.13 93,350.21 0.08
Arizona............................... 434 3.96 6,426,742.71 5.32
Arkansas.............................. 397 3.62 3,331,482.62 2.76
California............................ 1,876 17.12 25,486,225.68 21.10
Colorado.............................. 118 1.08 1,436,646.95 1.19
Connecticut........................... 86 0.78 924,316.71 0.77
Delaware.............................. 26 0.24 182,350.36 0.15
Florida............................... 997 9.10 11,010,470.18 9.11
Georgia............................... 573 5.23 6,012,377.71 4.98
Hawaii................................ 2 0.02 20,341.33 0.02
Idaho................................. 8 0.07 112,597.82 0.09
Illinois.............................. 186 1.70 1,757,778.44 1.46
Indiana............................... 34 0.31 397,964.08 0.33
Iowa.................................. 30 0.27 316,631.94 0.26
Kansas................................ 169 1.54 1,313,979.09 1.09
Kentucky.............................. 70 0.64 663,977.73 0.55
Louisiana............................. 84 0.77 593,263.29 0.49
Maine................................. 50 0.46 472,765.51 0.39
Maryland.............................. 296 2.70 3,308,520.75 2.74
Massachusetts......................... 211 1.93 2,321,477.78 1.92
Michigan.............................. 28 0.26 268,918.11 0.22
Minnesota............................. 32 0.29 236,076.19 0.20
Mississippi........................... 91 0.83 806,755.01 0.67
Missouri.............................. 414 3.78 3,335,392.95 2.76
Montana............................... 11 0.10 85,030.24 0.07
Nebraska.............................. 43 0.39 334,944.64 0.28
Nevada................................ 247 2.25 3,141,227.25 2.60
New Hampshire......................... 38 0.35 285,974.58 0.24
New Jersey............................ 192 1.75 2,027,150.62 1.68
New Mexico............................ 90 0.82 1,148,174.57 0.95
New York.............................. 187 1.71 2,262,243.23 1.87
North Carolina........................ 745 6.80 7,450,878.56 6.17
North Dakota.......................... 2 0.02 24,553.17 0.02
Ohio.................................. 29 0.26 301,213.87 0.25
Oklahoma.............................. 144 1.31 1,435,179.09 1.19
Oregon................................ 229 2.09 2,611,408.47 2.16
Pennsylvania.......................... 181 1.65 1,792,466.42 1.48
Rhode Island.......................... 38 0.35 405,370.40 0.34
South Carolina........................ 206 1.88 1,964,668.29 1.63
South Dakota.......................... 10 0.09 96,072.00 0.08
Tennessee............................. 192 1.75 1,767,843.15 1.46
Texas................................. 1,136 10.37 11,838,703.08 9.80
Utah.................................. 48 0.44 618,100.44 0.51
Vermont............................... 3 0.03 28,648.10 0.02
Virginia.............................. 303 2.77 3,125,661.02 2.59
Washington............................ 182 1.66 1,772,274.39 1.47
Washington, DC........................ 3 0.03 40,725.15 0.03
West Virginia......................... 25 0.23 201,349.65 0.17
Wisconsin............................. 20 0.18 217,371.20 0.18
Wyoming............................... 22 0.20 273,677.43 0.23
Other................................. 12 0.11 102,962.49 0.09
------ ------ --------------- ------
Total....................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) Based on the current billing addresses of the Obligors on the Marine
Receivables.
(2) The sum of the individual percentages may not add to 100% because of
rounding.
22
<PAGE> 23
DISTRIBUTION BY APR -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
APR RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
--- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
8.0001% -- 9.0000%.................. 253 2.31% $ 4,286,574.91 3.55%
9.0001% -- 10.0000%.................. 1,143 10.43 18,017,922.36 14.92
10.0001% -- 11.0000%.................. 2,091 19.08 29,770,761.92 24.64
11.0001% -- 12.0000%.................. 2,481 22.64 30,216,208.85 25.01
12.0001% -- 13.0000%.................. 2,209 20.16 20,205,371.31 16.73
13.0001% -- 14.0000%.................. 1,527 13.94 11,381,827.13 9.42
14.0001% -- 15.0000%.................. 944 8.62 5,447,032.62 4.51
15.0001% -- 16.0000%.................. 205 1.87 1,057,074.15 0.88
16.0001% -- 17.0000%.................. 76 0.69 319,953.24 0.26
17.0001% -- 18.0000%.................. 26 0.24 93,659.82 0.08
18.0001% -- 19.0000%.................. 1 0.01 5,123.61 0.00(2)
19.0001% -- 20.0000%.................. 1 0.01 2,210.00 0.00(2)
------ ------ --------------- ------
Total....................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
(2) Represents less than .005% but greater than zero.
DISTRIBUTION BY ORIGINAL TERM -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
ORIGINAL TERM (PAYMENTS) RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ------------------------ ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
1 -- 12.............................. 68 0.62% $ 940,177.66 0.78%
13 -- 24.............................. 167 1.52 363,588.93 0.30
25 -- 36.............................. 200 1.83 846,089.67 0.70
37 -- 48.............................. 520 4.75 2,248,685.99 1.86
49 -- 60.............................. 364 3.32 2,931,691.65 2.43
61 -- 72.............................. 327 2.98 2,643,233.76 2.19
73 -- 84.............................. 1,500 13.69 10,057,032.55 8.33
85 -- 96.............................. 173 1.58 1,456,657.83 1.21
97 -- 108.............................. 72 0.66 599,172.87 0.50
109 -- 120.............................. 4,233 38.63 40,870,673.72 33.83
121 -- 132.............................. 16 0.15 185,733.98 0.15
133 -- 144.............................. 2,501 22.83 36,609,121.57 30.30
145 -- 156.............................. 4 0.04 98,280.46 0.08
157 -- 168.............................. 3 0.03 58,549.36 0.05
169 -- 180.............................. 809 7.38 20,895,029.92 17.30
------ ------ --------------- ------
Total......................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
23
<PAGE> 24
DISTRIBUTION BY REMAINING TERM -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
REMAINING TERM (PAYMENTS) RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ------------------------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
1 -- 12.............................. 333 3.04% $ 1,343,785.17 1.11%
13 -- 24.............................. 1,194 10.90 3,805,167.03 3.15
25 -- 36.............................. 1,062 9.69 5,341,471.92 4.42
37 -- 48.............................. 782 7.14 4,657,325.33 3.86
49 -- 60.............................. 1,805 16.47 16,256,226.65 13.46
61 -- 72.............................. 453 4.13 4,431,710.01 3.67
73 -- 84.............................. 1,365 12.46 15,633,218.64 12.94
85 -- 96.............................. 381 3.48 6,711,261.06 5.56
97 -- 108.............................. 72 0.66 1,097,744.21 0.91
109 -- 120.............................. 1,913 17.46 27,354,025.20 22.64
121 -- 132.............................. 46 0.42 1,170,444.15 0.97
133 -- 144.............................. 1,120 10.22 21,037,241.24 17.41
145 -- 156.............................. 8 0.07 183,104.36 0.15
157 -- 168.............................. 8 0.07 245,688.33 0.20
169 -- 180.............................. 415 3.79 11,535,306.62 9.55
------ ------ --------------- ------
Total......................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY ORIGINAL RECEIVABLE PRINCIPAL BALANCE -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
ORIGINAL RECEIVABLE PRINCIPAL BALANCE RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ------------------------------------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 0.01 -- $ 5,000.00.............. 699 6.38% $ 1,808,053.14 1.50%
$ 5,000.01 -- $10,000.00.............. 1,808 16.50 10,044,342.26 8.31
$10,000.01 -- $15,000.00.............. 4,079 37.23 35,692,681.80 29.55
$15,000.01 -- $20,000.00.............. 2,560 23.36 33,550,604.98 27.77
$20,000.01 -- $25,000.00.............. 986 9.00 17,925,220.56 14.84
$25,000.01 -- $30,000.00.............. 460 4.20 10,613,249.23 8.79
$30,000.01 -- $35,000.00.............. 172 1.57 4,602,919.53 3.81
$35,000.01 -- $40,000.00.............. 93 0.85 2,919,913.50 2.42
$40,000.01 -- $45,000.00.............. 59 0.54 2,036,726.04 1.69
$45,000.01 -- $50,000.00.............. 41 0.37 1,610,008.88 1.33
------ ------ --------------- ------
Total....................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
24
<PAGE> 25
DISTRIBUTION BY REMAINING RECEIVABLE PRINCIPAL BALANCE -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
REMAINING RECEIVABLE PRINCIPAL BALANCE RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- -------------------------------------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 0.01 -- $ 5,000.00.............. 2,393 21.84% $ 7,234,802.63 5.99%
$ 5,000.01 -- $10,000.00.............. 3,106 28.35 23,278,986.59 19.27
$10,000.01 -- $15,000.00.............. 2,805 25.60 34,459,188.07 28.52
$15,000.01 -- $20,000.00.............. 1,468 13.40 25,276,794.52 20.92
$20,000.01 -- $25,000.00.............. 687 6.27 15,209,901.45 12.59
$25,000.01 -- $30,000.00.............. 280 2.56 7,648,235.54 6.33
$30,000.01 -- $35,000.00.............. 126 1.15 4,043,388.45 3.35
$35,000.01 -- $40,000.00.............. 53 0.48 1,965,184.93 1.63
$40,000.01 -- $45,000.00.............. 29 0.26 1,218,929.93 1.01
$45,000.01 -- $50,000.00.............. 10 0.09 468,307.81 0.39
------ ------ --------------- ------
Total....................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY AGE -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
MONTHS SINCE ORIGINATION RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ------------------------ ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
0.01 -- 6.00...................... 5,097 46.52% $ 66,296,272.45 54.88%
6.01 -- 12.00...................... 571 5.21 8,822,994.37 7.30
12.01 -- 18.00...................... 43 0.39 471,081.81 0.39
18.01 -- 24.00...................... 43 0.39 366,011.62 0.30
24.01 -- 30.00...................... 83 0.76 687,853.36 0.57
30.01 -- 36.00...................... 57 0.52 537,555.73 0.44
36.01 -- 42.00...................... 102 0.93 872,349.64 0.72
42.01 -- 48.00...................... 44 0.40 562,753.86 0.47
48.01 -- 54.00...................... 123 1.12 1,583,171.27 1.31
54.01 -- 60.00...................... 337 3.08 3,279,022.44 2.71
60.01 -- 66.00...................... 1,519 13.86 14,067,355.39 11.64
66.01 -- 72.00...................... 683 6.23 5,942,292.17 4.92
72.01 -- 78.00...................... 24 0.22 148,462.72 0.12
78.01 -- 84.00...................... 4 0.04 60,606.63 0.05
84.01 -- 90.00...................... 706 6.44 6,060,334.61 5.02
90.01 -- 96.00...................... 642 5.86 5,692,368.98 4.71
96.01 -- 102.00...................... 650 5.93 4,360,459.99 3.61
102.01 -- 108.00...................... 78 0.71 393,458.59 0.33
108.01 -- 114.00...................... 105 0.96 337,661.00 0.28
114.01 -- 120.00...................... 35 0.32 202,346.96 0.17
120.01 -- 126.00...................... 9 0.08 42,818.69 0.04
126.01 -- 132.00...................... 2 0.02 16,487.64 0.01
------ ------ --------------- ------
Total....................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
25
<PAGE> 26
DISTRIBUTION BY QUARTER OF ORIGINATION -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
ORIGINATION QUARTER (QUARTER/YEAR) RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ---------------------------------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
1/87.................................. 2 0.02% $ 16,487.64 0.01%
2/87.................................. 6 0.05 34,174.27 0.03
3/87.................................. 3 0.03 8,644.42 0.01
4/87.................................. 4 0.04 48,594.57 0.04
1/88.................................. 31 0.28 153,752.39 0.13
2/88.................................. 59 0.54 154,865.74 0.13
3/88.................................. 47 0.43 187,490.27 0.16
4/88.................................. 10 0.09 61,703.37 0.05
1/89.................................. 73 0.67 354,180.82 0.29
2/89.................................. 218 1.99 1,173,881.57 0.97
3/89.................................. 429 3.92 3,176,468.94 2.63
4/89.................................. 171 1.56 1,662,796.68 1.38
1/90.................................. 495 4.52 4,239,705.73 3.51
2/90.................................. 579 5.28 5,046,012.22 4.18
3/90.................................. 100 0.91 787,177.83 0.65
4/90.................................. 1 0.01 2,113.18 0.00(2)
1/91.................................. 3 0.03 58,493.45 0.05
2/91.................................. 14 0.13 100,186.19 0.08
3/91.................................. 10 0.09 48,276.53 0.04
4/91.................................. 75 0.68 775,059.57 0.64
1/92.................................. 628 5.73 5,319,999.95 4.40
2/92.................................. 965 8.81 8,942,061.53 7.40
3/92.................................. 536 4.89 5,000,527.14 4.14
4/92.................................. 203 1.85 1,957,052.05 1.62
1/93.................................. 132 1.20 1,293,969.76 1.07
2/93.................................. 70 0.64 876,578.63 0.73
3/93.................................. 53 0.48 706,592.64 0.58
4/93.................................. 17 0.16 285,980.83 0.24
1/94.................................. 27 0.25 276,773.03 0.23
2/94.................................. 66 0.60 564,573.93 0.47
3/94.................................. 36 0.33 307,775.71 0.25
4/94.................................. 10 0.09 112,193.38 0.09
1/95.................................. 51 0.47 443,166.02 0.37
2/95.................................. 62 0.57 600,655.97 0.50
3/95.................................. 17 0.16 69,393.72 0.06
4/95.................................. 8 0.07 47,339.00 0.04
1/96.................................. 35 0.32 318,672.62 0.26
2/96.................................. 35 0.32 420,838.73 0.35
3/96.................................. 8 0.07 50,243.08 0.04
4/96.................................. 128 1.17 1,423,540.65 1.18
1/97.................................. 447 4.08 7,468,175.15 6.18
2/97.................................. 2,888 26.36 37,770,860.92 31.27
3/97.................................. 2,205 20.12 28,456,690.10 23.56
------ ------ --------------- ------
Total....................... 10,957 100.00% $120,803,719.92 100.00%
====== ====== =============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
(2) Represents less than .005% but greater than zero.
26
<PAGE> 27
DISTRIBUTION BY NEW AND USED COLLATERAL -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
NEW OR USED COLLATERAL RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
---------------------- ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
New..................................... 9,949 90.80% $111,683,571.73 92.45 %
Used.................................... 1,008 9.20 9,120,148.19 7.55
------- ------ --------------- ------
Total......................... 10,957 100.00% $120,803,719.92 100.00 %
======= ====== =============== ======
</TABLE>
DISTRIBUTION BY CONTRACT TYPE -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
CONTRACT TYPE RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
------------- ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Simple Interest Marine Receivables...... 8,359 76.29% $ 97,240,539.21 80.49 %
Precomputed Marine Receivables.......... 2,598 23.71 23,563,180.71 19.51
------- ------ --------------- ------
Total......................... 10,957 100.00% $120,803,719.92 100.00 %
======= ====== =============== ======
</TABLE>
DISTRIBUTION BY PERIOD OF DELINQUENCY -- MARINE CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF MARINE OF MARINE PRINCIPAL INITIAL MARINE
RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
----------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Marine Contract Group................... 10,957 100.00% $120,803,719.92 100.00 %
Period of Delinquency
30-59 Days............................ 179 1.63% $ 1,818,680.68 1.51 %
60-89 Days............................ 4 0.04% $ 30,227.50 0.03 %
90 Days or More....................... 1 0.01% $ 12,811.15 0.01 %
</TABLE>
RV CONTRACT GROUP
The RV Contract Group includes recreational vehicle contracts from
NationsCredit Commercial's RV Contract Portfolio meeting the following criteria
as of the Cutoff Date: (i) each RV Receivable provides for level monthly
payments (provided that the payment in the first or last month in the life of
the RV Receivable may be minimally different from the level payment) that fully
amortize the principal amount of such RV Receivable (as long as each scheduled
payment is made when due) by maturity and pay interest at the APR; (ii) each RV
Receivable provides for, in the event that such contract is prepaid, a
prepayment that fully pays the Principal Balance and includes any accrued but
unpaid interest due pursuant to the terms of the related recreational vehicle
contract through the date of prepayment in an amount at least equal to the APR;
(iii) each RV Receivable has a fixed APR of not less than 8.0000% and not
greater than 20.5001%; (iv) each RV Receivable has an original term of not more
than 180 payments; (v) each RV Receivable has a remaining term of not more than
180 payments; (vi) each RV Receivable has been originated in the United States
by a Dealer for the retail sale of a RV in the ordinary course of such Dealer's
business, has been fully and properly executed by the parties thereto and is
denominated in U.S. dollars; (vii) with respect to each RV Receivable, the
related Obligor has obtained physical damage insurance covering the RV and such
Obligor is required under the terms of the RV Receivable to maintain such
insurance; and (viii) each RV Receivable constitutes "chattel paper" under the
UCC.
27
<PAGE> 28
The receivable composition, geographic distribution, distribution by APR,
distribution by original term, distribution by remaining term, distribution by
original principal balance, distribution by remaining principal balance,
distribution by age, distribution by quarter of origination, distribution by new
and used collateral, distribution by contract type and distribution by period of
delinquency of the RV Contract Group as of the Cutoff Date are as set forth in
the following tables:
RECEIVABLE COMPOSITION -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
WEIGHTED NUMBER AVERAGE WEIGHTED WEIGHTED
AVERAGE INITIAL RV OF RV PRINCIPAL AVERAGE AVERAGE
APR POOL BALANCE RECEIVABLES BALANCE ORIGINAL TERM REMAINING TERM
- -------- -------------- ----------- ---------- --------------- --------------
<C> <C> <C> <C> <C> <C>
11.521% $48,386,535.24 3,791 $12,763.53 140.99 payments 98.09 payments
</TABLE>
28
<PAGE> 29
GEOGRAPHIC DISTRIBUTION -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
STATE(1) RECEIVABLES RECEIVABLES(2) BALANCE POOL BALANCE(2)
-------- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Alabama................................. 101 2.66% $ 1,189,707.06 2.46%
Alaska.................................. 4 0.11 85,847.51 0.18
Arizona................................. 139 3.67 1,972,056.43 4.08
Arkansas................................ 70 1.85 1,033,048.65 2.13
California.............................. 792 20.89 11,150,012.79 23.04
Colorado................................ 173 4.56 2,370,801.42 4.90
Connecticut............................. 37 0.98 244,455.83 0.51
Delaware................................ 4 0.11 58,980.33 0.12
Florida................................. 241 6.36 4,013,538.15 8.29
Georgia................................. 150 3.96 1,699,710.51 3.51
Idaho................................... 12 0.32 173,750.89 0.36
Illinois................................ 57 1.50 765,598.33 1.58
Indiana................................. 13 0.34 219,075.96 0.45
Iowa.................................... 6 0.16 74,556.19 0.15
Kansas.................................. 35 0.92 452,276.49 0.93
Kentucky................................ 16 0.42 254,269.84 0.53
Louisiana............................... 20 0.53 272,934.39 0.56
Maine................................... 19 0.50 290,110.26 0.60
Maryland................................ 58 1.53 687,425.54 1.42
Massachusetts........................... 19 0.50 276,106.77 0.57
Michigan................................ 66 1.74 1,031,675.97 2.13
Minnesota............................... 47 1.24 646,121.49 1.34
Mississippi............................. 30 0.79 404,523.24 0.84
Missouri................................ 76 2.00 761,190.19 1.57
Montana................................. 6 0.16 72,042.16 0.15
Nebraska................................ 18 0.47 152,186.92 0.31
Nevada.................................. 69 1.82 828,592.55 1.71
New Hampshire........................... 23 0.61 286,329.36 0.59
New Jersey.............................. 16 0.42 323,118.56 0.67
New Mexico.............................. 96 2.53 1,124,988.51 2.33
New York................................ 87 2.29 1,086,653.26 2.25
North Carolina.......................... 232 6.12 2,300,921.68 4.76
North Dakota............................ 3 0.08 21,130.44 0.04
Ohio.................................... 30 0.79 473,176.23 0.98
Oklahoma................................ 17 0.45 191,185.36 0.40
Oregon.................................. 82 2.16 881,077.62 1.82
Pennsylvania............................ 39 1.03 564,609.52 1.17
Rhode Island............................ 3 0.08 58,276.62 0.12
South Carolina.......................... 49 1.29 549,192.76 1.14
South Dakota............................ 1 0.03 13,814.03 0.03
Tennessee............................... 67 1.77 701,829.37 1.45
Texas................................... 481 12.69 5,283,240.99 10.92
Utah.................................... 26 0.69 372,457.17 0.77
Vermont................................. 21 0.55 247,789.37 0.51
Virginia................................ 62 1.64 773,625.25 1.60
Washington.............................. 124 3.27 1,261,167.93 2.61
West Virginia........................... 23 0.61 260,884.76 0.54
Wisconsin............................... 3 0.08 45,902.67 0.09
Wyoming................................. 27 0.71 360,884.13 0.75
Other................................... 1 0.03 23,683.79 0.05
------ ------ -------------- ------
Total......................... 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
- ---------------
(1) Based on the current billing addresses of the Obligors on the RV
Receivables.
(2) The sum of the individual percentages may not add to 100% because of
rounding.
29
<PAGE> 30
DISTRIBUTION BY APR -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
APR RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
--- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
7.0001% -- 8.0000%................... 1 0.03% $ 39,299.72 0.08%
8.0001% -- 9.0000%................... 160 4.22 3,396,782.76 7.02
9.0001% -- 10.0000%................... 518 13.66 8,224,185.68 17.00
10.0001% -- 11.0000%................... 680 17.94 9,577,945.32 19.79
11.0001% -- 12.0000%................... 720 18.99 9,075,443.24 18.76
12.0001% -- 13.0000%................... 767 20.23 9,486,041.22 19.60
13.0001% -- 14.0000%................... 582 15.35 6,037,364.42 12.48
14.0001% -- 15.0000%................... 237 6.25 1,783,999.14 3.69
15.0001% -- 16.0000%................... 96 2.53 643,401.84 1.33
16.0001% -- 17.0000%................... 22 0.58 96,478.11 0.20
17.0001% -- 18.0000%................... 6 0.16 15,414.14 0.03
18.0001% -- 19.0000%................... 1 0.03 3,727.74 0.01
20.0001% -- 21.0000%................... 1 0.03 6,451.91 0.01
----- ------ -------------- ------
Total........................ 3,791 100.00% $48,386,535.24 100.00%
===== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY ORIGINAL TERM -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
ORIGINAL TERM (PAYMENTS) RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
------------------------ ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
1 -- 12............................. 5 0.13% $ 11,500.33 0.02%
13 -- 24............................. 25 0.66 47,019.03 0.10
25 -- 36............................. 69 1.82 241,015.56 0.50
37 -- 48............................. 227 5.99 831,974.67 1.72
49 -- 60............................. 243 6.41 1,546,005.09 3.20
61 -- 72............................. 95 2.51 727,947.53 1.50
73 -- 84............................. 533 14.06 3,593,387.88 7.43
85 -- 96............................. 69 1.82 747,042.96 1.54
97 -- 108............................. 18 0.47 116,856.13 0.24
109 -- 120............................. 1,145 30.20 11,286,659.07 23.33
121 -- 132............................. 3 0.08 64,024.71 0.13
133 -- 144............................. 701 18.49 10,249,958.23 21.18
145 -- 156............................. 4 0.11 69,327.27 0.14
157 -- 168............................. 2 0.05 27,631.96 0.06
169 -- 180............................. 652 17.20 18,826,184.82 38.91
----- ------ -------------- ------
Total........................ 3,791 100.00% $48,386,535.24 100.00%
===== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
30
<PAGE> 31
DISTRIBUTION BY REMAINING TERM -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
REMAINING TERM (PAYMENTS) RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
------------------------- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
1 -- 12............................. 146 3.85% $ 225,708.47 0.47%
13 -- 24............................. 267 7.04 1,033,197.54 2.14
25 -- 36............................. 321 8.47 1,917,298.33 3.96
37 -- 48............................. 344 9.07 2,322,245.58 4.80
49 -- 60............................. 419 11.05 3,756,790.09 7.76
61 -- 72............................. 321 8.47 3,954,630.64 8.17
73 -- 84............................. 589 15.54 8,015,163.22 16.56
85 -- 96............................. 244 6.44 4,949,120.77 10.23
97 -- 108............................. 117 3.09 1,689,605.68 3.49
109 -- 120............................. 488 12.87 6,884,578.35 14.23
121 -- 132............................. 59 1.56 1,409,875.29 2.91
133 -- 144............................. 331 8.73 7,342,664.39 15.18
145 -- 156............................. 21 0.55 792,466.93 1.64
157 -- 168............................. 18 0.47 544,101.97 1.12
169 -- 180............................. 106 2.80 3,549,087.99 7.33
------ ------ -------------- ------
Total........................ 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY ORIGINAL RECEIVABLE PRINCIPAL BALANCE -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
ORIGINAL RECEIVABLE PRINCIPAL BALANCE RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ------------------------------------- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 0.01 -- $ 5,000.00............. 265 6.99% $ 756,946.20 1.56%
$ 5,000.01 -- $ 10,000.00............. 818 21.58 4,627,824.55 9.56
$ 10,000.01 -- $ 15,000.00............. 1,093 28.83 10,352,072.03 21.39
$ 15,000.01 -- $ 20,000.00............. 570 15.04 7,292,407.47 15.07
$ 20,000.01 -- $ 25,000.00............. 257 6.78 4,106,183.84 8.49
$ 25,000.01 -- $ 30,000.00............. 215 5.67 4,078,106.82 8.43
$ 30,000.01 -- $ 35,000.00............. 167 4.41 3,726,834.09 7.70
$ 35,000.01 -- $ 40,000.00............. 138 3.64 3,534,269.67 7.30
$ 40,000.01 -- $ 45,000.00............. 100 2.64 3,066,446.12 6.34
$ 45,000.01 -- $ 50,000.00............. 63 1.66 2,173,778.65 4.49
$ 50,000.01 -- $ 55,000.00............. 42 1.11 1,669,297.21 3.45
$ 55,000.01 -- $ 60,000.00............. 27 0.71 1,099,541.46 2.27
$ 60,000.01 -- $ 65,000.00............. 12 0.32 496,638.66 1.03
$ 65,000.01 -- $ 70,000.00............. 10 0.26 481,475.65 1.00
$ 70,000.01 -- $ 75,000.00............. 5 0.13 274,763.00 0.57
$ 80,000.01 -- $ 85,000.00............. 1 0.03 72,494.91 0.15
$ 85,000.01 -- $ 90,000.00............. 4 0.11 282,407.77 0.58
$ 95,000.01 -- $100,000.00............. 2 0.05 121,141.14 0.25
$100,000.01 -- $105,000.00............. 1 0.03 54,216.95 0.11
$135,000.01 -- $140,000.00............. 1 0.03 119,689.05 0.25
----- ------ -------------- ------
Total........................... 3,791 100.00% $48,386,535.24 100.00%
===== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
31
<PAGE> 32
DISTRIBUTION BY REMAINING RECEIVABLE PRINCIPAL BALANCE -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
REMAINING RECEIVABLE PRINCIPAL BALANCE RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- -------------------------------------- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 0.01 -- $ 5,000.00............. 776 20.47% $ 2,441,095.74 5.04%
$ 5,000.01 -- $ 10,000.00............. 1,076 28.38 7,982,389.75 16.50
$ 10,000.01 -- $ 15,000.00............. 865 22.82 10,657,729.10 22.03
$ 15,000.01 -- $ 20,000.00............. 401 10.58 6,964,386.74 14.39
$ 20,000.01 -- $ 25,000.00............. 258 6.81 5,750,817.41 11.89
$ 25,000.01 -- $ 30,000.00............. 163 4.30 4,454,234.98 9.21
$ 30,000.01 -- $ 35,000.00............. 90 2.37 2,905,376.20 6.00
$ 35,000.01 -- $ 40,000.00............. 66 1.74 2,462,271.68 5.09
$ 40,000.01 -- $ 45,000.00............. 38 1.00 1,616,431.83 3.34
$ 45,000.01 -- $ 50,000.00............. 23 0.61 1,079,890.54 2.23
$ 50,000.01 -- $ 55,000.00............. 17 0.45 888,195.57 1.84
$ 55,000.01 -- $ 60,000.00............. 8 0.21 453,919.36 0.94
$ 60,000.01 -- $ 65,000.00............. 4 0.11 252,465.94 0.52
$ 65,000.01 -- $ 70,000.00............. 2 0.05 134,871.60 0.28
$ 70,000.01 -- $ 75,000.00............. 2 0.05 145,496.93 0.30
$ 75,000.01 -- $ 80,000.00............. 1 0.03 77,272.82 0.16
$115,000.01 -- $120,000.00............. 1 0.03 119,689.05 0.25
------ ------ -------------- ------
Total........................ 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
DISTRIBUTION BY AGE -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
MONTHS SINCE ORIGINATION RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
- ------------------------ ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
0.01 -- 6.00....................... 1,099 28.99% $$13,812,101.48 28.55%
6.01 -- 12.00....................... 442 11.66 5,511,321,27 11.39
12.01 -- 18.00....................... 209 5.51 1,921,053.31 3.97
18.01 -- 24.00....................... 144 3.80 1,364,299.96 2.82
24.01 -- 30.00....................... 118 3.11 1,291,945.89 2.67
30.01 -- 36.00....................... 128 3.38 1,550,490.81 3.20
36.01 -- 42.00....................... 256 6.75 3,639,318.17 7.52
42.01 -- 48.00....................... 128 3.38 1,766,437.70 3.65
48.01 -- 54.00....................... 112 2.95 1,495,100.28 3.09
54.01 -- 60.00....................... 16 0.42 167,976.85 0.35
60.01 -- 66.00....................... 37 0.98 346,752.66 0.72
66.01 -- 72.00....................... 39 1.03 606,576.30 1.25
72.01 -- 78.00....................... 18 0.47 121,414.09 0.25
78.01 -- 84.00....................... 8 0.21 105,323.85 0.22
84.01 -- 90.00....................... 188 4.96 2,828,973.12 5.85
90.01 -- 96.00....................... 200 5.28 2,924,038.48 6.04
96.01 -- 102.00....................... 249 6.57 3,593,178.49 7.43
102.01 -- 108.00....................... 154 4.06 2,212,923.86 4.57
108.01 -- 114.00....................... 132 3.48 1,711,615.11 3.54
114.01 -- 120.00....................... 86 2.27 1,046,712.51 2.16
120.01 -- 126.00....................... 22 0.58 287,540.43 0.59
126.01 -- 132.00....................... 6 0.16 81,440.62 0.17
------ ------ -------------- ------
Total........................ 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
32
<PAGE> 33
DISTRIBUTION BY QUARTER OF ORIGINATION -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
ORIGINATION QUARTER (QUARTER/YEAR) RECEIVABLES RECEIVABLES(1) BALANCE POOL BALANCE(1)
---------------------------------- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
1/87................................... 6 0.16% $ 81,440.62 0.17%
2/87................................... 12 0.32 167,176.10 0.35
3/87................................... 11 0.29 124,664.25 0.26
4/87................................... 26 0.69 265,530.70 0.55
1/88................................... 62 1.64 802,112.87 1.66
2/88................................... 70 1.85 940,323.61 1.94
3/88................................... 61 1.61 782,460.99 1.62
4/88................................... 47 1.24 650,975.62 1.35
1/89................................... 114 3.01 1,660,220.20 3.43
2/89................................... 135 3.56 1,792,561.41 3.70
3/89................................... 109 2.88 1,710,836.45 3.54
4/89................................... 66 1.74 913,238.14 1.89
1/90................................... 135 3.56 2,046,541.51 4.23
2/90................................... 141 3.72 2,029,897.08 4.20
3/90................................... 42 1.11 718,443.07 1.48
4/90................................... 1 0.03 9,743.12 0.02
1/91................................... 7 0.18 95,580.73 0.20
2/91................................... 6 0.16 17,935.65 0.04
3/91................................... 12 0.32 103,478.44 0.21
4/91................................... 11 0.29 165,932.53 0.34
1/92................................... 29 0.76 447,541.25 0.92
2/92................................... 23 0.61 258,806.65 0.53
3/92................................... 13 0.34 81,048.53 0.17
4/92................................... 9 0.24 87,340.34 0.18
1/93................................... 7 0.18 80,636.51 0.17
2/93................................... 32 0.84 444,367.44 0.92
3/93................................... 82 2.16 1,067,396.42 2.21
4/93................................... 50 1.32 721,341.24 1.49
1/94................................... 79 2.08 1,064,022.39 2.20
2/94................................... 161 4.25 2,340,988.37 4.84
3/94................................... 95 2.51 1,323,703.47 2.74
4/94................................... 44 1.16 498,819.88 1.03
1/95................................... 82 2.16 1,043,964.68 2.16
2/95................................... 63 1.66 642,603.20 1.33
3/95................................... 54 1.42 596,085.76 1.23
4/95................................... 37 0.98 449,722.38 0.93
1/96................................... 108 2.85 935,195.47 1.93
2/96................................... 117 3.09 961,877.72 1.99
3/96................................... 91 2.40 938,557.70 1.94
4/96................................... 83 2.19 1,017,565.42 2.10
1/97................................... 371 9.79 4,683,056.57 9.68
2/97................................... 784 20.68 10,347,740.43 21.39
3/97................................... 303 7.99 3,275,060.33 6.77
------ ------ -------------- ------
Total........................ 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
- ---------------
(1) The sum of the individual percentages may not add to 100% because of
rounding.
33
<PAGE> 34
DISTRIBUTION BY NEW AND USED COLLATERAL -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
NEW OR USED COLLATERAL RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
---------------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
New...................................... 3,028 79.87% $39,442,646.38 81.52%
Used..................................... 763 20.13 8,943,888.86 18.48
------ ------ -------------- ------
Total.......................... 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
DISTRIBUTION BY CONTRACT TYPE -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
CONTRACT TYPE RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Simple Interest RV Receivables........... 3,289 86.76% $42,103,402.97 87.01%
Precomputed RV Receivables............... 502 13.24 6,283,132.27 12.99
------ ------ -------------- ------
Total.......................... 3,791 100.00% $48,386,535.24 100.00%
====== ====== ============== ======
</TABLE>
DISTRIBUTION BY PERIOD OF DELINQUENCY -- RV CONTRACT GROUP
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL NUMBER AGGREGATE PERCENT OF
OF RV OF RV PRINCIPAL INITIAL RV
RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
RV Contract Group........................ 3,791 100.00% $48,386,535.24 100.00%
Period of Delinquency
30-59 Days............................. 49 1.29% $ 654,245.82 1.35%
</TABLE>
MATURITY AND PREPAYMENT ASSUMPTIONS
Full and partial prepayments on the Marine Receivables will have the effect
of reducing the weighted average life of the Marine Certificates, while
delinquencies by Obligors under the Marine Receivables, as well as extensions
and deferrals on the Marine Receivables, will have the effect of increasing the
weighted average life of the Marine Certificates. Full and partial prepayments
on the RV Receivables will have the effect of reducing the weighted average life
of the RV Certificates, while delinquencies by Obligors under the RV
Receivables, as well as extensions and deferrals on the RV Receivables will have
the effect of increasing the weighted average life of the RV Certificates. The
Marine Receivables and the RV 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 or RV, as
applicable, financed by such Receivable or such Receivable becoming a Defaulted
Marine Receivable or Defaulted RV Receivable (as defined herein). 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 and
recreational vehicle 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. Based on the historical performance of NationsCredit
Commercial's portfolio of recreational vehicle 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 Marine
Contract Portfolio 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.
NationsCredit Commercial's historical prepayment experienced on its RV Contract
Portfolio has also reflected seasonal variations due to the seasonal nature of
the retail recreational vehicle finance business, with higher levels of
prepayments in the beginning of the recreational vehicle season during the
spring and early summer. Although NationsCredit
34
<PAGE> 35
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 experience is not necessarily indicative of future prepayments.
Marine Certificateholders will bear all reinvestment risk resulting from
prepayments on the Marine Receivables and RV Certificateholders will bear all
reinvestment risk resulting from prepayments on the RV Receivables.
CERTIFICATE FACTORS AND TRADING INFORMATION
The "Marine Certificate Factor" is a seven-digit decimal figure, which the
Servicer will compute each month, equal to the Marine Certificate Balance on
such date of determination, divided by the initial Marine Certificate Balance.
The "RV Certificate Factor" is a seven-digit decimal figure, which the Servicer
will compute each month, equal to the RV Certificate Balance on such date of
determination divided by the initial RV Certificate Balance. The Marine
Certificate Factor and the RV Certificate Factor will be 1.0000000 as of the
Cutoff Date; thereafter, the Marine Certificate Factor and the RV Certificate
Factor will decline to reflect reductions in the Marine Certificate Balance and
the RV Certificate Balance, respectively. The amount of a Certificateholder's
pro rata share of the Marine Certificate Balance or the RV Certificate Balance,
as applicable, for a given month can be determined by multiplying the original
denomination of such holder's Certificate by the Marine Certificate Factor or
the RV Certificate Factor, as applicable, for that month. The Marine Certificate
Factor and the RV 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 Marine
Certificate Balance and the RV Certificate Balance, the Marine Certificate
Factor and the RV 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 and to make the
initial deposit in the Marine Reserve Account and the RV Reserve Account.
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 recreational vehicle 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 has taken and 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
35
<PAGE> 36
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.
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 and recreational vehicle dealers, NationsCredit
Commercial purchases marine retail installment sale contracts and recreational
vehicle retail 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.
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.
36
<PAGE> 37
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.
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 and the unaudited
financial statements of CapMAC as of and for the six-month periods ended June
30, 1997 and 1996 are made part of this Prospectus beginning at F-1 and F-20,
respectively. Copies of CapMAC's financial statements prepared in accordance
with statutory accounting standards, which differ from generally accepted
accounting principles, are filed with the Insurance Department of the State of
New York and 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, Four Albany
Street, New York, New York 10006; Attention 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
In general, it is intended that Marine Certificateholders receive, on each
Distribution Date, the aggregate payments of principal, consisting of the
aggregate collected principal payments, full and partial prepayments on the
Marine Receivables (other than Marine Receivables for which the Servicer or
NationsCredit Commercial has made a payment of the Purchase Amount in a
Collection Period (as defined below) prior to the related Collection Period)
received by the Servicer during the Collection Period, the principal balance of
Defaulted Marine Receivables which became Defaulted Receivables during the
related Collection Period and interest at one-twelfth the applicable
Pass-Through Rate on the Marine Certificate Balance, as of the close of business
on the prior Distribution Date. Marine Certificateholders shall receive
accelerated payments of principal as a result of (a) the application of certain
insurance proceeds, (b) a repurchase by NationsCredit Commercial or a purchase
by the Servicer of Marine Receivables, (c) payments made in respect of Defaulted
Marine Receivables from (i) excess interest, (ii) amounts on deposit in the
Marine Reserve Account, (iii) amounts on deposit in the RV Reserve Account, (iv)
draws on the Surety Bond, or, (v) if payments are not made as required under the
Surety Bond, upon the repossession and liquidation of the Boat, or other
enforcement measures taken with respect to a Defaulted Marine Receivable and (d)
upon the repossession and liquidation of the Boat, if such repossession and
liquidation is prior to the date the related Marine Receivable becomes a
Defaulted Marine Receivable. Except as described under "-- Distributions on
Certificates -- Marine Distributions," payments of interest and principal on the
Marine Certificates will be based on collections (including liquidation
proceeds) in respect of the Marine Receivables received during the related
Collection Period. See "The Certificates -- Sale and Assignment of Receivables,"
"-- Credit Enhancement -- The Surety Bond," "-- Credit Enhancement -- The Marine
Reserve Account", "-- Credit Enhancement -- The RV Reserve Account " and
"-- Servicing Procedures."
In general, it is intended that RV Certificateholders receive, on each
Distribution Date, the aggregate payments of principal, consisting of the
aggregate collected principal payments, full and partial prepayments on the RV
Receivables (other than RV 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)
37
<PAGE> 38
received by the Servicer during the preceding Collection Period, the principal
balance of Defaulted RV Receivables which became Defaulted Receivables during
the related Collection Period and interest at one-twelfth the applicable
Pass-Through Rate on the RV Certificate Balance, as of the close of business on
the prior Distribution Date. RV Certificateholders shall receive accelerated
payments of principal as a result of (a) the application of certain insurance
proceeds, (b) a repurchase by NationsCredit Commercial or a purchase by the
Servicer of RV Receivables, (c) payments made in respect of Defaulted RV
Receivables from (i) excess interest, (ii) amounts on deposit in the RV Reserve
Account, (iii) amounts on deposit in the Marine Reserve Account, (iv) draws on
the Surety Bond, or, (v) if payments are not made as required under the Surety
Bond, upon the repossession and liquidation of the RV, or other enforcement
measures taken with respect to a Defaulted RV Receivable and (d) upon the
repossession and liquidation of the RV, if such repossession and liquidation is
prior to the date the related RV Receivable becomes a Defaulted RV Receivable.
Except as described under "-- Distributions on Certificates -- RV
Distributions," payments of interest and principal on the RV Certificates will
be based on collections (including liquidation proceeds) in respect of the RV
Receivables received during the Collection Period. See "The Certificates -- Sale
and Assignment of Receivables," "-- Credit Enhancement -- The Surety Bond,"
"-- Credit Enhancement -- The RV Reserve Account," "-- Credit Enhancement -- RV
Marine Account," and "-- Servicing Procedures."
"Collection Period" means with respect to any Distribution Date, a period
which is the preceding calendar month.
The Marine Certificates and the RV 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
The Marine Certificates will be available for purchase in book-entry form
in minimum denominations representing $1,000 of the initial Marine Certificate
Balance and in integral multiples thereof equal to the percentage obtained by
dividing the denomination of the Marine Certificate by the Initial Marine Pool
Balance. The RV Certificates will be available for purchase in book-entry form
in minimum denominations representing $1,000 of the initial RV Certificate
Balance and in integral multiples thereof equal to the percentage obtained by
dividing the denomination of the RV Certificate by the Initial RV Pool Balance.
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 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").
38
<PAGE> 39
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 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
39
<PAGE> 40
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 as of the Closing Date 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 case of
Marine Receivables, or a RV, in the case of RV Receivables, 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), in the case of Marine
Receivables, or related RV, in the case of RV Receivables, 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 APR, (e) shall provide for, in the event that such
contract is prepaid, a prepayment that fully pays the Principal Balance and
includes any accrued but unpaid interest due pursuant to the terms of the
related contract through the date of prepayment in an amount at least equal to
the APR, (f) and the sale of the related Boat, in the case of Marine
Receivables, or the related RV, in the case of RV Receivables, 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 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, as applicable, the Receivable from the
Trustee, at a price equal to the unpaid principal balance owed by the Obligor
plus
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accrued interest calculated at a rate equal to the sum of the applicable
Pass-Through Rate plus the Marine Servicing Fee Rate or the RV Servicing Fee
Rate, as applicable (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 or RVs financed in
states where security interests in boats or recreational vehicles, as
applicable, are subject to certificate of title statutes, will not be endorsed;
and the UCC-1 financing statements, in the case of Boats or RVs financed in
states where security interests in boats or recreational vehicles, as
applicable, 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 or RVs, as applicable, 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 or RVs 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 and RVs.
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 Marine Contract Group will be
deposited, and from which all distributions with respect to the Marine Contract
Group and the Marine Certificates will be made (collectively, the "Marine
Certificate Account").
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 RV Receivables will be
deposited and from which all distributions with respect to the RV Receivables
and the RV Certificates will be made (collectively, the "RV Certificate
Account").
The Marine Certificate Account and the RV 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) each of the Marine Certificate Account
and the RV 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 Marine Certificate Account and the RV Certificate Account to be moved to a
bank which can satisfy such conditions.
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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, in the case of Marine Receivables, and recreational vehicle
contracts, in the case of RV Receivables, 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
and recreational vehicle contracts, as applicable, 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 and Recreational
Vehicle 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 the Servicer determines that eventual payment in full is
unlikely. The Servicer may sell the Boat or RV, as applicable, securing a
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 or RV, as applicable, securing a Receivable 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 Receivable; (iii) the Servicer will not
increase or decrease the amount of any scheduled payment on a Receivable or the
principal balance 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) or the APR of any Receivable; (iv) the Servicer will not sell, pledge,
transfer, deliver or otherwise dispose of any Receivable, except as provided in
the Agreement; (v) 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 will follow such collection procedures as it
follows with respect to all comparable marine contracts and recreational vehicle
contracts, as applicable, that it services for itself and others; and (vi) 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
and recreational vehicle contracts, as applicable, 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 Marine Distribution Date or
Final Scheduled RV 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 or
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.
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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 successor to 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, which is acceptable to the
Rating Agencies and the Surety Bond Issuer and is issued by an entity which has
a short-term debt rating 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 Marine Certificates or the RV Certificates by either
S&P or Moody's. If all the conditions contained in the preceding sentence are
not met, (i) the Servicer will deposit all payments on the Marine Contract Group
(from whatever source) and all proceeds of the Marine Contract Group collected
during each Collection Period into the Marine Certificate Account not later than
the second business day after receipt and (ii) the Servicer will deposit all
payments on the RV Contract Group (from whatever source) and all proceeds of the
RV Contract Group collected during each Collection Period into the RV
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 Marine Receivables repurchased by the Depositor or purchased by the
Servicer into the Marine Certificate Account and deposit the aggregate Purchase
Amount of RV Receivables repurchased by the Depositor or purchased by the
Servicer into the RV Certificate Account, in each case, on or before the
business day preceding the applicable Distribution Date. Pending deposit into
the Marine Certificate Account and the RV Certificate Account, as applicable,
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 during or prior to the related Collection Period, 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 Marine Servicing Fee
and the Monthly RV Servicing Fee with respect to each Distribution Date, equal
to the product of (i) one-twelfth the Marine Servicing Fee Rate multiplied by
the Marine Pool Balance in the case of the Monthly Marine Servicing Fee and (ii)
one-twelfth the RV Servicing Fee Rate multiplied by the RV Pool Balance, in the
case of the Monthly RV Servicing Fee, in each case as of the last day of the
prior Collection Period (or, in the case of the first Distribution Date, the
Initial Marine Pool Balance or the Initial RV Pool Balance, as applicable). 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.
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The Monthly Marine Servicing Fee and the Monthly RV Servicing Fee will
compensate the Servicer for performing the functions of a third party servicer
of marine retail installment sale contracts and recreational vehicle 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 Marine Servicing Fee and
the Monthly RV 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 Marine Servicing Fee and the Monthly RV 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 Marine Receivables in the Marine
Contract Group and the aggregate amount of collections on the RV Receivables in
the RV Contract Group (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 each of the Marine
Receivables and the RV Receivables; the aggregate Purchase Amount of Marine
Receivables and the aggregate Purchase Amount of RV Receivables required to be
repurchased by NationsCredit Commercial or required to be purchased by the
Servicer; the aggregate amounts to be drawn on the Marine Reserve Account and
the RV Reserve Account; the aggregate payments to be made under the Surety Bond;
the Monthly Marine Servicing Fee and the Monthly RV Servicing Fee; all with
respect to the preceding Collection Period.
Marine Distributions. On the Distribution Date, the Trustee will distribute
from the Marine Certificate Account pro rata to the Marine 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 to the extent of funds available therefor:
(i) to the Marine Certificateholders, an amount equal to one-twelfth
of the product of (x) the applicable Pass-Through Rate and (y) the Marine
Certificate Balance as of the close of business on the prior Distribution
Date (or in the case of the first Distribution Date, the Initial Marine
Pool Balance) (the "Monthly Marine Interest Payment"), and any carry-over
Monthly Marine 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 Marine Servicing Fee Rate and (y) the Marine Pool Balance as of the
last day of the prior Collection Period (or, in the case of the first
Distribution Date, the Initial Marine Pool Balance) ("Monthly Marine
Servicing Fee") and any carry-over Monthly Marine Servicing Fee from prior
Distribution Dates;
(iii) to the Marine Certificateholders, (x) on any Distribution Date,
except the Marine Final Scheduled Distribution Date, an amount equal to (a)
that portion of all collections received by the Servicer during the related
Collection Period on Marine Receivables allocable to principal (which shall
not include the principal portion of proceeds from any recoveries or
liquidations in respect of Defaulted Marine Receivables), (b) Purchase
Amounts allocable to principal with respect to the Marine Receivables and
paid by the Depositor or the Servicer with respect to the related
Collection Period, (c) the principal balance of Defaulted Marine
Receivables, which became Defaulted Marine Receivables during the related
Collection Period and (d) any amounts specified in clauses (a), (b) and (c)
payable but not paid on a prior Distribution Date and (y) on the Marine
Final Scheduled Distribution Date, an amount necessary to reduce the Marine
Certificate Balance to zero on such Distribution Date (collectively, the
"Monthly Marine Principal Payment");
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(iv) if NationsCredit Commercial or an affiliate thereof is the
Servicer, to the Servicer, the Monthly Marine Servicing Fee for such
Distribution Date and any carry-over Monthly Marine 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 allocable to the
Marine Contract Group and not paid;
(vi) to the RV Certificateholders, an amount, if any, up to the
shortfall, between (x) the amount paid to RV Certificateholders on such
Distribution Date pursuant to clause (i) of the definition of "RV
Distributions" and (y) the Monthly RV Interest Payment for such
Distribution Date and any carry-over Monthly RV Interest Payment from prior
Distribution Dates;
(vii) if NationsCredit Commercial or an affiliate thereof is not the
Servicer, to the Servicer, an amount, if any, up to the shortfall between
(x) the amount paid to the Servicer on such Distribution Date pursuant to
clause (ii) of the definition of "RV Distributions," and (y) the Monthly RV
Servicing Fee for such Distribution Date and any carry-over Monthly RV
Servicing Fee from prior Distribution Dates;
(viii) to the RV Certificateholders, an amount, if any, up to the
shortfall between (x) the amount paid to the RV Certificateholders on such
Distribution Date pursuant to clause (iii) of the definition of "RV
Distributions" and (y) the Monthly RV Principal Payment for such
Distribution Date;
(ix) if NationsCredit Commercial or an affiliate thereof is the
Servicer, to the Servicer, an amount, if any, up to the shortfall between
(x) the amount paid to the servicer on such Distribution Date pursuant to
clause (iv) of the definition of "RV Distributions" and (y) the Monthly RV
Servicing Fee for such Distribution Date and any carry-over Monthly RV
Servicing Fee from prior Distribution Dates;
(x) to the Surety Bond Issuer, an amount, if any, up to the shortfall
between (x) the amount paid to the Surety Bond Issuer on such Distribution
Date pursuant to clause (v) of the definition of "RV Distributions," and
(y) amounts owing to the Surety Bond Issuer under the Insurance and
Reimbursement Agreement allocable to the RV Contract Group and not paid;
(xi) to the Collateral Agent, an amount, if any, up to the lesser of
(x) the RV Cross-Support Amount for such Distribution Date and (y) the
shortfall, if any, between the Specified RV Reserve Account Requirement and
the amount on deposit in the RV Reserve Account on such Distribution Date
after giving effect to the distribution set forth in clause (xii) of the
definition of "RV Distributions," for deposit into the RV Reserve Account;
(xii) to the Collateral Agent, an amount up to the shortfall, if any,
between the Specified Marine Reserve Account Requirement for such
Distribution Date and the amount on deposit in the Marine Reserve Account
on such Distribution Date without giving effect to the distributions, if
any, on such Distribution Date set forth in clauses (xi) and (xiii) of the
definition of "RV Distributions;"
(xiii) to the Collateral Agent, an amount up to the shortfall, if any,
between the Specified RV Reserve Account Requirement for such Distribution
Date and the amount on deposit in the RV Reserve Account on such
Distribution Date, after giving effect to the distributions, if any, set
forth in clause (xi) above and clause (xii) of the definition of "RV
Distributions" for deposit into the RV Reserve Account; and
(xiv) to the Depositor, any remaining amounts.
The distributions set forth in clauses (i) through (xiv) above shall be the
"Marine Distributions."
RV Distributions. On the Distribution Date, the Trustee will distribute
from the RV Certificate Account pro rata to the RV 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 to the extent available therefor:
(i) to the RV Certificateholders, an amount equal to one-twelfth of
the product of (x) the applicable Pass-Through Rate and (y) the RV
Certificate Balance as of the close of business on the prior
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Distribution Date (or, in the case of the first Distribution Date, the
Initial RV Pool Balance) (the "Monthly RV Interest Payment"), and any
carry-over Monthly RV 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 RV Servicing Fee Rate and (y) the RV Pool Balance as of the last
day of the prior Collection Period (or, in the case of the first
Distribution Date, the Initial RV Pool Balance) (the "Monthly RV Servicing
Fee") and any carry-over Monthly RV Servicing Fee from prior Distribution
Dates;
(iii) to the RV Certificateholders, (x) on any Distribution Date,
except the RV Final Scheduled Distribution Date, an amount equal to (a)
that portion of all collections received by the Servicer during the related
Collection Period on RV Receivables allocable to principal (which shall not
include the principal portion of proceeds from any recoveries or
liquidations in respect of Defaulted RV Receivables), (b) Purchase Amounts
allocable to principal with respect to the RV Receivables and paid by the
Depositor or the Servicer with respect to the related Collection Period,
(c) the principal balance of Defaulted RV Receivables, which became
Defaulted RV Receivables during the related Collection Period and (d) any
amounts specified in clauses (a), (b) and (c) payable but not paid on a
prior Distribution Date and (y) on the RV Final Scheduled Distribution
Date, an amount necessary to reduce the RV Certificate Balance to zero on
such Distribution Date (collectively, the "Monthly RV Principal Payment");
(iv) if NationsCredit Commercial or an affiliate thereof is the
Servicer, to the Servicer, the Monthly RV Servicing Fee for such
Distribution Date and any carry-over Monthly RV 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 allocable to the RV
Contract Group and not paid;
(vi) to the Marine Certificateholders, an amount, if any, up to the
shortfall between (x) the amount paid to the Marine Certificateholders on
such Distribution Date pursuant to clause (i) of the definition of "Marine
Distributions" and (y) the Monthly Marine Interest Payment for such
Distribution Date and any carry-over Monthly Marine Interest Payment from
prior Distribution Dates;
(vii) if NationsCredit Commercial or an affiliate thereof is not the
Servicer, to the Servicer, an amount, if any, up to the shortfall between
(x) the amount paid to the Servicer on such Distribution Date pursuant to
clause (ii) of the definition of "Marine Distributions" and (y) the Monthly
Marine Servicing Fee for such Distribution Date and any carry-over Monthly
Marine Servicing Fee from prior Distribution Dates;
(viii) to the Marine Certificateholders, an amount, if any, up to the
shortfall between (x) the amount paid to Marine Certificateholders on such
Distribution Date pursuant to clause (iii) of the definition of "Marine
Distributions" and (y) the Monthly Marine Principal Payment for such
Distribution Date;
(ix) if NationsCredit Commercial or an affiliate thereof is the
Servicer, to the Servicer, an amount, if any, up to the shortfall between
(x) the amount paid to the Servicer on such Distribution Date pursuant to
clause (iv) of the definition of "Marine Distributions" and (y) the Monthly
Marine Servicing Fee for such Distribution Date and any carryover Monthly
Marine Servicing Fee from prior Distribution Dates;
(x) to the Surety Bond Issuer, an amount if any up to the shortfall
between (x) the amount paid to the Surety Bond Issuer on such Distribution
Date pursuant to clause (v) of the definition of "Marine Distributions" and
(y) amounts owing to the Surety Bond Issuer under the Insurance and
Reimbursement Agreement allocable to the Marine Contract Group and not
paid;
(xi) to the Collateral Agent, an amount, if any, up to the lesser of
(x) the Marine Cross-Support Amount for such Distribution Date and (y) the
shortfall, if any, between the Specified Marine Reserve
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Account Requirement for such Distribution Date and the amount on deposit in
the Marine Reserve Account on such Distribution Date after giving effect to
the distribution, set forth in clause (xii) of the definition of "Marine
Distributions," for deposit into the Marine Reserve Account;
(xii) to the Collateral Agent, an amount up to the shortfall, if any,
between the Specified RV Reserve Account Requirement for such Distribution
Date and the amount on deposit in the RV Reserve Account on such
Distribution Date without giving effect to the distributions, if any, on
such Distribution Date set forth in clauses (xi) and (xiii) of the
definition of "Marine Distributions;"
(xiii) to the Collateral Agent, an amount up to the shortfall, if any,
between the Specified Marine Reserve Account Requirement for such
Distribution Date and the amount on deposit in the Marine Reserve Account
on such Distribution Date, after giving effect to the distributions for
such Distribution Date, if any, pursuant to in clause (xi) above and clause
(xii) of the definition of "Marine Distributions" for deposit into the
Marine Reserve Account; and
(xiv) to the Depositor, any remaining amounts.
The distributions set forth in clauses (i) through (xiv) above shall be the
"RV Distributions."
Marine Distributions and RV Distributions. The aggregate amount of Monthly
Marine Principal Payments will not exceed the unpaid principal balance of the
Marine Certificates and the aggregate amount of Monthly RV Principal Payments
will not exceed the unpaid principal balance of the RV Certificates.
The Surety Bond Issuer will unconditionally and irrevocably guarantee
payment of the Monthly Marine Interest Payment, the Monthly RV Interest Payment,
the Monthly Marine Principal Payment, the Monthly RV Principal Payment and under
certain circumstances the Monthly Marine Servicing Fee and the Monthly RV
Servicing Fee. See "-- Credit Enhancement -- The Surety Bond."
The Monthly Marine Interest Payment is calculated on the Marine Certificate
Balance, which shall decline by the amount of principal distributions made on
the Marine Certificates. The Monthly RV Interest Payment is calculated on the RV
Certificate Balance, which shall decline by the amount of principal
distributions made on the RV Certificates. To the extent that payments on the
Receivables and amounts on deposit in the Marine Reserve Account and the RV
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 (xiv) of the
definition of "Marine Distributions" and "RV Distributions" 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 or the Monthly
Principal Payment.
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The following chart sets forth the application of the foregoing provisions
to the November 1997 Distribution Date:
<TABLE>
<S> <C>
October 1-October 31................. Collection Period. The Servicer receives monthly
payments, prepayments and other proceeds in respect
of the Receivables.
November 11.......................... Determination Date. The Servicer notifies the Trustee
of the amounts to be distributed on the Distribution
Date.
November 14.......................... Record Date. Distributions on the Distribution Date
are made to Certificateholders of record at the close
of business on this date.
November 17.......................... Distribution Date. The Trustee distributes to Marine
Certificateholders amounts payable in respect of the
Marine Certificates as described above and the
Trustee distributes to RV Certificateholders amounts
payable in respect of the RV Certificates as
described above.
</TABLE>
"Defaulted Receivable" means a Marine Receivable or a RV 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 or RV, as applicable, has been
repossessed by the Servicer, in the case of any Marine Receivable or RV
Receivable, as applicable, with a principal balance of $10,000 or less as of the
day such Boat or RV, as applicable, was repossessed by the Servicer or (2) 180
or more days have elapsed since the related Boat or RV, as applicable, has been
repossessed by the Servicer, in the case of any Marine Receivable or RV
Receivable, as applicable, with a principal balance of greater than $10,000 as
of the day such Boat or RV, as applicable, was repossessed by the Servicer.
"Defaulted Marine Receivable" means a Defaulted Receivable which is a
Marine Receivable.
"Defaulted RV Receivable" means a Defaulted Receivable which is a RV
Receivable.
"Marine Cross-Support Amount" on any Distribution Date shall equal the
amount withdrawn from the Marine Reserve Account to make RV Distributions on
prior Distribution Dates and is payable to the Collateral Agent for deposit into
the Marine Reserve Account under the terms of the Agreement.
"RV Cross-Support Amount" on any Distribution Date shall equal the amount
withdrawn from the RV Reserve Account to make Marine Distributions on prior
Distribution Dates and is payable to the Collateral Agent for deposit into the
RV Reserve Account under the terms of the Agreement.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the Certificateholders
consists of the Surety Bond, the application of excess interest, the Marine
Reserve Account and the RV Reserve Account.
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 Marine
Servicing Fee and the Monthly RV 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) for deposit into the Marine Certificate
Account with respect to any Distribution Date to the extent there are not
sufficient amounts available from (a) collections on Marine Receivables, (b)
amounts, if any, to be distributed pursuant to clauses (vi), (vii) and (viii) of
the definition of "RV Distributions," (c) amounts on deposit in the Marine
Reserve Account and (d) after the amounts on deposit in the Marine Reserve
Account have been reduced to zero, amounts on deposit in the RV Reserve Account
to the extent available, to make distributions in respect of (i) the Monthly
Marine Interest Payment, (ii) if NationsCredit
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Commercial or an affiliate thereof is not the Servicer, the Monthly Marine
Servicing Fee and (iii) the Monthly Marine Principal Payment.
Without duplication of any of the foregoing, on the Marine Final Scheduled
Distribution Date, the Surety Bond will unconditionally guarantee the payment of
the outstanding Marine Certificate Balance (after giving effect to all other
amounts distributed and allocable to principal on such Distribution Date).
The Trustee will demand payment under the Surety Bond (or the Surety Bond
Issuer will otherwise make available) for deposit into the RV Certificate
Account with respect to any Distribution Date to the extent there are not
sufficient amounts available from (a) collections on RV Receivables, (b)
amounts, if any, to be distributed pursuant to clauses (vi), (vii) and (viii) of
the definition of "Marine Distributions," (c) amounts on deposit in the RV
Reserve Account and (d) after the amounts on deposit in the RV Reserve Account
have been reduced to zero, amounts on deposit in the Marine Reserve Account to
the extent available, to make distributions in respect of (i) the Monthly RV
Interest Payment, (ii) if NationsCredit Commercial or an affiliate thereof is
not the Servicer, the Monthly RV Servicing Fee and (iii) the Monthly RV
Principal Payment.
Without duplication of any of the foregoing, on the RV Final Scheduled
Distribution Date, the Surety Bond will unconditionally guarantee the payment of
the outstanding RV Certificate Balance (after giving effect to all other amounts
distributed and allocable to principal on such Distribution Date).
In the event the Marine Reserve Account and the RV 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 the 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 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
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<PAGE> 50
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 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.
Marine Excess Interest. The weighted average interest rate for the Marine
Receivables will be higher than the Pass-Through Rate on the Marine Certificates
and since the Marine Pool Balance will generally equal the Marine Certificate
Balance, the Marine Contract Group will be generating excess interest relative
to Monthly Marine Interest Payment. To the extent available, excess interest
from the Marine Contract Group will be used to pay the amounts set forth in
clause (ii) of the definition of "Marine Distributions," to pay any amounts
consisting of the principal balance of Defaulted Marine Receivables in clause
(iii) of the definition of "Marine Distributions," to pay the amounts set forth
in clauses (iv) through (xiv) of the definition of "Marine Distributions." See
"-- Distributions on Certificates" and, to the extent necessary, on the Marine
Final Scheduled Distribution Date, to reduce the principal balance of the Marine
Certificates to zero. The amount of excess interest on the Marine Receivables
will depend on the rate and timing of payments on the Marine Receivables
(including prepayments) in respect thereof.
RV Excess Interest. The weighted average interest rate for the RV
Receivables will be higher than the Pass-Through Rate on the RV Certificates and
since the RV Pool Balance will generally equal the RV Certificate Balance, the
RV Contract Group will be generating excess interest relative to Monthly RV
Interest Payment. To the extent available, excess interest from the RV Contract
Group will be used to pay the amounts set forth in clause (ii) of the definition
of "RV Distributions," to pay any amounts consisting of the principal balance of
Defaulted RV Receivables in clause (iii) of the definition of "RV
Distributions," to pay
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<PAGE> 51
the amounts set forth in clauses (iv) through (xiv) of the definition of "RV
Distributions." See "-- Distribution on Certificates" and to the extent
necessary, on the RV Final Scheduled Distribution Date, to reduce the principal
balance of the RV Certificates to zero. The amount of excess interest on the RV
Receivables will depend on the rate and timing of payments on the RV Receivables
(including prepayments) in respect thereof.
The Marine Reserve Account. The Depositor will establish and maintain with
the Collateral Agent an account (the "Marine Reserve Account"). The Marine
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 Marine Reserve Account
and thereafter will be augmented on each Distribution Date first from payments
on Marine Receivables allocable to interest on deposit in the Marine Certificate
Account with respect to the preceding Collection Period after distributions on
such Distribution Date in respect of the amounts set forth in clauses (i)
through (xi) of the definition of "Marine Distributions," until the amount on
deposit in the Marine Reserve Account is equal to a specified amount to be
determined by the Surety Bond Issuer and the Rating Agencies (the "Specified
Marine Reserve Account Requirement") and second, if necessary, from RV
Distributions to the extent described under "-- Distributions, on the
Certificates -- RV Distributions." Amounts, if any, on deposit in the Marine
Reserve Account on any Distribution Date (after giving effect to all
distributions to be made on such Distribution Date) in excess of the Specified
Marine Reserve Account Requirement will be released to the Depositor. The
Specified Marine Reserve Account Requirement and amounts on deposit or to be
deposited into the Marine 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 Marine Certificates or
the RV Certificates by either Moody's or S&P, but without prior notice to or the
consent of the Marine Certificateholders or the RV Certificateholders.
Prospective purchasers of the Marine Certificates or the RV Certificateholders
should not rely on any amounts being deposited into or being available from the
Marine Reserve Account in making a decision on whether to purchase the Marine
Certificates or the RV Certificateholders.
The RV Reserve Account. The Depositor will establish and maintain with the
Collateral Agent an account (the "RV Reserve Account"). The RV 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 RV Reserve Account and thereafter
will be augmented on each Distribution Date first from payments on RV
Receivables allocable to interest on deposit in the RV Certificate Account with
respect to the preceding Collection Period after distributions on such
Distribution Date in respect of the amounts set forth in clauses (i) through
(xi) of the definition of "RV Distributions," until the amount on deposit in the
RV Reserve Account is equal to a specified amount to be determined by the Surety
Bond Issuer and the Rating Agencies (the "Specified RV Reserve Account
Requirement") and second, if necessary, from Marine Distributions to the extent
described under "-- Distributions on Certificates -- Marine Distributions."
Amounts, if any, on deposit in the RV Reserve Account on any Distribution Date
(after giving effect to all distributions to be made on such Distribution Date)
in excess of the Specified RV Reserve Account Requirement will be released to
the Depositor. The Specified RV Reserve Account Requirement and amounts on
deposit or to be deposited into the RV 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 Marine
Certificates or the RV Certificates by either Moody's or S&P, but without prior
notice to or the consent of the Marine Certificateholders or the RV
Certificateholders. Prospective purchasers of the Marine Certificates or the RV
Certificates should not rely on any amounts being deposited into or being
available from the RV Reserve Account in making a decision on whether to
purchase the Marine Certificates or the RV Certificates.
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Marine Certificateholder of record, a statement to Certificateholders
furnished pursuant to the Agreement, setting forth for the
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related 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 Marine Certificateholder's distribution which
constitutes the Monthly Marine Principal Payment;
(ii) the amount of the Marine Certificateholder's distribution which
constitutes the Monthly Marine Interest Payment (including any carry-over
Monthly Marine Interest);
(iii) the Marine Certificateholder's pro rata portion of the Monthly
Marine Servicing Fee (including any carry-over Monthly Marine Servicing
Fee);
(iv) the Marine Certificate Balance and the Marine Certificate Factor
as of the close of business on such Distribution Date; and
(v) the Marine Pool Balance as of the last day of the related
Collection Period.
On each Distribution Date, the Trustee will include with each distribution
to each RV Certificateholder of record, a statement to Certificateholders
furnished pursuant to the Agreement, setting forth for the related 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 RV Certificateholder's distribution which
constitutes the Monthly RV Principal Payment;
(ii) the amount of the RV Certificateholder's distribution which
constitutes the Monthly RV Interest Payment (including any carry-over
Monthly RV Interest);
(iii) the RV Certificateholder's pro rata portion of the Monthly RV
Servicing Fee (including any carry-over Monthly RV Servicing Fee);
(iv) the RV Certificate Balance and the RV Certificate Factor as of
the close of business on such Distribution Date; and
(v) the RV Pool Balance as of the last day of the related 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
Marine Certificateholder or RV Certificateholder, a statement containing the
annual total for the amounts set forth in clauses (i), (ii) and (iii) of the two
preceding paragraphs for the purposes of such Marine Certificateholder's or RV
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 the 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 Agreement.
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
deficiency balances related to charged-off marine contracts and charged-off
recreational vehicle contracts including in respect of any Receivables.
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees or 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; 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 Marine
Certificateholders or the RV Certificateholders any proceeds or payment required
to be delivered under the terms of the Marine Certificates or the RV
Certificates, as applicable, 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; or
(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 Marine Certificates, the RV Certificates or the Agreement which
failure materially and adversely affects the rights of Marine Certificateholders
or RV 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; or (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 or (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 thereunder of Certificateholders are materially and adversely
affected. The Surety Bond Issuer may give the Trustee and the Servicer notice of
any Event of Default under the Agreement.
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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 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 and recreational vehicle retail
installment sale contracts. The Trustee, with the consent of the Surety Bond
Issuer, 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 in connection
with the transactions contemplated by the Agreement or the Insurance Agreement
which failure shall have continued for three Business Days after receipt of
notice thereof by the Depositor or the Servicer, as the case may be; (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 Net Credit Loss
Ratio 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, a fraction
(expressed as an annualized percentage) (i) the numerator of which is an amount
equal to (A) the sum of the aggregate gross losses with respect to the
Receivables recognized in such Collection Period and the preceding two
Collection Periods, as determined in accordance with the Servicer's normal
practices, less any recoveries received during such Collection Period and the
preceding two Collection Periods, divided by (B) a factor of three, and (ii) the
denominator of which is an amount equal to (A) the sum of the Pool Balance in
effect as of the last day of such Collection Period and the Pool Balances as in
effect as of the last day of each of the preceding three Collection Periods,
divided by (B) a factor of four.
"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 marine receivables and
recreational vehicle 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
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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, 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 Marine
Certificateholder or RV 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 Holders of Certificates
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 the Marine Receivables or the RV 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. The Marine
Certificateholders will evidence approximately 71.40% of the initial Certificate
Balance and the RV Certificateholders will evidence approximately 28.60% of the
initial Certificate Balance, therefore as of the Closing Date, the Marine
Certificateholders will have the right to consent to amendments of the Agreement
as described above without the approval of any of the RV Certificateholders.
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 in writing, 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 Insurance
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 (i) all the Marine Receivables in the Trust as of any Record Date on
which the Marine Pool Balance shall decline to 5% or less of the Initial Marine
Pool Balance, at a purchase price equal to the aggregate Purchase Amount of the
Marine 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
allocable to the Marine Contract Group less the amount of all collections on the
Marine Receivables received by the Servicer during such Collection Period and
(ii) all the RV Receivables in the Trust as of any Record Date on which the RV
Pool Balance shall decline to 5% or less of the Initial RV Pool Balance, at a
purchase price equal to the aggregate Purchase Amount of the RV 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
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allocable to the RV Contract Group less the amount of all collections on the RV
Receivables received by the Servicer during such Collection Period; provided,
however that in each case the Servicer may not make any such purchase on any
date on which there are outstanding amounts under the Insurance Agreement or the
Agreement, which have not been paid to the Surety Bond Issuer. Exercise of such
rights will effect early retirement of the Marine Certificates or the RV
Certificates, as applicable. The Trustee will give written notice of any
termination of the Trust or repurchased of the Marine Contract Group or the RV
Contract Group 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. After termination, any funds remaining
in the Trust after the Trustee has taken certain measures to locate
Certificateholders 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 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
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regular business must include the servicing of marine and recreational vehicle
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 certain tax liens, may, as a matter of
law, have priority over perfected, first priority liens.
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 Marine Receivables were originated by Dealers. NationsCredit Commercial
acquired the Marine Receivables directly or indirectly from Dealers or finance
subsidiaries of manufacturers and directly or indirectly sold the Marine
Receivables to the Trust. NationsCredit Commercial is the assignee and secured
party under the Marine 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.
Generally, security interests in boats may be perfected in one of three
ways: in certificate of 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.
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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 certificate of 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.
If the security interest in the Boat is perfected under a certificate of
title statute and an Obligor moves to a state other than the state in which the
Boat is registered, under the laws of most certificate of 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. However, these procedural safeguards
will not protect the secured party if through fraud, forgery or administrative
error, the debtor somehow procures a new certificate of title that does not note
the secured party's lien. 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 Marine 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,
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NationsCredit Commercial will not re-perfect a state law security interest which
has expired or where the Obligor has moved if the Marine 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 Marine 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 Marine 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 Marine Receivable secured by such Boat.
Because NationsCredit Commercial continues to service the Marine
Receivables, the Obligors on the Marine Receivables are not notified of the
purchase of the Marine Receivables by the Trust and no action is taken to record
the transfer of the security interests from NationsCredit Commercial to the
Trust. Due to the administrative burden and expense 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
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 most 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 Marine Receivable secured by the Boat involved. See "The
Certificates -- Sale and Assignment of Receivables."
LACK OF PERFECTED SECURITY INTERESTS IN RVS
The RV Receivables were originated by Dealers. NationsCredit Commercial
acquired the RV Receivables directly or indirectly from Dealers or finance
subsidiaries of manufacturers and directly or indirectly sold the RV Receivables
to the Trust. NationsCredit Commercial is the assignee and secured party under
the RV Receivables. NationsCredit Commercial takes actions as it deems prudent
under the laws of the state in which the RV is located to perfect NationsCredit
Commercial's security interest in the RV.
Generally, perfection rules relating to security interests in recreational
vehicles are governed under state certificate of title statutes (Alabama,
Connecticut, Georgia, Maine, Massachusetts, Minnesota, Mississippi, New
Hampshire, New York, Rhode Island and Vermont have adopted the Uniform Motor
Vehicle Certificate of Title and Anti-Theft Act) or by the vehicle registration
laws of the state in which each recreational vehicle is located. In states which
have adopted the Uniform Motor Vehicle Certificate of Title and Anti-Theft Act,
security interests in recreational vehicles may be perfected either by notation
of the secured party's lien on the certificate of title or by delivery of the
certificate of title and payment of a fee to the state motor vehicle
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authority, depending on the particular state law. In states in which perfection
of a security interest in a particular motor vehicle is not governed by a
certificate of title statute, perfection is usually accomplished by filing
pursuant to the provisions of the UCC. Notwithstanding the foregoing, in certain
states, folding camping trailers and/or slide-in campers are not subject to
certain titling and vehicle registration laws and a security interest in such
recreational vehicles is perfected by filing pursuant to the provisions of the
UCC. In most states[, including California], a security interest in a
recreational vehicle is perfected by notation of the secured party's lien on the
vehicle's certificate of title.
NationsCredit Commercial takes such measures as it deems prudent to perfect
its security interest in each RV under the laws of the state in which the RV 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 RV at the
time of sale if the RV is subject to a certificate of 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
RV, NationsCredit Commercial will not have a perfected security interest in the
RV under such law and its security interest may be subordinate to the interest
of, among others, subsequent purchasers of the RV, 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.
A security interest in a motor vehicle registered in the State of
California (in which the greatest number of RVs are currently registered) may be
perfected only by depositing with the Department of Motor Vehicles a properly
endorsed certificate of title for the vehicle showing the secured party as
"legal owner" thereon or if the vehicle has not been previously registered, an
application in usual form for an original registration together with an
application for registration of the secured party as "legal owner." However,
under the California Vehicle Code, a transferee of a security interest in a
motor vehicle is not required to reapply to the Department of Motor Vehicles for
a transfer of registration when the interest of the transferee arises from the
transfer of a security agreement by the "legal owner" to secure payment or
performance of an obligation. Accordingly, under California law, an assignment
such as under the Agreement is an effective conveyance of NationsCredit
Commercial's perfected security interest without such re-registration, and under
the Agreement the Trust will be assigned NationsCredit Commercial's rights as
secured party.
If the security interest in the RV is perfected under a certificate of
title statute and an Obligor moves to a state other than the state in which the
RV is registered, under the laws of most certificate of title states the
perfection of the security interest in the RV would continue for a brief period
of time after such relocation. A majority of states issuing certificates of
title on recreational vehicles require surrender of a certificate of title to
re-register a recreational vehicle. 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 RV 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 RV 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 RV 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 RV, re-registration
could defeat perfection. In the ordinary course of servicing its portfolio of
recreational vehicle 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. However, these procedural safeguards will not protect the secured party
if through fraud, forgery or administrative error, the debtor somehow procures a
new certificate of title that does not note the secured party's lien. Similarly,
when an Obligor sells a RV, under the laws of many states, the purchaser cannot
re-register the RV unless NationsCredit Commercial surrenders possession of the
certificate of title and accordingly NationsCredit
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Commercial will have an opportunity to require satisfaction of the related RV
Receivable before release of the lien.
If NationsCredit Commercial has perfected NationsCredit Commercial's
security interest in an RV 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 RV 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 certificate of 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. In the
ordinary course of servicing the RV Receivables, NationsCredit Commercial will
take steps to effect re-perfection upon receipt of notice of re-registration or
information from the Obligor as to relocation. Similarly, when an Obligor sells
a RV, NationsCredit Commercial must surrender possession of the certificate of
title or will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related RV
Receivable before release of the lien. Under the Agreement, the Servicer will be
obligated to take appropriate steps, at its own expense, to maintain perfection
of a security interest in the RVs. 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 RV
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 repairs performed on a
recreational vehicle and certain tax liens take priority even over a perfected
state law security interest. The Internal Revenue Code of 1986, as amended, also
grants priority to certain federal tax liens over the lien of a secured party.
The laws of certain states and federal law permit the confiscation of motor
vehicles by government authorities under certain circumstances if used in
unlawful activities, which may result in the loss of a secured party's perfected
security interest in a confiscated recreational vehicle. The Servicer will
represent and warrant in the Agreement with respect to the RV 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
RV which may be or become prior to or equal with the lien of the related RV
Receivable. However, liens for repairs or taxes could arise at any time during
the term of a RV Receivable. No notice will be given to the Trustee or RV
Certificateholders in the event such a lien or confiscation arises and any such
lien or confiscation arising after the date of initial issuance of the RV
Certificates could not give rise to an obligation of the Servicer to purchase
the RV Receivables under the Agreement. 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 RV Receivable secured by such RV.
Because NationsCredit Commercial continues to service the RV Receivables,
the Obligors on the RV Receivables are not notified of the purchase of the RV
Receivables by the Trust and no action is taken to record the transfer of the
security interests from NationsCredit Commercial to the Trust. Due to the
administrative burden and expense of (i) endorsing the certificate of title of
each RV 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 RVs licensed in states where security interests in
RVs are subject to certificate of title statutes; and (ii) filing amendments to
UCC-1 financing statements relating to each RV (and the payment of related
filing fees) to reflect the Trust's interest therein, in the case of RVs
licensed in states where security interests in RVs 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 most 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
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NationsCredit Commercial's on the certificate of title will be sufficient to
protect the Trust against the rights of subsequent purchasers of a RV or
subsequent lenders who take a security interest in the RV. 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 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 RV 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 RV Receivable secured by the RV involved. See "The Certificates -- Sale and
Assignment of Receivables."
ENFORCEMENT OF SECURITY INTEREST IN BOATS AND RECREATIONAL VEHICLES
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 and RVs securing Defaulted Receivables by repossession and
resale of the Boats and RVs, as applicable. Under the UCC and consumer
protection laws applicable in most states, a creditor can, without prior notice
to the debtor, repossess a boat or recreational vehicle 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 or RV, 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 and RVs, as applicable, unsecured creditors, or
thereafter, to the debtor.
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 or recreational vehicle 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 or RV, 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
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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 and recreational 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 or RV may assert against the
Dealer who sold such financed Boat or RV.
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 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.
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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 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).
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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-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
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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, under recently passed
legislation the use of a prepayment assumption will be required in computing
OID. If the Servicer were to require that OID be computed on a Stripped
Receivable-by-Stripped Receivable basis, 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) (probably taking into
account expected prepayments). 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 would
reduce a Certificate Owner's tax basis. Application of the OID rules,
particularly if Stripped Receivables are not aggregated, would be complex and
could significantly affect the timing of inclusion of income on a Certificate.
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.
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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 (or accrued OID) 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.
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%.
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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 Depositor
believes 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.
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 arm's-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;
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(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.
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."
69
<PAGE> 70
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 October 16, 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 opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
MARINE CERTIFICATES
-------------------
<S> <C>
NationsBanc Montgomery Securities, Inc. .................... $ 60,401,859.96
Salomon Brothers Inc........................................ $ 60,401,859.96
---------------
Total............................................. $120,803,719.92
===============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
RV CERTIFICATES
-------------------
<S> <C>
NationsBanc Montgomery Securities, Inc. .................... $24,193,267.62
Salomon Brothers Inc........................................ $24,193,267.62
--------------
Total............................................. $48,386,535.24
==============
</TABLE>
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 Marine
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 Marine Certificates. The
Underwriters may allow and such dealers may reallow a concession not in excess
of .15% of such principal amount. The Depositor has been advised by the
Underwriters that the Underwriters propose initially to offer the RV
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 .175% of the principal amount of the RV Certificates. The
Underwriters may allow and such dealers may reallow a concession not in excess
of .125% 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 Montgomery Securities, Inc. ("NMSI"), 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 NMSI,
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 NMSI. The offer and sale of any Certificates by NMSI
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
70
<PAGE> 71
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 NMSI 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 NMSI is an affiliate of the Depositor, NMSI is a registered
broker/dealer. Any obligations of NMSI are the sole responsibility of NMSI and
do not create any obligation or guarantee on the part of any affiliate of NMSI.
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-2 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.
71
<PAGE> 72
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
accredited investor......................................... 69
APR......................................................... 17
Agreement................................................... 1
Avoided Payment............................................. 49
Boats....................................................... 4
Business Day................................................ 49
CapMAC...................................................... 8
Cede........................................................ 38
Certificates................................................ 1
Certificate Balance......................................... 6
Certificateholders.......................................... 2
Certificate Owner........................................... 3
Closing Date................................................ 4
Code........................................................ 64
Collateral Agent............................................ 1
Collection Period........................................... 38
Contract Portfolio.......................................... 19
contracts................................................... 15
Commission.................................................. 2
Cutoff Date................................................. 1
Dealer...................................................... 12
Dealer Agreements........................................... 15
Defaulted Marine Receivable................................. 48
Defaulted Receivable........................................ 48
Defaulted RV Receivable..................................... 48
Definitive Certificates..................................... 39
delinquency cure............................................ 18
Depositor................................................... 1
Depository.................................................. 38
Determination Date.......................................... 35
Direct Participants......................................... 38
disqualified persons........................................ 68
Distribution Date........................................... 2
DOL......................................................... 68
DTC......................................................... 3
Duff & Phelps............................................... 36
ERISA....................................................... 9
Events of Default........................................... 53
Exchange Act................................................ 2
Excluded Plan............................................... 69
Exemption................................................... 68
Final Order................................................. 50
FTC Rule.................................................... 63
Holders..................................................... 39
Holdings.................................................... 36
Indirect Participants....................................... 38
Initial Marine Pool Balance................................. 1
Initial Pool Balance........................................ 1
Initial RV Pool Balance..................................... 1
</TABLE>
72
<PAGE> 73
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Insolvency Laws............................................. 35
Insolvency Proceeding....................................... 50
Insurance Agreement......................................... 7
IRS......................................................... 64
Marine Certificate Account.................................. 14
Marine Certificate Balance.................................. 6
Marine Certificate Factor................................... 35
Marine Certificateholders................................... 1
Marine Certificates......................................... 1
Marine Contract Portfolio................................... 19
Marine Cross-Support Amount................................. 48
Marine Distributions........................................ 46
Marine Final Scheduled Distribution Date.................... 2
Marine Contract Group....................................... 1
marine contracts............................................ 15
Marine Pool Balance......................................... 1
Marine Receivable........................................... 1
Marine Reserve Account...................................... 6
Marine Contracts............................................ 15
Monthly Interest Payment.................................... 5
Monthly Marine Interest Payment............................. 5
Monthly Marine Principal Payment............................ 5
Monthly Marine Servicing Fee................................ 44
Monthly RV Interest Payment................................. 5
Monthly RV Principal Payment................................ 6
Monthly RV Servicing Fee.................................... 46
Monthly Principal Payment................................... 6
Moody's..................................................... 9
NASD........................................................ 70
NMSI........................................................ 70
NationsCredit............................................... 4
NationsCredit Commercial.................................... 4
Net Credit Loss Ratio....................................... 54
Obligor..................................................... 12
OID......................................................... 64
OID Regulations............................................. 66
Participants................................................ 38
parties in interest......................................... 68
Paying Agent................................................ 39
Plan........................................................ 68
Pool Balance................................................ 1
Preference Event............................................ 49
Prepayment Assumption....................................... 64
Purchase Amount............................................. 41
Purchase Price.............................................. 66
Rating Agencies............................................. 9
Rating Agency............................................... 9
Receipt..................................................... 49
Received.................................................... 49
Receivable Interest......................................... 65
Receivable Principal........................................ 65
</TABLE>
73
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Receivables................................................. 1
Record Date................................................. 1
recreational vehicle contracts.............................. 15
Regulation.................................................. 68
Restricted Group............................................ 69
Retained Yield.............................................. 65
Rule of 78's Receivables.................................... 67
Rules....................................................... 39
RV Certificate Account...................................... 15
RV Certificate Balance...................................... 6
RV Certificate Factor....................................... 35
RV Certificateholders....................................... 1
RV Certificates............................................. 1
RV Contract Portfolio....................................... 11
RV Cross-Support Amount..................................... 48
RV Distribution............................................. 45
RV Final Scheduled Distribution Date........................ 2
RV Contract Group........................................... 1
RV Pool Balance............................................. 1
RV Receivable............................................... 1
RV Reserve Account.......................................... 7
RVs......................................................... 4
S&P......................................................... 9
Section 2720................................................ 70
Securities Act.............................................. 2
Section 1286 Regulations.................................... 66
Servicer.................................................... 1
Servicer Transfer........................................... 54
Servicing Fee Rate.......................................... 6
Servicing Standards......................................... 54
Ship Mortgage Act........................................... 21
Special Federal Tax Counsel................................. 64
Specified Marine Reserve Account Requirement................ 7
Stripped Receivable......................................... 65
Specified RV Reserve Account Requirement.................... 8
Surety Bond................................................. 1
Surety Bond Issuer.......................................... 1
Surety Bond Issuer Default.................................. 49
Trust....................................................... 1
Trustee..................................................... 1
UCC......................................................... 11
Underwriter(s).............................................. 11
Underwriting Agreement...................................... 70
United States person........................................ 67
</TABLE>
74
<PAGE> 75
[KPMG PEAT MARWICK LLP LETTERHEAD]
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-1
<PAGE> 76
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
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
============ ===========
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C>
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 15,000 15,000
and 1995
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-2
<PAGE> 77
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-3
<PAGE> 78
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 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-4
<PAGE> 79
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-5
<PAGE> 80
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-6
<PAGE> 81
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-7
<PAGE> 82
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-8
<PAGE> 83
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 $2,200,000 of income which has been included
in other income in the accompanying financial statements.
The following entities each accounted for, through referrals and
otherwise, 10% or more of total revenues for each of the periods
presented:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
% of % of % of
Revenues Revenues Revenues
----------------- ----------------- -----------------
<S> <C> <C> <C>
Citicorp 14.5 15.2 16.3
</TABLE>
F-9
<PAGE> 84
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
4) INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses
and estimated fair value for available-for- sale securities by major
security type at December 31, 1996 and 1995 were as follows ($ 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
============ ========== ======== =========
</TABLE>
<TABLE>
<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-10
<PAGE> 85
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-11
<PAGE> 86
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-12
<PAGE> 87
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-13
<PAGE> 88
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
----------- --------- -------
CASE BASIS LOSS RESERVE:
<S> <C> <C> <C>
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-14
<PAGE> 89
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-15
<PAGE> 90
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-16
<PAGE> 91
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-17
<PAGE> 92
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 ASSETS:
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-18
<PAGE> 93
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-19
<PAGE> 94
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
F-20
<PAGE> 95
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
June 30, 1997 December 31,1996
(Unaudited)
------------- ----------------
<S> <C> <C>
INVESTMENTS:
Bonds at fair value (amortized cost $307,166 at June 30,
1997 and $294,861 at December 31, 1996) $ 307,821 297,893
Short-term investments (at amortized cost which
approximates fair value) 17,053 16,810
---------- ----------
Total investments 324,874 314,703
---------- ----------
Cash 4,506 371
Accrued investment income 3,835 3,807
Deferred acquisition costs 50,327 45,380
Premiums receivable 5,826 5,141
Prepaid reinsurance 20,787 18,489
Other assets 10,464 6,424
---------- ----------
TOTAL ASSETS $ 420,619 394,315
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Unearned premiums $ 71,800 68,262
Reserve for losses and loss adjustment expenses 13,861 10,985
Ceded reinsurance 2,766 1,738
Accounts payable and other accrued expenses 14,433 8,019
Current income taxes 203 679
Deferred income taxes 15,700 15,139
---------- ----------
Total liabilities 118,763 104,822
---------- ----------
STOCKHOLDER'S EQUITY:
Common stock - $1.00 par value per share;
15,000,000 shares are authorized,
issued and outstanding at June 30,
1997 and December 31, 1996 15,000 15,000
Additional paid-in capital 208,475 208,475
Unrealized appreciation on investments, net of tax 425 1,970
Retained earnings 77,956 64,048
---------- ----------
Total stockholder's equity 301,856 289,493
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,619 394,315
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 96
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Direct premiums written $ 18,726 18,622 35,180 32,777
Assumed premiums written 655 150 916 1,024
Ceded premiums written (6,272) (5,103) (10,621) (7,013)
---------- ---------- ---------- ----------
Net premiums written 13,109 13,669 25,475 26,788
Increase in unearned premiums (877) (3,681) (1,240) (7,972)
---------- ---------- ---------- ----------
Net premiums earned 12,232 9,988 24,235 18,816
Net investment income 4,684 4,112 9,386 7,989
Net realized capital gains 506 19 2,549 168
Other income 45 25 88 79
---------- ---------- ---------- ----------
Total revenues 17,467 14,144 36,258 27,052
---------- ---------- ---------- ----------
EXPENSES:
Losses and loss adjustment expenses 1,333 1,109 2,876 2,184
Underwriting and operating expenses 4,208 3,385 8,879 7,362
Policy acquisition costs 2,472 2,059 5,053 4,123
---------- ---------- ---------- ----------
Total expenses 8,013 6,553 16,808 13,669
---------- ---------- ---------- ----------
Income before income taxes 9,454 7,591 19,450 13,383
---------- ---------- ---------- ----------
INCOME TAXES:
Current income tax 2,277 1,316 4,150 1,981
Deferred income tax 473 1,148 1,392 1,971
---------- ---------- ---------- ----------
Total income taxes 2,750 2,464 5,542 3,952
---------- ---------- ---------- ----------
NET INCOME $ 6,704 5,127 13,908 9,431
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 97
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
----------------
<S> <C>
COMMON STOCK:
Balance at beginning of period $ 15,000
----------
Balance at end of period 15,000
----------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 208,475
----------
Balance at end of period 208,475
UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENTS, NET OF TAX:
Balance at beginning of period 1,970
Unrealized depreciation on investments (1,545)
----------
Balance at end of period 425
----------
RETAINED EARNINGS:
Balance at beginning of period 64,048
Net income 13,908
----------
Balance at end of period 77,956
----------
TOTAL STOCKHOLDER'S EQUITY $ 301,856
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 98
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,908 9,431
---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses 2,876 1,821
Unearned premiums, net 3,538 10,977
Deferred acquisition costs (4,947) (4,742)
Premiums receivable (685) 308
Accrued investment income (28) (579)
Income taxes payable 916 2,113
Net realized capital gains (2,549) (168)
Accounts payable and other accrued expenses 6,414 2,581
Prepaid reinsurance (2,298) (3,004)
Other, net (2,765) (183)
---------- ----------
Total adjustments 472 9,124
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,380 18,555
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (112,743) (121,115)
Proceeds from sales of investments 74,768 19,875
Proceeds from maturities of investments 27,730 82,800
NET CASH USED IN INVESTING ACTIVITIES (10,245) (18,440)
---------- ----------
Net increase in cash 4,135 115
Cash balance at beginning of period 371 344
---------- ----------
CASH BALANCE AT END OF PERIOD $ 4,506 459
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income taxes paid $ 4,550 1,725
Tax and loss bonds purchased $ 76 112
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 99
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. BACKGROUND
Capital Markets Assurance Corporation ("CapMAC") is a New
York-domiciled monoline stock insurance company which engages only in
the business of financial guaranty and surety insurance. CapMAC is a
wholly owned subsidiary of CapMAC Holdings Inc. ("Holdings"). In early
1997, CapMAC made 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. CapMAC
Assurance, S.A., is licensed to write financial guarantee insurance in
the European Union member states.
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 guaranty reinsurance for structured
asset-backed, corporate, municipal and other financial obligations
written by other major insurance companies.
CapMAC's claims-paying ability is rated triple-A by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Duff & Phelps
Credit Rating Co., and 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. BASIS OF PRESENTATION
CapMAC's consolidated unaudited interim financial statements have been
prepared on the basis of generally accepted accounting principles and,
in the opinion of management, reflect all adjustments necessary for a
fair presentation of the CapMAC's financial condition, results of
operations and cash flows for the periods presented. The results of
operations for the six months ended June 30, 1997 may not be
indicative of the results that may be expected for the full year
ending December 31, 1997. These consolidated financial statements and
notes should be read in conjunction with the financial statements and
notes included in the audited financial statements of CapMAC as of
December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996.
3. RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the
current period presentation.
F-25
<PAGE> 100
======================================================
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.............................. 3
Prospectus Summary..................... 4
Risk Factors........................... 11
The Trust.............................. 14
NationsCredit Commercial's Portfolio of
Marine Contracts and Recreational
Vehicle Contracts.................... 15
The Receivables Pool................... 21
Certificate Factors and Trading
Information.......................... 35
Use of Proceeds........................ 35
The Depositor.......................... 35
The Servicer........................... 36
The Surety Bond Issuer................. 36
The Certificates....................... 37
Certain Legal Aspects of the
Receivables.......................... 57
Certain Federal Income Tax
Consequences......................... 64
ERISA Considerations................... 68
Underwriting........................... 70
Experts................................ 71
Legal Matters.......................... 71
Index of Defined Terms................. 72
Financial Statements................... F-1
</TABLE>
---------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, 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 LOGO
$169,190,255.16
NATIONSCREDIT
GRANTOR TRUST 1997-2
$120,803,719.92 6.35% MARINE
RECEIVABLE-BACKED CERTIFICATES
$48,386,535.24 6.25% RECREATIONAL
VEHICLE RECEIVABLE-BACKED CERTIFICATES
NATIONSCREDIT
SECURITIZATION CORPORATION
DEPOSITOR
NATIONSCREDIT COMMERCIAL
CORPORATION OF AMERICA
SERVICER
----------------
PROSPECTUS
-----------------
NATIONSBANC MONTGOMERY
SALOMON BROTHERS INC
DATED OCTOBER 16, 1997
======================================================
