<PAGE> 1
Rule 424(b)2
Registration Statement No. 333-1245
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 24, 1997
$1,700,006,978.96
FORD CREDIT AUTO OWNER TRUST 1997-B
$490,000,000.00 CLASS A-1 5.748% ASSET BACKED NOTES
$388,000,000.00 CLASS A-2 5.95% ASSET BACKED NOTES
$514,000,000.00 CLASS A-3 6.05% ASSET BACKED NOTES
$189,004,978.96 CLASS A-4 6.15% ASSET BACKED NOTES
$93,501,000.00 CLASS B 6.40% ASSET BACKED NOTES
$25,501,000.00 6.65% ASSET BACKED CERTIFICATES
FORD LOGO
FORD CREDIT AUTO RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
---------------------------
Ford Credit Auto Owner Trust 1997-B (the "Trust") will be governed by an
Amended and Restated Trust Agreement, to be dated as of October 1, 1997, between
Ford Credit Auto Receivables Two L.P. (the "Seller") and PNC Bank, Delaware, as
Owner Trustee. The Trust will issue $490,000,000.00 aggregate initial principal
amount of Class A-1 5.748% Asset Backed Notes (the "Class A-1 Notes"),
$388,000,000.00 aggregate initial principal amount of Class A-2 5.95% Asset
Backed Notes (the "Class A-2 Notes"), $514,000,000.00 aggregate initial
principal amount of Class A-3 6.05% Asset Backed Notes (the "Class A-3 Notes")
and $189,004,978.96 aggregate initial
(continued on following page)
---------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" ON PAGE S-19 HEREIN AND ON PAGE 12 OF THE
ACCOMPANYING PROSPECTUS.
---------------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN
AND ARE NOT GUARANTEED OR INSURED BY, FORD CREDIT AUTO RECEIVABLES TWO L.P.,
FORD CREDIT AUTO RECEIVABLES TWO, INC., FORD MOTOR CREDIT COMPANY, FORD MOTOR
COMPANY OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) DISCOUNT SELLER(1)(2)
----------------- ------------- ------------------
<S> <C> <C> <C>
Per Class A-1 Note.......................................... 100.000000% 0.100% 99.900000%
Per Class A-2 Note.......................................... 99.952401% 0.175% 99.777401%
Per Class A-3 Note.......................................... 99.880522% 0.210% 99.670522%
Per Class A-4 Note(3)....................................... 99.919653% 0.000% 99.919653%
Per Class B Note............................................ 99.862178% 0.250% 99.612178%
Per Certificate............................................. 99.926747% 0.350% 99.576747%
Total....................................................... $1,698,908,772.89 $2,571,406.00 $1,696,337,336.89
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from October 31, 1997.
(2) Before deducting expenses payable by the Seller estimated to be $1,000,000.
(3) The Class A-4 Notes will be purchased directly from the Seller by FCAR Owner
Trust.
---------------------------
This Prospectus Supplement and the Prospectus may be used by Ford Financial
Services, Inc., a wholly owned subsidiary of the Servicer, in connection with
offers and sales related to market-making transactions in the Class A-1 Notes.
Ford Financial Services, Inc. may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale.
The Notes (other than the Class A-4 Notes) and the Certificates are offered
severally by the Underwriters, as specified herein, subject to prior sale and
subject to the Underwriters' right to reject orders in whole or in part. It is
expected that the Class A Notes (other than the Class A-4 Notes) will be ready
for delivery in book-entry form only through the facilities of The Depository
Trust Company ("DTC"), or through Cedel Bank, societe anonyme ("Cedel") or the
Euroclear System ("Euroclear"), and that the Class A-4 Notes, the Class B Notes
and the Certificates will be ready for delivery in fully registered,
certificated form in New York, New York, in each case on or about October 31,
1997 against payment therefor in immediately available funds.
Goldman, Sachs & Co. and Ford Financial Services, Inc. will be the
underwriters of the Class A-1 Notes. Goldman, Sachs & Co., Credit Suisse First
Boston, Merrill Lynch & Co., J.P. Morgan & Co. and Salomon Brothers Inc will be
the co-managers of a syndicate of underwriters that will underwrite the Class
A-2 Notes and the Class A-3 Notes. Goldman, Sachs & Co. will be the sole
underwriter of the Class B Notes and the Certificates.
---------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
FORD FINANCIAL SERVICES, INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SALOMON BROTHERS INC
---------------------------
The date of this Prospectus Supplement is October 24, 1997.
<PAGE> 2
(CONTINUED FROM PREVIOUS PAGE)
principal amount of Class A-4 6.15% Asset Backed Notes (the "Class A-4 Notes"
and, together with the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes, the "Class A Notes") and $93,501,000.00 aggregate principal amount of
Class B 6.40% Asset Backed Notes (the "Class B Notes" and, together with the
Class A Notes, the "Notes") pursuant to an Indenture to be dated as of October
1, 1997, between the Trust and The Chase Manhattan Bank, as Indenture Trustee.
The Trust will also issue $25,501,000.00 aggregate initial principal balance of
6.65% Asset Backed Certificates (the "Certificates" and, together with the
Notes, the "Securities"). The rights of the holders of the Class B Notes will be
subordinated to the rights of the holders of the Class A Notes, and the rights
of Certificateholders will be subordinated to the rights of Noteholders to the
extent described herein. The assets of the Trust will include a pool of motor
vehicle retail installment sale contracts (the "Receivables") secured by
security interests in the motor vehicles financed thereby, including certain
monies due or received thereunder on or after the Cutoff Date (as defined
herein), which will be acquired by the Trust from the Seller on or prior to the
Closing Date, and certain other property, as more fully described herein. See
"Summary -- The Trust Property" herein. The Notes will be secured by the assets
of the Trust pursuant to the Indenture.
Interest on all classes of Notes will accrue at the fixed per annum interest
rates specified above. Interest on the Notes will be due and payable on or about
the fifteenth day of each month (each, a "Distribution Date"), commencing
November 17, 1997. Principal of the Notes will be payable on each Distribution
Date to the extent described herein; however, no principal payments will be made
at any time, including upon the occurrence and during the continuation of an
Event of Default, (i) on the Class A-2 Notes until the Class A-1 Notes have been
paid in full, (ii) on the Class A-3 Notes until the Class A-2 Notes have been
paid in full, (iii) on the Class A-4 Notes until the Class A-3 Notes have been
paid in full or (iv) on the Class B Notes until the Class A-4 Notes have been
paid in full. Payments of principal of and interest on the Class B Notes will be
subordinated in priority to payments due on the Class A Notes as described
herein. Upon the occurrence and during the continuation of an Event of Default
which has resulted in an acceleration of the Notes or following an Insolvency
Event or a dissolution with respect to the Seller or Ford Credit Auto
Receivables Two, Inc., the general partner of the Seller (the "General
Partner"), distributions of principal and interest on the Class B Notes will be
subordinated in priority of payment to payment in full of principal and interest
on the Class A Notes.
The Certificates will represent fractional undivided interests in the Trust.
Interest, to the extent of the Certificate Rate specified above, will be
distributed to the Certificateholders on each Distribution Date and will be
subordinated in priority to payments due on the Notes to the extent described
herein. No distributions of principal on the Certificates will be made until all
the Notes have been paid in full. Upon the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes or following an Insolvency Event or a dissolution with respect to the
Seller or the General Partner, distributions of principal and interest on the
Certificates will be subordinated in priority of payment to payment in full of
principal and interest on the Notes.
The Class A-1 Notes will be payable in full on the October 1998 Distribution
Date, the Class A-2 Notes will be payable in full on the January 2000
Distribution Date, the Class A-3 Notes will be payable in full on the April 2001
Distribution Date, the Class A-4 Notes will be payable in full on the October
2001 Distribution Date and the Class B Notes will be payable in full on the May
2002 Distribution Date. The final scheduled Distribution Date with respect to
the Certificates will be the April 2003 Distribution Date. However, payment in
full of a class of Notes or of the Certificates could occur earlier or later
than such dates as described herein. In addition, the Class A-4 Notes and the
Class B Notes will be subject to redemption in whole, but not in part, and the
Certificates will be subject to prepayment in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the aggregate
principal balance of the Receivables shall have declined to 10% or less of the
initial aggregate principal balance of the Receivables acquired by the Trust.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE NOTES AND THE
CERTIFICATES, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS,
SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING" HEREIN.
S-2
<PAGE> 3
REPORTS TO SECURITYHOLDERS
Periodic and annual unaudited reports containing information concerning the
Receivables will be prepared by the Servicer and sent by the Indenture Trustee
on behalf of the Trust to Cede & Co., as nominee of DTC and registered holder of
the Class A Notes (other than the Class A-4 Notes), unless and until such Class
A Notes are issued as Definitive Notes, and to the registered holders of the
Class A-4 Notes and the Class B Notes. Periodic and annual unaudited reports
containing information concerning the Receivables will be prepared by the
Servicer and sent by the Owner Trustee on behalf of the Trust to the registered
holders of the Certificates. See "Certain Information Regarding the Securities
- -- Book-Entry Registration" and "-- Reports to Securityholders" in the
accompanying Prospectus (the "Prospectus"). Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The Seller, as originator of the Trust, will file with the
Securities and Exchange Commission (the "Commission") such periodic reports as
are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder. In
addition, the Commission maintains a public access site on the Internet through
the World Wide Web at which site reports, information statements and other
information, including all electronic filings, may be viewed. The Internet
address of such World Wide Web site is http://www.sec.gov.
S-3
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S-4
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
ISSUER........................ Ford Credit Auto Owner Trust 1997-B (the
"Trust" or the "Issuer"), a Delaware business
trust established pursuant to a trust
agreement (as amended and restated on the
Closing Date and as amended and supplemented
thereafter, the "Trust Agreement") dated as
of October 1, 1997, between the Seller and
the Owner Trustee.
SELLER........................ Ford Credit Auto Receivables Two L.P., a
Delaware limited partnership (the "Seller").
SERVICER...................... Ford Motor Credit Company, a Delaware
corporation (the "Servicer" or "Ford
Credit").
INDENTURE TRUSTEE............. The Chase Manhattan Bank, a New York
corporation, as trustee under the Indenture
(the "Indenture Trustee").
OWNER TRUSTEE................. PNC Bank, Delaware, a Delaware banking
corporation, as trustee under the Trust
Agreement (the "Owner Trustee").
THE NOTES..................... The Trust will issue Asset Backed Notes (the
"Notes") pursuant to an Indenture to be dated
as of October 1, 1997 (as amended and
supplemented from time to time, the
"Indenture"), between the Issuer and the
Indenture Trustee, as follows: (1) Class A-1
5.748% Asset Backed Notes (the "Class A-1
Notes") in the aggregate initial principal
amount of $490,000,000.00; (2) Class A-2
5.95% Asset Backed Notes (the "Class A-2
Notes") in the aggregate initial principal
amount of $388,000,000.00; (3) Class A-3
6.05% Asset Backed Notes (the "Class A-3
Notes") in the aggregate initial principal
amount of $514,000,000.00; (4) Class A-4
6.15% Asset Backed Notes (the "Class A-4
Notes") in the aggregate initial principal
amount of $189,004,978.96; and (5) Class B
6.40% Asset Backed Notes (the "Class B
Notes") in the aggregate initial principal
amount of $93,501,000.00. The Class A-1
Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes are referred to
herein collectively as the "Class A Notes."
The Class A-4 Notes will be purchased
directly from the Seller by FCAR Owner Trust,
a Delaware business trust.
The rights of the holders of the Class B Notes
(the "Class B Noteholders") to receive
distributions with respect to the Class B
Notes will be subordinated to the rights of
the holders of the Class A Notes (the "Class
A Noteholders") to receive distributions with
respect to the Class A Notes to the extent
described herein.
The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
The Class A Notes (other than the Class A-4
Notes) will be available for purchase in book
entry form only in minimum denominations of
$1,000 and integral multiples thereof. No
S-5
<PAGE> 6
person acquiring a beneficial ownership
interest in Notes (a "Note Owner") other than
the Class A-4 Notes and the Class B Notes
will be entitled to receive Definitive Notes,
except in the limited circumstances described
herein. See "Certain Information Regarding
the Securities -- Definitive Securities" in
the Prospectus.
The Class A-4 Notes will be issued, and the
Class B Notes will be available for purchase,
in minimum denominations of $1,000 and
integral multiples thereof, provided that a
single Class A-4 Note may be issued in a
denomination of less than $1,000. The Class
A-4 Notes and the Class B Notes will be
issued in fully registered, certificated form
("Definitive Class A-4 Notes" and "Definitive
Class B Notes", respectively) to Class A-4
Noteholders or Class B Noteholders, as the
case may be, or their respective nominees.
See "Certain Information Regarding the
Securities -- Definitive Securities" in the
Prospectus. Purchasers of Class B Notes and
their assignees (i) must represent that they
are United States persons and provide a
certification of non-foreign status under
penalties of perjury and (ii) must represent
and certify that they are not employee
benefit plans or certain other plans or
arrangements subject to the fiduciary
responsibility provisions of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended
(the "Code") and are not purchasing Class B
Notes on behalf of such a plan or
arrangement.
THE CERTIFICATES.............. The Trust will issue 6.65% Asset Backed
Certificates (the "Certificates" and,
together with the Notes, the "Securities")
with an aggregate initial Certificate Balance
of $25,501,000.00. The Certificates will
represent fractional undivided interests in
the Trust and will be issued pursuant to the
Trust Agreement.
The Certificates will be available for purchase
in minimum denominations of $20,000 and
integral multiples of $1,000 in excess
thereof. The Certificates will be issued in
fully registered, certificated form
("Definitive Certificates") to
Certificateholders or their nominees. See
"Certain Information Regarding the Securities
-- Definitive Securities" in the Prospectus.
Purchasers of Certificates and their
assignees (i) must represent that they are
United States persons and provide a
certification of non-foreign status under
penalties of perjury and (ii) must represent
and certify that they are not employee
benefit plans or certain other plans or
arrangements subject to the fiduciary
responsibility provisions of ERISA or Section
4975 of the Code and are not purchasing
Certificates on behalf of such a plan or
arrangement.
The rights of the Certificateholders to receive
distributions with respect to the
Certificates will be subordinated to the
rights of the Noteholders to receive payments
on the Notes to the extent described herein.
S-6
<PAGE> 7
THE TRUST PROPERTY............ The property of the Trust will include (i) the
Receivables; (ii) with respect to Precomputed
Receivables, all monies due thereunder on or
after the Cutoff Date and with respect to
Simple Interest Receivables, all monies due
or received thereunder on or after the Cutoff
Date; (iii) security interests in the
Financed Vehicles and any accessions thereto;
(iv) the rights to proceeds from claims on
certain physical damage, credit life, credit
disability or other insurance policies, if
any, covering the Financed Vehicles or the
Obligors; (v) any Dealer Recourse; (vi) the
Seller's rights to certain documents and
instruments relating to the Receivables;
(vii) such amounts as from time to time may
be held in one or more accounts maintained
pursuant to the Sale and Servicing Agreement,
as described herein, including the Reserve
Account; (viii) certain rights under the Sale
and Servicing Agreement; (ix) certain rights
under the Purchase Agreement, including the
right of the Seller to cause Ford Credit to
repurchase Receivables from the Seller; (x)
certain payments and proceeds with respect to
the Receivables held by the Servicer; (xi)
certain rebates of premiums and other amounts
relating to certain insurance policies and
other items financed under the Receivables;
and (xii) any and all proceeds of the
foregoing. The rights and benefits with
respect to such property will be assigned by
the Trust to the Indenture Trustee for the
benefit of the Noteholders. The property of
the Trust does not include the Payahead
Account.
THE RECEIVABLES............... On October 31, 1997 (the "Closing Date"), the
Trust will acquire Receivables (the
"Receivables") having an aggregate principal
balance of $1,700,006,978.96 as of October 1,
1997 (the "Cutoff Date") from the Seller
pursuant to a Sale and Servicing Agreement to
be dated as of October 1, 1997 (as amended
and supplemented from time to time, the "Sale
and Servicing Agreement"), among the Trust,
the Seller and the Servicer. As of the Cutoff
Date, the weighted average annual percentage
rate ("APR") of the Receivables was
approximately 10.92%, the weighted average
remaining maturity of the Receivables was
approximately 47.4 months and the weighted
average original maturity of the Receivables
was approximately 55.6 months.
The Receivables will be acquired by the Seller
from Ford Credit pursuant to a Purchase
Agreement between the Seller and Ford Credit
(as amended and supplemented from time to
time, the "Purchase Agreement"). The
Receivables have been selected from the
retail installment sale contracts owned by
Ford Credit based on the criteria specified
in the Sale and Servicing Agreement and
described herein and in the Prospectus. No
Receivable has a scheduled maturity later
than March 31, 2003 (the "Final Scheduled
Maturity Date").
S-7
<PAGE> 8
The "Pool Balance" at any time will represent
the aggregate principal balance of the
Receivables at the end of the preceding
Collection Period, after giving effect to all
payments (other than Payaheads) received from
Obligors, Liquidation Proceeds, Advances and
Purchase Amounts to be remitted by the
Servicer or the Seller, as the case may be,
all for such Collection Period and all
Realized Losses during such Collection
Period. "Realized Losses" means the excess of
the principal balance of any Liquidated
Receivable over Liquidation Proceeds to the
extent allocable to principal.
TERMS OF THE NOTES............ The principal terms of the Notes will be as
described below:
A. DISTRIBUTION DATES......... Payments of interest and principal on the Notes
will be made on the fifteenth day of each
month or, if any such day is not a Business
Day, on the next succeeding Business Day
(each, a "Distribution Date"), commencing
November 17, 1997. Payments will be made to
holders of record of the Notes (the
"Noteholders") as of the related Record Date.
A "Business Day" is a day other than a
Saturday, a Sunday or a day on which banking
institutions or trust companies in The City
of New York or the State of Delaware are
authorized by law, regulation or executive
order to be closed. With respect to any
Distribution Date, the "Record Date" with
respect to the Class A Notes (other than the
Class A-4 Notes) is the day immediately
preceding such Distribution Date or, if such
Class A Notes are issued as Definitive Notes,
the last day of the preceding month, and with
respect to the Class A-4 Notes and the Class
B Notes is the last day of the preceding
month.
B. NOTE INTEREST RATES........ The Class A-1 Notes will bear interest at the
rate of 5.748% per annum (the "Class A-1
Rate"), the Class A-2 Notes will bear
interest at the rate of 5.95% per annum (the
"Class A-2 Rate"), the Class A-3 Notes will
bear interest at the rate of 6.05% per annum
(the "Class A-3 Rate"), the Class A-4 Notes
will bear interest at the rate of 6.15% per
annum (the "Class A-4 Rate") and the Class B
Notes will bear interest at the rate of 6.40%
per annum (the "Class B Rate"). The interest
rates for the various classes of Notes are
referred to herein collectively as the "Note
Interest Rates."
C. INTEREST................... Interest on the outstanding principal amount of
the Notes of each class will accrue at the
applicable Note Interest Rate for the period
(i) with respect to the Class A-1 Notes, from
and including the Closing Date (in the case
of the first Distribution Date) or from and
including the most recent Distribution Date
on which interest has been paid to but
excluding the following Distribution Date and
(ii) with respect to each class of Notes
other than the Class A-1 Notes, from and
including the Closing Date (in the case of
the first Distribution Date) or from and
including the fifteenth day of the calendar
month preceding each Distribution Date to but
excluding the fifteenth day of the
S-8
<PAGE> 9
following calendar month (each, an "Interest
Period") and will be due and payable on each
Distribution Date. Interest on the Class A-1
Notes will be calculated on the basis of
actual days elapsed and a 360-day year.
Interest on each class of Notes other than
the Class A-1 Notes will be calculated on the
basis of a 360-day year of twelve 30-day
months.
Interest on the Class B Notes will not be paid
on any Distribution Date until the amount of
accrued interest on the Class A Notes and the
First Priority Principal Distribution Amount
have been paid in full. Notwithstanding the
Events of Default described in the Prospectus
under the caption "Description of the Notes
-- The Indenture -- Events of Default; Rights
upon Event of Default," until the Class A
Notes have been paid in full, the failure to
pay interest due on the Class B Notes will
not be an Event of Default. Upon the
occurrence and during the continuation of an
Event of Default which has resulted in an
acceleration of the Notes or following an
Insolvency Event or a dissolution with
respect to the Seller or the General Partner,
distributions of principal and interest on
the Class B Notes will be subordinated in
priority of payment to payment in full of
principal and interest on the Class A Notes.
Interest payments on the Notes will be derived
generally from funds on deposit in the
Collection Account with respect to the
Collection Period preceding the related
Distribution Date (including funds, if any,
deposited therein from the Reserve Account
and the Payahead Account) remaining after the
payment of (i) the Servicing Fee and (ii) in
the case of the Class B Notes, the interest
due on the Class A Notes and the First
Priority Principal Distribution Amount. If
the amount available for interest payments on
the Class A Notes is less than the amount of
interest payable on the Class A Notes on any
Distribution Date, each of the holders of the
Class A-1 Notes (the "Class A-1
Noteholders"), the holders of the Class A-2
Notes (the "Class A-2 Noteholders"), the
holders of the Class A-3 Notes (the "Class
A-3 Noteholders") and the holder of the Class
A-4 Notes (the "Class A-4 Noteholder") will
receive their ratable share (based upon the
total amount of interest due to such Class A
Noteholders) of the aggregate amount
available to be distributed in respect of
interest on the Class A Notes. See
"Description of the Notes -- Payments of
Interest" herein.
D. PRINCIPAL.................. Principal of the Notes will be payable on each
Distribution Date in an amount equal to the
sum of the First Priority Principal
Distribution Amount, the Second Priority
Principal Distribution Amount and the Third
Priority Principal Distribution Amount for
such Distribution Date generally to the
extent of funds available following payment
of (i) the Servicing Fee, (ii) the interest
due on the Class A Notes, (iii) in the case
of the Second Priority Principal Distribution
Amount, the First Priority Principal
Distribution
S-9
<PAGE> 10
Amount and the interest due on the Class B
Notes and (iv) in the case of the Third
Priority Principal Distribution Amount, the
First Priority Principal Distribution Amount,
the interest due on the Class B Notes, the
Second Priority Principal Distribution
Amount, the interest due on the Certificates
and all required deposits to the Reserve
Account with respect to such Distribution
Date, from the funds on deposit in the
Collection Account with respect to the
Collection Period preceding such Distribution
Date (including funds, if any, deposited
therein from the Reserve Account and the
Payahead Account).
The "First Priority Principal Distribution
Amount" with respect to any Distribution Date
will generally equal the excess, if any, of
(a) the Minimum Required Class A Note
Overcollateralization Amount over (b) the
Actual Class A Note Overcollateralization
Amount.
The "Minimum Required Class A Note
Overcollateralization Amount" with respect to
any Distribution Date means the lesser of (x)
$80,750,332 and (y) 7.50% of the Pool Balance
at the end of the Collection Period preceding
such Distribution Date.
The "Actual Class A Note Overcollateralization
Amount" with respect to any Distribution Date
means the sum of (x) the Pool Balance at the
end of the Collection Period preceding such
Distribution Date minus (y) the aggregate
outstanding principal amount of the Class A
Notes as of the preceding Distribution Date
(after giving effect to any principal
payments made on such preceding Distribution
Date).
The "Second Priority Principal Distribution
Amount" with respect to any Distribution Date
will generally equal the sum of (i) the
excess, if any, of (a) the Minimum Required
Class B Note Overcollateralization Amount
over (b) the Actual Class B Note
Overcollateralization Amount, minus (ii) the
First Priority Principal Distribution Amount,
if any, with respect to such Distribution
Date.
The "Minimum Required Class B Note
Overcollateralization Amount" with respect to
any Distribution Date means the lesser of (x)
$8,500,035 and (y) 5.00% of the Pool Balance
at the end of the Collection Period preceding
such Distribution Date.
The "Actual Class B Note Overcollateralization
Amount" with respect to any Distribution Date
means the sum of (x) the Pool Balance at the
end of the Collection Period preceding such
Distribution Date minus (y) the aggregate
outstanding principal amount of the Notes as
of the preceding Distribution Date (after
giving effect to any principal payments made
on such preceding Distribution Date).
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The "Third Priority Principal Distribution
Amount" with respect to any Distribution Date
will generally equal the sum of (i) the
greater of (1) the aggregate outstanding
principal amount of the Class A-1 Notes as of
the preceding Distribution Date (after giving
effect to any principal payments made on such
preceding Distribution Date) and (2) the
excess, if any, of (a) the sum of the
aggregate outstanding principal amount of the
Notes and the Certificate Balance as of the
preceding Distribution Date (after giving
effect to any principal payments made on such
preceding Distribution Date) over (b) the sum
of (x) the Pool Balance at the end of the
Collection Period preceding such Distribution
Date minus (y) the Specified
Overcollateralization Amount with respect to
such Distribution Date, minus (ii) the sum of
the First Priority Principal Distribution
Amount, if any, and the Second Priority
Principal Distribution Amount, if any, each
with respect to such Distribution Date.
The "Specified Overcollateralization Amount"
with respect to any Distribution Date means
the excess, if any, of (a) the Specified
Credit Enhancement Amount over (b) the
Specified Reserve Balance, each with respect
to such Distribution Date.
The "Specified Credit Enhancement Amount" with
respect to any Distribution Date means the
greater of $17,000,070 or 5.00% of the Pool
Balance at the end of the Collection Period
preceding such Distribution Date.
The "Specified Reserve Balance" means (i) with
respect to any Distribution Date prior to the
Reserve Account Determination Date,
$34,000,140 and (ii) with respect to any
Distribution Date on or after the Reserve
Account Determination Date, the greater of
$8,500,035 or 2.00% of the Pool Balance at
the end of the Collection Period preceding
such Distribution Date; provided that the
Specified Reserve Balance may be reduced from
time to time if the Rating Agencies (as
defined herein) have delivered prior written
notice to the Seller, the Servicer, the
Indenture Trustee and the Owner Trustee that
such reduction will not result in a
reduction, withdrawal or qualification of
each Rating Agency's then current ratings of
each class of the Notes and the Certificates.
The "Reserve Account Determination Date" means
the November 1998 Distribution Date.
A "Collection Period" means, with respect to
the first Distribution Date, the calendar
month ending on October 31, 1997, and with
respect to each subsequent Distribution Date,
the calendar month preceding the calendar
month in which such Distribution Date occurs.
On the Business Day immediately preceding each
Distribution Date (a "Determination Date")
the Indenture Trustee
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will determine the amount in the Collection
Account for distribution on such Distribution
Date. Payments to Securityholders will be
made on each Distribution Date in accordance
with such determination.
Payments of principal on the Notes will be made
on each Distribution Date in the amounts and
subject to the priorities described in
"Description of the Notes -- Payments of
Principal" herein.
The outstanding principal amount of the Class
A-1 Notes, to the extent not previously paid,
will be payable on the October 1998
Distribution Date (the "Class A-1 Final
Scheduled Distribution Date"), the
outstanding principal amount of the Class A-2
Notes, to the extent not previously paid,
will be payable on the January 2000
Distribution Date (the "Class A-2 Final
Scheduled Distribution Date"), the
outstanding principal amount of the Class A-3
Notes, to the extent not previously paid,
will be payable on the April 2001
Distribution Date (the "Class A-3 Final
Scheduled Distribution Date"), the
outstanding principal amount of the Class A-4
Notes, to the extent not previously paid,
will be payable on the October 2001
Distribution Date (the "Class A-4 Final
Scheduled Distribution Date") and the
outstanding principal amount of the Class B
Notes, to the extent not previously paid,
will be payable on the May 2002 Distribution
Date (the "Class B Final Scheduled
Distribution Date").
E. OPTIONAL REDEMPTION........ The Class A-4 Notes and the Class B Notes will
be redeemed in whole, but not in part, at a
redemption price equal to the unpaid
principal amount of such Notes plus accrued
and unpaid interest thereon on any
Distribution Date on which the Servicer
exercises its option to purchase the
Receivables, which can occur after the Pool
Balance declines to 10% or less of the
Initial Pool Balance. See "Description of the
Notes -- Optional Redemption" herein. The
"Initial Pool Balance" will equal the
aggregate principal balance of the
Receivables as of the Cutoff Date.
LIMITED RIGHTS................ If an Event of Default occurs under the
Indenture, the Class B Noteholders will not
have any right to direct or to consent to any
actions by the Indenture Trustee, including
the sale of Receivables, until the Class A
Notes have been paid in full, and if an Event
of Servicing Termination occurs, the Class B
Noteholders will not have any right to direct
or consent to removal of the Servicer until
the Class A Notes have been paid in full.
Notwithstanding the Events of Default
described in the Prospectus under the caption
"Description of the Notes -- The Indenture --
Events of Default; Rights upon Event of
Default," until the Class A Notes have been
paid in full, the failure to pay interest due
on the Class B Notes will not be an Event of
Default. See "Risk Factors -- Subordination,"
"Description of the Notes -- The Indenture --
Events of Default;
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Rights upon Event of Default" and
"Description of the Transfer and Servicing
Agreements -- Rights Upon Event of Servicing
Termination" and "-- Waiver of Past Events of
Servicing Termination" herein.
TERMS OF THE CERTIFICATES..... The principal terms of the Certificates will be
as described below:
A. DISTRIBUTION DATES......... Distributions with respect to the Certificates
will be made on each Distribution Date.
Distributions will be made to holders of
record of the Certificates (the
"Certificateholders," and, together with the
Noteholders, the "Securityholders") as of the
related Record Date. With respect to any
Distribution Date and the Certificates, the
"Record Date" is the last day of the month
preceding the Distribution Date.
B. CERTIFICATE RATE........... 6.65% per annum (the "Certificate Rate").
C. INTEREST................... On each Distribution Date, the Owner Trustee
will distribute pro rata to
Certificateholders accrued interest at the
Certificate Rate on the outstanding
Certificate Balance generally to the extent
of funds available following payment of (i)
the Servicing Fee, (ii) the interest due on
the Class A Notes, (iii) the First Priority
Principal Distribution Amount, (iv) the
interest due on the Class B Notes and (v) the
Second Priority Principal Distribution
Amount, from the funds on deposit in the
Collection Account with respect to the
Collection Period preceding such Distribution
Date (including funds, if any, deposited
therein from the Reserve Account and the
Payahead Account). Interest in respect of a
Distribution Date will accrue from and
including the Closing Date (in the case of
the first Distribution Date) or from and
including the fifteenth day of the calendar
month preceding each Distribution Date to but
excluding the fifteenth day of the following
calendar month. Interest will be calculated
on the basis of a 360-day year consisting of
twelve 30-day months. Upon the occurrence and
during the continuation of an Event of
Default which has resulted in an acceleration
of the Notes or following an Insolvency Event
or a dissolution with respect to the Seller
or the General Partner, distributions of
principal and interest on the Certificates
will be subordinated in priority of payment
to payment in full of principal and interest
on the Notes.
D. PRINCIPAL.................. No distributions of principal on the
Certificates will be made until all the Notes
have been paid in full. On each Distribution
Date commencing on the Distribution Date on
which all the Notes are paid in full,
principal of the Certificates will be payable
in an amount equal to the sum of the First
Priority Principal Distribution Amount, the
Second Priority Principal Distribution Amount
and the Third Priority Principal Distribution
Amount for such Distribution Date, generally
to the extent of funds available following
payment of (i) the Servicing Fee, (ii) the
interest due on the Class A Notes, (iii) in
the case of the Second Priority
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<PAGE> 14
Principal Distribution Amount, the First
Priority Principal Distribution Amount and
the interest due on the Class B Notes and
(iv) in the case of the Third Priority
Principal Distribution Amount, the First
Priority Principal Distribution Amount, the
interest due on the Class B Notes, the Second
Priority Principal Distribution Amount, the
interest due on the Certificates and all
required deposits to the Reserve Account with
respect to such Distribution Date, from the
funds on deposit in the Collection Account
with respect to the Collection Period
preceding such Distribution Date (including
funds, if any, deposited therein from the
Reserve Account and the Payahead Account).
The outstanding Certificate Balance, if any,
of the Certificates will be payable in full
on the April 2003 Distribution Date (the
"Final Scheduled Distribution Date").
E. OPTIONAL PREPAYMENT........ If the Servicer exercises its option to
purchase the Receivables, which can occur
after the Pool Balance declines to 10% or
less of the Initial Pool Balance, the
Certificateholders will receive an amount in
respect of the Certificates equal to the
Certificate Balance together with accrued and
unpaid interest thereon, and the Certificates
will be retired. See "Description of the
Certificates -- Optional Prepayment" herein.
RESERVE ACCOUNT............... The Reserve Account will be created with an
initial deposit by the Seller on the Closing
Date of cash or Permitted Investments having
a principal amount of $34,000,140 (the
"Reserve Initial Deposit"). The Reserve
Account will be maintained as an account in
the name of the Indenture Trustee for the
benefit of Securityholders.
Funds on deposit in the Reserve Account on any
Distribution Date in excess of the Specified
Reserve Balance for such Distribution Date
will be withdrawn from the Reserve Account
and deposited in the Collection Account. Such
funds will be available on such Distribution
Date to pay the Servicing Fee (including any
unpaid Servicing Fees from prior Collection
Periods) and to make required payments of
interest and principal on the Notes and the
Certificates.
Funds will be withdrawn from the Reserve
Account up to the remaining amount on deposit
therein (after giving effect to withdrawals
in respect of funds on deposit therein in
excess of the Specified Reserve Balance) to
the extent that the funds on deposit in the
Collection Account with respect to the
Collection Period preceding any Distribution
Date are insufficient for the payment of the
Servicing Fee (including any unpaid Servicing
Fees from prior Collection Periods), the
interest due on the Class A Notes, the First
Priority Principal Distribution Amount, the
interest due on the Class B Notes, the Second
Priority Principal Distribution Amount and
the interest due on the Certificates
(collectively, the "Total Required Payment").
Such funds will be deposited in the
Collection Account and used to pay the Total
Required Payment. Upon the occurrence and
during the continuation of an Event of
Default which
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has resulted in an acceleration of the Notes
or following an Insolvency Event or a
dissolution with respect to the Seller or the
General Partner, the Total Required Payment
will equal the sum of the Servicing Fee
(including any unpaid Servicing Fees from
prior Collection Periods), the interest due
on the Notes and the amount necessary to pay
the aggregate outstanding principal amount of
all the Notes in full.
On the Final Scheduled Distribution Date with
respect to any class of Notes or the
Certificates, to the extent that funds on
deposit in the Collection Account with
respect to the Collection Period preceding
such Distribution Date (including funds
deposited therein from the Reserve Account in
respect of funds in excess of the Specified
Reserve Balance and in respect of the Total
Required Payment) are insufficient to pay
such class of Notes or the Certificates in
full in accordance with the priorities
described in "Description of the Transfer and
Servicing Agreements -- Distributions"
herein, funds will be withdrawn from the
Reserve Account up to the remaining amount on
deposit therein to the extent necessary to
pay such class of Notes or the Certificates
in full. Such funds will be deposited in the
Collection Account and used to pay such class
of Notes or the Certificates in full.
On each Distribution Date, the Reserve Account
will be reinstated up to the Specified
Reserve Balance generally to the extent, if
any, of the funds on deposit in the
Collection Account with respect to the
Collection Period preceding such Distribution
Date remaining after payment of the Servicing
Fee (including any unpaid Servicing Fees from
prior Collection Periods), the interest due
on the Class A Notes, the First Priority
Principal Distribution Amount, the interest
due on the Class B Notes, the Second Priority
Principal Distribution Amount and the
interest due on the Certificates. See
"Description of the Transfer and Servicing
Agreements -- Reserve Account" herein.
COLLECTION ACCOUNT............ Except under certain conditions described
herein, the Servicer will be required to
remit collections received with respect to
the Receivables not later than the second
Business Day after receipt to one or more
accounts in the name of the Indenture Trustee
(the "Collection Account"). Pursuant to the
Sale and Servicing Agreement, the Servicer
will have the power, revocable at the
discretion of the Indenture Trustee or at the
discretion of the Owner Trustee with the
consent of the Indenture Trustee, to instruct
the Indenture Trustee to withdraw funds on
deposit in the Collection Account with
respect to the Collection Period preceding
each Distribution Date and to apply such
funds on such Distribution Date to the
following (in the priority indicated): (i)
the Servicing Fee for the prior Collection
Period and any overdue Servicing Fees to the
Servicer, (ii) the interest due on the Class
A Notes to
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<PAGE> 16
the Class A Noteholders, (iii) the First
Priority Principal Distribution Amount into
the Principal Distribution Account, (iv) the
interest due on the Class B Notes to the
Class B Noteholders, (v) the Second Priority
Principal Distribution Amount into the
Principal Distribution Account, (vi) the
interest due on the Certificates into the
Certificate Distribution Account, (vii) the
amount, if any, required to be deposited into
the Reserve Account to the Reserve Account,
(viii) the Third Priority Principal
Distribution Amount into the Principal
Distribution Account and (ix) the remaining
balance, if any, to the Seller; provided,
however, that on each Distribution Date
following the occurrence of an Event of
Default which has resulted in an acceleration
of the Notes or following an Insolvency Event
or a dissolution with respect to the Seller
or the General Partner, (x) principal and
interest on the Class A Notes must be paid in
full prior to the distribution of any amounts
on the Class B Notes and (y) principal and
interest on the Notes must be paid in full
prior to the distribution of any amounts on
the Certificates.
SERVICER FEE.................. The Servicer will receive each month a fee for
servicing the Receivables (the "Servicing
Fee") equal to the product of one-twelfth of
1.00% (the "Servicing Fee Rate") and the Pool
Balance outstanding at the beginning of the
previous month. In addition, the Servicer
will receive any late, prepayment, and other
administrative fees and expenses collected
during each month and any reinvestment
proceeds on any payments received in respect
of the Receivables (the "Supplemental
Servicing Fee" and, together with the
Servicing Fee, the "Servicer Fee").
MATURITY AND PREPAYMENT
CONSIDERATIONS............. No principal payments will be made at any time,
including upon the occurrence and during the
continuation of an Event of Default, (i) on
the Class A-2 Notes until the Class A-1 Notes
have been paid in full, (ii) on the Class A-3
Notes until the Class A-2 Notes have been
paid in full, (iii) on the Class A-4 Notes
until the Class A-3 Notes have been paid in
full or (iv) on the Class B Notes until the
Class A-4 Notes have been paid in full. In
addition, no distributions of principal on
the Certificates will be made until all the
Notes have been paid in full. As the rate of
payment of principal of each class of Notes
and the Certificates depends on the rate of
payment (including prepayments) of the
principal balance of the Receivables, final
payment of any class of Notes and the final
distribution in respect of the Certificates
could occur significantly earlier than the
respective Final Scheduled Distribution
Dates. Reinvestment risk associated with
early payment of the Notes and the
Certificates will be borne exclusively by the
Noteholders and the Certificateholders,
respectively.
It is expected that final payment of each class
of Notes and the final distribution in
respect of the Certificates will occur on or
prior to the respective Final Scheduled
Distribution
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<PAGE> 17
Dates. However, if sufficient funds are not
available to pay any class of Notes or the
Certificates in full on or prior to the
respective Final Scheduled Distribution
Dates, final payment of such class of Notes
and the final distribution in respect of the
Certificates could occur later than such
dates.
All of the Receivables are prepayable at any
time. Prepayments that do not constitute
Payaheads will shorten the weighted average
remaining term of the Receivables and may
shorten the weighted average life of the
Securities. Such prepayments will be
deposited in the Collection Account and will
be used to make required payments as set
forth in the priority of distributions
herein. See "Description of the Transfer and
Servicing Agreements -- Distributions"
herein.
CLEARANCE AND SETTLEMENT...... Class A Noteholders may elect to hold their
Class A Notes (other than the Class A-4
Notes) through any of DTC (in the United
States) or Cedel or Euroclear (in Europe).
Transfers within DTC, Cedel or Euroclear, as
the case may be, will be in accordance with
the usual rules and operation procedures of
the relevant system. Cross-market transfers
between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other,
will be effected in DTC through the relevant
Depositaries of Cedel or Euroclear. See
"Certain Information Regarding the Securities
-- Book-Entry Registration" in the
Prospectus.
TAX STATUS.................... In the opinion of Skadden, Arps, Slate, Meagher
& Flom LLP ("Special Tax Counsel"), for
federal income tax purposes, the Trust will
not be characterized as an association (or
publicly traded partnership) taxable as a
corporation, the Class A Notes will be
characterized as debt, and, while the issue
is not free from doubt, the Class B Notes
should be treated as debt. In the opinion of
J.D. Bringard, Esq., Vice President --
General Counsel of the Servicer ("Michigan
Tax Counsel"), the same characterization will
apply for Michigan income and Single Business
Tax purposes. Each Noteholder, by the
acceptance of a Note, will be deemed to agree
to treat the Notes as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate, will be deemed to agree to treat
the Trust as a partnership in which the
Certificateholders are partners for federal
income and Michigan income and Single
Business Tax purposes. Certificateholders may
be allocated income equal to the amount of
interest accruing on the Certificates at the
Certificate Rate even though the Trust may
not have sufficient cash to make current cash
distributions of such amount. See "Certain
Federal Income Tax Consequences" herein and
in the Prospectus and "Certain State Tax
Consequences"
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<PAGE> 18
herein for additional information concerning
the application of federal income and
Michigan tax laws, respectively, to the Trust
and the Securities.
ERISA CONSIDERATIONS.......... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Class A Notes may, in
general, be purchased by or on behalf of
employee benefit plans subject to ERISA. Any
employee benefit plan fiduciary considering a
purchase of Class A Notes should, among other
things, consult with legal counsel regarding
the availability of a statutory or
administrative exemption from the prohibited
transaction rules of ERISA and Section 4975
of the Code.
The Class B Notes and the Certificates may not
be acquired by an employee benefit plan
subject to the fiduciary responsibility
provisions of ERISA or Section 4975 of the
Code, or by an individual retirement account.
Any investor considering the purchase of
Class B Notes or Certificates should be aware
that such purchase and subsequent holding
could, under certain circumstances, be deemed
to involve an indirect prohibited transaction
if a plan with respect to which the investor
or any affiliate is a "party in interest" or
"disqualified person" purchases the Class A
Notes without the benefit of an exemption
from the prohibited transaction rules. See
"ERISA Considerations" herein and in the
Prospectus.
LEGAL INVESTMENT.............. The Class A-1 Notes will be eligible securities
for purchase by money market funds under Rule
2a-7 under the Investment Company Act of
1940, as amended.
RATINGS OF THE NOTES.......... It is a condition to the issuance of the Notes
that the Class A Notes be rated in the
highest rating category and that the Class B
Notes be rated at least in the "A" category
or its equivalent, by at least two nationally
recognized rating agencies. There can be no
assurance that a rating will not be lowered
or withdrawn by a rating agency if
circumstances so warrant.
RATING OF THE CERTIFICATES.... It is condition to the issuance of the
Certificates that they be rated at least in
the "BBB" category or its equivalent by at
least two nationally recognized rating
agencies. There can be no assurance that a
rating will not be lowered or withdrawn by a
rating agency if circumstances so warrant.
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<PAGE> 19
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each Underwriter
currently intends to make a market in the Securities for which it is an
Underwriter, but it is under no obligation to do so. There can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide the Securityholders with liquidity of investment or that it
will continue for the life of the Securities.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the
Reserve Account. Holders of the Notes and the Certificates must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Funds in the Reserve Account will be
available on each Distribution Date to cover shortfalls in distributions of
interest and principal on the Notes and the Certificates. However, amounts to be
deposited in the Reserve Account are limited in amount. If the Reserve Account
is depleted, the Trust will depend solely on current distributions on the
Receivables to make payments on the Notes and the Certificates.
DEFICIENCIES FROM SALE UPON INSOLVENCY OR DISSOLUTION OF SELLER OR THE GENERAL
PARTNER
If an Insolvency Event or a dissolution occurs with respect to the Seller
or the General Partner while the Notes are outstanding, the Indenture Trustee is
required promptly to sell, dispose of or otherwise liquidate the Receivables in
a commercially reasonable manner on commercially reasonable terms, unless (i)
the Noteholders (other than the Seller) of each class of Notes representing not
less than a majority of the aggregate outstanding principal amount of such class
of Notes and the right to receive interest thereon, with each of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the
Class B Notes treated as a separate class of Notes for this purpose, (ii) the
Certificateholders (other than the Seller) of Certificates representing not less
than a majority of the aggregate Certificate Balance and the right to receive
interest thereon, and (iii) not less than a majority of the holders (other than
the Seller) of certain interests, if any, in the Reserve Account disapprove of
such sale and in connection therewith, the Indenture Trustee (x) appoints an
entity acceptable to Ford Credit to acquire an interest in the Trust and to act
as a substitute "general partner" for federal income tax purposes and (y)
receives an opinion of counsel as to certain tax matters. The proceeds from any
such sale, disposition or liquidation of the Receivables will be treated as
collections on the Receivables and deposited in the Collection Account. If the
proceeds from the liquidation of the Receivables and any amounts on deposit in
the Reserve Account and the Principal Distribution Account are not sufficient to
pay all the Class A Notes in full, the amount of principal returned to Class A
Noteholders will be reduced, no such proceeds or amounts will be distributed to
the Class B Noteholders or the Certificateholders, and the Class B Noteholders
and the Certificateholders will incur a loss on their investment. If such
proceeds and amounts are sufficient to pay all the Class A Notes in full but are
not sufficient to pay both the Class A Notes and the Class B Notes in full, the
amount of principal returned to Class B Noteholders will be reduced, no such
proceeds or amounts will be distributed to the Certificateholders, and the Class
B Noteholders and the Certificateholders will incur a loss on their investment.
If such proceeds and amounts are sufficient to pay all the Notes in full but are
not sufficient to pay both the Notes and Certificates in full, the amount of
principal returned to Certificateholders will be reduced, and the
Certificateholders will incur a loss on their investment. See "Description of
the Transfer and Servicing Agreements -- Insolvency Event or Dissolution" in the
Prospectus.
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<PAGE> 20
SUBORDINATION
Distributions of interest on the Class B Notes will be subordinated in
priority of payment to interest on the Class A Notes and payment of the First
Priority Principal Distribution Amount. In addition, the Class B Noteholders
will not receive any distributions of principal until the Class A Notes have
been paid in full. Distributions of interest on the Certificates will be
subordinated in priority of payment to interest on the Notes and payment of the
First Priority Principal Distribution Amount and the Second Priority Principal
Distribution Amount. In addition, the Certificateholders will not receive any
distributions of principal until the Notes have been paid in full.
Notwithstanding the Events of Default described in the Prospectus under the
caption "Description of the Notes -- The Indenture -- Events of Default; Rights
upon Event of Default," until the Class A Notes have been paid in full, the
failure to pay interest due on the Class B Notes will not be an Event of
Default. Upon the occurrence and during the continuation of an Event of Default
which has resulted in an acceleration of the Notes or following an Insolvency
Event or a dissolution with respect to the Seller or the General Partner,
distributions of principal and interest on the Class B Notes will be
subordinated in priority of payment to payment in full of principal and interest
on the Class A Notes and distributions of principal and interest on the
Certificates will be subordinated in priority of payment to payment in full of
principal and interest on the Notes.
If an Event of Default occurs and the maturity of the Notes is accelerated,
the Indenture Trustee may institute or be required to institute proceedings to
collect amounts due or exercise its remedies as a secured party (including
foreclosure or sale of the Receivables). Upon the occurrence of an Event of
Default, the Class B Noteholders will not have any right to direct or to consent
to any actions by the Indenture Trustee until the Class A Notes have been paid
in full. In the event of a sale of Receivables by the Indenture Trustee
following an Event of Default or following an Insolvency Event or a dissolution
with respect to the Seller or the General Partner, there is no assurance that
the proceeds of such sale will be equal to or greater than the aggregate
outstanding principal amount of the Notes plus accrued interest and the
Certificate Balance plus accrued interest. Because neither interest nor
principal is distributed to Class B Noteholders upon sale of the Receivables
following an Event of Default and acceleration of the Notes under the Indenture
or following an Insolvency Event or a dissolution with respect to the Seller or
the General Partner until all the Class A Notes have been paid in full, the
interests of the Class A Noteholders and the Class B Noteholders may conflict.
In addition, the interests of the Noteholders and the Certificateholders may
conflict because neither interest nor principal is distributed to
Certificateholders upon sale of the Receivables following an Event of Default
and acceleration of the Notes under the Indenture or following an Insolvency
Event or a dissolution with respect to the Seller or the General Partner until
all the Notes have been paid in full. Consequently, the exercise by the
Indenture Trustee of its right to sell the Receivables or exercise other
remedies under the Indenture and applicable law may cause the Class B
Noteholders and/or the Certificateholders to suffer a loss of all or part of
their investment. See "Description of the Notes -- The Indenture -- Events of
Default; Rights upon Event of Default" herein and in the Prospectus and
"Description of the Transfer and Servicing Agreements -- Insolvency Event or
Dissolution" in the Prospectus.
In general, the Seller may, and in certain circumstances the
Certificateholders may, direct the Owner Trustee in the administration of the
Trust. However, because the Trust has pledged the Trust property to the
Indenture Trustee to secure the payment of the Notes, including in such pledge
certain rights of the Trust under the Sale and Servicing Agreement, the
Indenture Trustee and not the Seller or the Certificateholders has the power to
direct the Trust to take certain actions in connection with the administration
of the Trust property until the Notes have been paid in full and the lien of the
Indenture has been released. In addition, the Seller and Certificateholders are
not allowed to direct the Owner Trustee to take any action which conflicts with
the provisions of any of the Basic Documents. The Indenture specifically
prohibits the Owner Trustee from taking any action which would impair the
Indenture Trustee's security interest in the Trust property and requires the
Owner Trustee to obtain the consent of the Indenture Trustee or the holders of
not less than a majority of
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the aggregate principal amount of the Notes before modifying, amending,
supplementing, waiving or terminating any Basic Document or any provision of any
Basic Document. Therefore, until the Notes have been paid in full, the ability
to direct the Trust with respect to certain actions permitted to be taken by it
under the Basic Documents rests with the Indenture Trustee and the Noteholders
instead of the Seller or the Certificateholders.
If an Event of Servicing Termination were to occur, the holders of a
majority of the outstanding principal amount of the Class A Notes, or the
Indenture Trustee acting on behalf of the Class A Noteholders, and not the
Seller, the Class B Noteholders or the Certificateholders, would have the right
to terminate the Servicer as the servicer of the Receivables without
consideration of the effect such termination would have on the Class B
Noteholders or the Certificateholders. The Class B Noteholders will not have the
ability to remove the Servicer if an Event of Servicing Termination occurs until
the Class A Notes have been paid in full and the Certificateholders will not
have the ability to remove the Servicer if an Event of Servicing Termination
occurs until the Notes have been paid in full. In addition, the holders of not
less than a majority of the outstanding principal amount of the Class A Notes
would have the right to waive certain Events of Servicing Termination, without
consideration of the effect such waiver would have on the Class B Noteholders or
the Certificateholders. See "Description of the Transfer and Servicing
Agreements -- Events of Servicing Termination" in the Prospectus and "-- Rights
Upon Event of Servicing Termination" and "--Waiver of Past Events of Servicing
Termination" herein and in the Prospectus.
MATURITY AND PREPAYMENT CONSIDERATIONS
No principal payments will be made at any time, including upon the
occurrence and during the continuation of an Event of Default, (i) on the Class
A-2 Notes until the Class A-1 Notes have been paid in full, (ii) on the Class
A-3 Notes until the Class A-2 Notes have been paid in full, (iii) on the Class
A-4 Notes until the Class A-3 Notes have been paid in full or (iv) on the Class
B Notes until the Class A-4 Notes have been paid in full. In addition, no
distributions of principal on the Certificates will be made until all the Notes
have been paid in full. As the rate of payment of principal of each class of
Notes and the Certificates depends on the rate of payment (including
prepayments) of the principal balance of the Receivables, final payment of any
class of Notes and the final distribution in respect of the Certificates could
occur significantly earlier than the respective Final Scheduled Distribution
Dates. It is expected that final payment of each class of Notes and the final
distribution with respect to the Certificates will occur on or prior to the
respective Final Scheduled Distribution Dates. However, if sufficient funds are
not available to pay any class of Notes or the Certificates in full on or prior
to the respective Final Scheduled Distribution Dates, final payment of such
class of Notes and the final distribution in respect of the Certificates could
occur later than such dates. See "Maturity and Prepayment Considerations" herein
and in the Prospectus.
RATINGS OF THE SECURITIES
It is a condition to the issuance of the Notes and of the Certificates that
the Class A Notes be rated in the highest rating category, that the Class B
Notes be rated at least in the "A" category or its equivalent, and that the
Certificates be rated at least in the "BBB" category or its equivalent, by at
least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The ratings of the Securities address the likelihood of the payment of
principal and interest on the Securities pursuant to their terms. There can be
no assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant.
S-21
<PAGE> 22
THE TRUST
GENERAL
The Issuer, Ford Credit Auto Owner Trust 1997-B, is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. The Trust will not engage
in any activity other than (i) acquiring, holding and managing the Receivables
and the other assets of the Trust and proceeds therefrom, (ii) issuing the Notes
and the Certificates, (iii) making payments on the Notes and the Certificates
and (iv) engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
The Trust will initially be capitalized with the Notes and the
Certificates. The proceeds from the issuance of the Notes and the Certificates
will be used by the Trust to acquire the Receivables from the Seller pursuant to
the Sale and Servicing Agreement and to fund the initial deposit into the
Reserve Account.
If the protection provided to the Noteholders by the subordination of the
Certificates and to the Noteholders and Certificateholders by the Reserve
Account is insufficient, the Trust would have to look principally to the
Obligors on the Receivables, the proceeds from the repossession and sale of
Financed Vehicles which secure defaulted Receivables and the proceeds from any
recourse against Dealers with respect to the Receivables. In such event, certain
factors, such as the Trust's not having perfected security interests in the
Financed Vehicles in all states, may affect the Servicer's ability to repossess
and sell the collateral securing the Receivables, and thus may reduce the
proceeds to be distributed to the Securityholders. See "Description of the
Transfer and Servicing Agreements -- Distributions" and "-- Reserve Account"
herein and "Certain Legal Aspects of the Receivables" in the Prospectus.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes and the Certificates had
taken place on such date:
<TABLE>
<S> <C>
Class A-1 Notes........................................... $ 490,000,000.00
Class A-2 Notes........................................... 388,000,000.00
Class A-3 Notes........................................... 514,000,000.00
Class A-4 Notes........................................... 189,004,978.96
Class B Notes............................................. 93,501,000.00
Certificates.............................................. 25,501,000.00
-----------------
Total..................................................... $1,700,006,978.96
=================
</TABLE>
THE OWNER TRUSTEE
PNC Bank, Delaware, is the Owner Trustee under the Trust Agreement. PNC
Bank, Delaware, is a Delaware banking corporation and its principal offices are
located at 222 Delaware Avenue, Wilmington, Delaware 19801. The Seller and its
affiliates may maintain normal commercial banking relations with the Owner
Trustee and its affiliates.
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include the
Receivables acquired as of the Cutoff Date. The Receivables were purchased by
Ford Credit from Dealers in the ordinary course of business in accordance with
Ford Credit's underwriting standards, and were selected
S-22
<PAGE> 23
from Ford Credit's portfolio for inclusion in the Receivables Pool by several
criteria, some of which are set forth in the Prospectus under "The Receivables
Pools," as well as the following: each Receivable (i) provides for level monthly
payments which provide interest at an APR of not less than 7.75% and fully
amortize the amount financed over an original term no greater than 60 months,
(ii) is not more than 30 days past due as of the Cutoff Date and has never been
extended and (iii) was originated on or after January 1, 1996. The Receivables
were selected at random from Ford Credit's portfolio of retail installment sale
contracts for new vehicles and Ford Credit's portfolio of retail installment
sale contracts for used vehicles, in each case, meeting the criteria described
above. No selection procedures believed to be adverse to the Noteholders or the
Certificateholders were utilized in selecting the Receivables from qualifying
retail installment sale contracts.
Neither Ford Credit nor any of its affiliates maintains records adequate to
provide quantitative data regarding its prepayment experience on its portfolio
of U.S. retail installment sale contracts for either new or used vehicles.
However, Ford Credit (i) believes that the actual rate of prepayments will
result in a substantially shorter weighted average life than the scheduled
weighted average life and (ii) estimates that the actual weighted average life
of its portfolio of U.S. retail installment contracts for new and used
automobiles and light trucks ranges between 60% and 70% of their scheduled
weighted average life. See "Maturity and Prepayment Considerations" herein and
in the Prospectus.
The composition, geographical distribution, and distribution by APR of the
Receivables Pool as of the Cutoff Date are set forth in the following tables.
COMPOSITION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Balance................................. $1,700,006,978.96
Number of Receivables....................................... 130,407
Average Principal Balance................................... $13,036.16
(Range)................................................... $261.51 to $49,831.50
Average Original Amount Financed............................ $15,148.18
(Range)................................................... $768.14 to $55,663.88
Weighted Average APR........................................ 10.92%
(Range)................................................... 7.75% to 20.00%
Weighted Average Original Term.............................. 55.6 months
(Range)................................................... 12 to 60 months
Weighted Average Remaining Term............................. 47.4 months
(Range)................................................... 1 to 59 months
Scheduled Weighted Average Life(1).......................... 2.16 years
</TABLE>
- -------------------------
(1) Based on payments due on or after the Cutoff Date, assuming that no
prepayments on the Receivables are made after the Cutoff Date and that all
payments on Simple Interest Receivables are received on their respective due
dates.
S-23
<PAGE> 24
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
STATE(1) BALANCE STATE(1) BALANCE
-------- ------------------- -------- -------------------
<S> <C> <C> <C>
Alabama(2)................ 0.00%
Alaska.................... 0.18
Arizona................... 1.52
Arkansas.................. 1.62
California................ 7.74
Colorado.................. 1.25
Connecticut............... 1.62
Delaware.................. 0.11
District of Columbia...... 0.15
Florida................... 9.98
Georgia................... 5.39
Hawaii.................... 0.21
Idaho..................... 0.08
Illinois.................. 5.49
Indiana................... 1.70
Iowa...................... 0.48
Kansas.................... 1.52
Kentucky.................. 0.91
Louisiana................. 2.05
Maine..................... 0.37
Maryland.................. 2.86
Massachusetts............. 2.59
Michigan.................. 6.30
Minnesota................. 0.84
Mississippi............... 1.06
Missouri.................. 3.75
Montana................... 0.14%
Nebraska.................. 0.17
Nevada.................... 0.55
New Hampshire............. 0.64
New Jersey................ 2.91
New Mexico................ 0.68
New York.................. 4.06
North Carolina............ 3.38
North Dakota.............. 0.13
Ohio...................... 2.71
Oklahoma.................. 1.25
Oregon.................... 1.50
Pennsylvania(2)........... 0.00
Rhode Island.............. 0.15
South Carolina............ 1.76
South Dakota.............. 0.16
Tennessee................. 2.71
Texas..................... 11.40
Utah...................... 0.23
Vermont................... 0.44
Virginia.................. 2.37
Washington................ 0.74
West Virginia............. 0.63
Wisconsin................. 1.33
Wyoming................... 0.17
</TABLE>
- -------------------------
(1) Based on the billing addresses of the Obligors on the Receivables as of the
Cutoff Date.
(2) Alabama and Pennsylvania were excluded for administrative reasons.
S-24
<PAGE> 25
DISTRIBUTION BY APR OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
APR RANGE RECEIVABLES BALANCE BALANCE
--------- ----------- ------------------- -------------------
<S> <C> <C> <C>
7.75% to 8.00%............................... 12,007 $ 162,517,723.87 9.56%
8.01 to 8.50................................. 14,268 191,809,536.89 11.28
8.51 to 9.00................................. 19,579 276,626,423.59 16.27
9.01 to 9.50................................. 9,560 131,569,576.98 7.74
9.51 to 10.00................................ 14,902 200,256,962.89 11.78
10.01 to 10.50............................... 5,698 77,211,331.96 4.54
10.51 to 11.00............................... 7,909 106,043,688.36 6.24
11.01 to 11.50............................... 3,592 47,290,386.74 2.78
11.51 to 12.00............................... 5,669 72,500,589.25 4.26
12.01 to 12.50............................... 3,233 39,775,136.41 2.34
12.51 to 13.00............................... 5,082 62,665,852.79 3.69
13.01 to 13.50............................... 2,292 28,027,108.29 1.65
13.51 to 14.00............................... 3,750 44,848,542.41 2.64
14.01 to 14.50............................... 1,935 22,745,383.75 1.34
14.51 to 15.00............................... 3,136 35,622,933.30 2.10
15.01 to 15.50............................... 1,487 17,057,583.29 1.00
15.51 to 16.00............................... 2,361 25,826,944.34 1.52
16.01 to 16.50............................... 1,401 16,096,448.18 0.95
16.51 to 17.00............................... 2,273 26,017,327.14 1.53
17.01 to 17.50............................... 1,681 20,678,409.81 1.22
17.51 to 18.00............................... 3,714 44,101,298.88 2.59
18.01 to 18.50............................... 891 9,825,649.48 0.58
18.51 to 19.00............................... 1,709 17,660,040.62 1.04
19.01 to 19.50............................... 695 6,881,004.12 0.40
19.51 to 20.00............................... 1,583 16,351,095.62 0.96
------- ----------------- --------
Totals.................................. 130,407 $1,700,006,978.96 100.00%
======= ================= ========
</TABLE>
Approximately 70.0% of the aggregate principal balance of the Receivables,
constituting 62.5% of the number of Receivables, as of the Cutoff Date,
represent vehicles financed at new vehicle rates, and the remainder of the
Receivables represent vehicles financed at used vehicle rates.
By aggregate principal balance, approximately 38.1% of the Receivables
constitute Precomputed Receivables and 61.9% of the Receivables constitute
Simple Interest Receivables. See "The Receivables Pools" in the Prospectus for a
further description of the characteristics of Precomputed Receivables and Simple
Interest Receivables.
Based on principal balance, less than 1.0% of the Receivables provide
recourse to the Dealer which originated the Receivable. See "The Receivables
Pools" in the Prospectus for a further description of such recourse provisions.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000
S-25
<PAGE> 26
receivables, a 1% ABS rate means that 100 receivables prepay each month. ABS
does not purport to be an historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of receivables,
including the Receivables.
As the rate of payment of principal of each class of Notes and the
Certificates will depend on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of any class of Notes and
the final distribution in respect of the Certificates could occur significantly
earlier than the respective Final Scheduled Distribution Dates. Reinvestment
risk associated with early payment of the Notes and the Certificates will be
borne exclusively by the Noteholders and the Certificateholders, respectively.
The table captioned "Percent of Initial Note Principal Amount or Initial
Certificate Balance at Various ABS Percentages" (the "ABS Table") has been
prepared on the basis of the characteristics of the Receivables. The ABS Table
assumes that (i) the Receivables prepay in full at the specified constant
percentage of ABS monthly, with no defaults, losses or repurchases, (ii) each
scheduled monthly payment on the Receivables is made on the last day of each
month and each month has 30 days, (iii) payments on the Notes and distributions
on the Certificates are made on each Distribution Date (and each such date is
assumed to be the fifteenth day of each applicable month), (iv) the balance in
the Reserve Account on each Distribution Date is equal to the Specified Reserve
Balance without giving effect to the proviso in the definition thereof, and (v)
the Servicer does not exercise its option to purchase the Receivables. The pools
have an assumed cutoff date of October 1, 1997. The ABS Table indicates the
projected weighted average life of each class of Notes and the Certificates and
sets forth the percent of the initial principal amount of each class of Notes
and the percent of the initial Certificate Balance that is projected to be
outstanding after each of the Distribution Dates shown at various constant ABS
percentages.
The ABS Table also assumes that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each such pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools (which is based on its aggregate principal balance, APR, original
term to maturity and remaining term to maturity as of the Cutoff Date) will be
such that each pool will be fully amortized by the end of its remaining term to
maturity.
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
AGGREGATE TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---- ----------------- --- ------------- --------------
<S> <C> <C> <C> <C>
1................................... $ 22,771,477.79 10.798% 23 16
2................................... 6,872,156.42 13.028% 30 23
3................................... 98,341,985.51 10.468% 36 28
4................................... 20,707,420.92 13.213% 42 34
5................................... 143,529,883.34 10.902% 48 44
6................................... 148,872,732.14 10.217% 48 35
7................................... 36,874,749.43 12.803% 54 46
8................................... 633,488,683.47 11.274% 60 56
9................................... 588,547,889.94 10.569% 60 47
-----------------
$1,700,006,978.96
=================
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Table. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Table at the various constant
S-26
<PAGE> 27
percentages of ABS specified, even if the original and remaining terms to
maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial amounts
outstanding over time and the weighted average lives of each class of Notes and
the Certificates.
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.8% 0.5% 1.0% 1.5% 1.8%
----------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date........................ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
11/15/97........................... 89.90 87.95 85.80 84.40 100.00 100.00 100.00 100.00
12/15/97........................... 80.68 76.87 72.67 69.93 100.00 100.00 100.00 100.00
1/15/98........................... 71.51 65.92 59.75 55.72 100.00 100.00 100.00 100.00
2/15/98........................... 62.38 55.08 47.03 41.78 100.00 100.00 100.00 100.00
3/15/98........................... 53.24 44.33 34.49 28.08 100.00 100.00 100.00 100.00
4/15/98........................... 44.17 33.72 22.19 14.66 100.00 100.00 100.00 100.00
5/15/98........................... 35.13 23.22 10.09 1.52 100.00 100.00 100.00 100.00
6/15/98........................... 26.12 12.84 0.00 0.00 100.00 100.00 100.00 90.19
7/15/98........................... 17.14 2.58 0.00 0.00 100.00 100.00 88.83 76.07
8/15/98........................... 8.21 0.00 0.00 0.00 100.00 97.28 76.08 62.25
9/15/98........................... 0.00 0.00 0.00 0.00 100.00 86.29 63.56 48.73
10/15/98........................... 0.00 0.00 0.00 0.00 97.36 75.43 51.27 35.51
11/15/98........................... 0.00 0.00 0.00 0.00 85.17 61.56 35.54 18.58
12/15/98........................... 0.00 0.00 0.00 0.00 75.43 50.71 23.47 5.71
1/15/99........................... 0.00 0.00 0.00 0.00 65.72 39.98 11.64 0.00
2/15/99........................... 0.00 0.00 0.00 0.00 56.02 29.38 0.05 0.00
3/15/99........................... 0.00 0.00 0.00 0.00 46.69 19.23 0.00 0.00
4/15/99........................... 0.00 0.00 0.00 0.00 37.38 9.20 0.00 0.00
5/15/99........................... 0.00 0.00 0.00 0.00 28.10 0.00 0.00 0.00
6/15/99........................... 0.00 0.00 0.00 0.00 18.83 0.00 0.00 0.00
7/15/99........................... 0.00 0.00 0.00 0.00 9.58 0.00 0.00 0.00
8/15/99........................... 0.00 0.00 0.00 0.00 0.36 0.00 0.00 0.00
9/15/99........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10/15/99........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
11/15/99........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
12/15/99........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
11/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
12/15/00........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
11/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
12/15/01........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1/15/02........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2/15/02........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3/15/02........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4/15/02........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5/15/02........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6/15/02........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1).... 0.45 0.38 0.32 0.29 1.39 1.18 1.00 0.91
<CAPTION>
CLASS A-3 NOTES
---------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.8%
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Closing Date........................ 100.00 100.00 100.00 100.00
11/15/97........................... 100.00 100.00 100.00 100.00
12/15/97........................... 100.00 100.00 100.00 100.00
1/15/98........................... 100.00 100.00 100.00 100.00
2/15/98........................... 100.00 100.00 100.00 100.00
3/15/98........................... 100.00 100.00 100.00 100.00
4/15/98........................... 100.00 100.00 100.00 100.00
5/15/98........................... 100.00 100.00 100.00 100.00
6/15/98........................... 100.00 100.00 100.00 100.00
7/15/98........................... 100.00 100.00 100.00 100.00
8/15/98........................... 100.00 100.00 100.00 100.00
9/15/98........................... 100.00 100.00 100.00 100.00
10/15/98........................... 100.00 100.00 100.00 100.00
11/15/98........................... 100.00 100.00 100.00 100.00
12/15/98........................... 100.00 100.00 100.00 100.00
1/15/99........................... 100.00 100.00 100.00 94.83
2/15/99........................... 100.00 100.00 100.00 85.60
3/15/99........................... 100.00 100.00 91.69 76.81
4/15/99........................... 100.00 100.00 83.53 68.27
5/15/99........................... 100.00 99.47 75.55 59.96
6/15/99........................... 100.00 92.09 67.76 51.91
7/15/99........................... 100.00 84.82 60.17 44.11
8/15/99........................... 100.00 77.64 52.77 36.57
9/15/99........................... 93.32 70.57 45.57 29.29
10/15/99........................... 86.45 63.65 38.60 22.30
11/15/99........................... 79.59 56.84 31.84 15.68
12/15/99........................... 72.76 50.13 25.29 9.36
1/15/00........................... 65.94 43.53 18.97 3.25
2/15/00........................... 59.14 37.04 12.96 0.00
3/15/00........................... 52.99 31.17 7.53 0.00
4/15/00........................... 46.87 25.41 2.17 0.00
5/15/00........................... 40.76 19.76 0.00 0.00
6/15/00........................... 34.68 14.32 0.00 0.00
7/15/00........................... 28.61 8.98 0.00 0.00
8/15/00........................... 22.56 3.71 0.00 0.00
9/15/00........................... 16.72 0.00 0.00 0.00
10/15/00........................... 11.68 0.00 0.00 0.00
11/15/00........................... 6.66 0.00 0.00 0.00
12/15/00........................... 1.51 0.00 0.00 0.00
1/15/01........................... 0.00 0.00 0.00 0.00
2/15/01........................... 0.00 0.00 0.00 0.00
3/15/01........................... 0.00 0.00 0.00 0.00
4/15/01........................... 0.00 0.00 0.00 0.00
5/15/01........................... 0.00 0.00 0.00 0.00
6/15/01........................... 0.00 0.00 0.00 0.00
7/15/01........................... 0.00 0.00 0.00 0.00
8/15/01........................... 0.00 0.00 0.00 0.00
9/15/01........................... 0.00 0.00 0.00 0.00
10/15/01........................... 0.00 0.00 0.00 0.00
11/15/01........................... 0.00 0.00 0.00 0.00
12/15/01........................... 0.00 0.00 0.00 0.00
1/15/02........................... 0.00 0.00 0.00 0.00
2/15/02........................... 0.00 0.00 0.00 0.00
3/15/02........................... 0.00 0.00 0.00 0.00
4/15/02........................... 0.00 0.00 0.00 0.00
5/15/02........................... 0.00 0.00 0.00 0.00
6/15/02........................... 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1).... 2.48 2.19 1.89 1.71
</TABLE>
- -------------------------
(1) The weighted average life of a Class A-1 Note, Class A-2 Note, or Class A-3
Note is determined by (i) multiplying the amount of each principal payment
on a Note by the number of years from the date of the issuance of the Note
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Note.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-27
<PAGE> 28
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-4 NOTES CLASS B NOTES CERTIFICATES
--------------------------------- --------------------------------- ---------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.8% 0.5% 1.0% 1.5% 1.8% 0.5% 1.0% 1.5% 1.8%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
11/15/97............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
12/15/97............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
1/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
2/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
3/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
4/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
5/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
6/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
7/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
8/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
9/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
10/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
11/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
12/15/98............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
1/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
2/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
3/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
4/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
5/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
6/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
7/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
8/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
9/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
10/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
11/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
12/15/99............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
1/15/00............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
2/15/00............. 100.00 100.00 100.00 92.29 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
3/15/00............. 100.00 100.00 100.00 77.35 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
4/15/00............. 100.00 100.00 100.00 63.13 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
5/15/00............. 100.00 100.00 91.45 49.64 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
6/15/00............. 100.00 100.00 77.57 36.88 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
7/15/00............. 100.00 100.00 64.25 24.87 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
8/15/00............. 100.00 100.00 51.51 13.62 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
9/15/00............. 100.00 95.66 39.52 3.24 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
10/15/00............. 100.00 83.07 28.96 0.00 100.00 100.00 100.00 87.92 100.00 100.00 100.00 100.00
11/15/00............. 100.00 70.75 18.91 0.00 100.00 100.00 100.00 70.61 100.00 100.00 100.00 100.00
12/15/00............. 100.00 58.69 9.36 0.00 100.00 100.00 100.00 54.64 100.00 100.00 100.00 100.00
1/15/01............. 89.84 46.91 0.32 0.00 100.00 100.00 100.00 40.02 100.00 100.00 100.00 100.00
2/15/01............. 75.63 35.40 0.00 0.00 100.00 100.00 83.44 26.79 100.00 100.00 100.00 100.00
3/15/01............. 61.48 24.17 0.00 0.00 100.00 100.00 67.30 14.95 100.00 100.00 100.00 100.00
4/15/01............. 47.37 13.22 0.00 0.00 100.00 100.00 52.24 4.53 100.00 100.00 100.00 100.00
5/15/01............. 33.33 2.56 0.00 0.00 100.00 100.00 38.28 0.00 100.00 100.00 100.00 83.65
6/15/01............. 19.34 0.00 0.00 0.00 100.00 84.23 25.44 0.00 100.00 100.00 100.00 56.03
7/15/01............. 7.04 0.00 0.00 0.00 100.00 66.13 14.92 0.00 100.00 100.00 100.00 35.80
8/15/01............. 0.00 0.00 0.00 0.00 89.45 48.58 5.42 0.00 100.00 100.00 100.00 20.46
9/15/01............. 0.00 0.00 0.00 0.00 65.62 32.11 0.00 0.00 100.00 100.00 89.64 0.00
10/15/01............. 0.00 0.00 0.00 0.00 54.09 23.53 0.00 0.00 100.00 100.00 69.47 0.00
11/15/01............. 0.00 0.00 0.00 0.00 42.62 15.19 0.00 0.00 100.00 100.00 50.87 0.00
12/15/01............. 0.00 0.00 0.00 0.00 31.18 7.09 0.00 0.00 100.00 100.00 33.87 0.00
1/15/02............. 0.00 0.00 0.00 0.00 19.80 0.00 0.00 0.00 100.00 97.15 18.49 0.00
2/15/02............. 0.00 0.00 0.00 0.00 8.47 0.00 0.00 0.00 100.00 69.21 0.00 0.00
3/15/02............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 89.66 42.18 0.00 0.00
4/15/02............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 48.47 16.07 0.00 0.00
5/15/02............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7.47 0.00 0.00 0.00
6/15/02............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average
Life (years)(1)(2)... 3.49 3.23 2.86 2.59 4.05 3.86 3.53 3.21 4.50 4.40 4.09 3.70
</TABLE>
- -------------------------
(1) The weighted average life of a Class A-4 Note or Class B Note is determined
by (i) multiplying the amount of each principal payment on a Note by the
number of years from the date of the issuance of the Note to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
related initial principal amount of the Note.
(2) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each distribution in respect of the Certificate Balance of a
Certificate by the number of years from the date of the issuance of the
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the original Certificate Balance of the
Certificate.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-28
<PAGE> 29
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning Ford Credit's experience
with respect to its portfolio of U.S. retail installment sale contracts for new
and used automobiles and light trucks (including previously sold contracts which
Ford Credit continues to service, but not including retail installment sale
contracts purchased by Ford Credit under certain special financing programs).
There is no assurance that the behavior of the Receivables will be comparable to
Ford Credit's experience shown in the following tables or that the trend in
losses and delinquencies will continue into the future.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Number of Contracts
Outstanding During the
Period........................ 3,558,015 3,588,691 3,612,265 3,438,699 3,430,145 3,398,797 3,388,214
Average Daily Delinquencies as a
Percent of Average Contracts
Outstanding
31-60 Days(2)................. 2.78% 2.36% 2.54% 2.21% 2.03% 2.02% 2.35%
61-90 Days(2)................. 0.31% 0.22% 0.26% 0.17% 0.15% 0.15% 0.20%
Over 90 Days(3)............... 0.10% 0.06% 0.08% 0.04% 0.03% 0.03% 0.04%
</TABLE>
- -------------------------
(1) The information in the table includes U.S. retail installment sale contracts
for new and used automobiles and light trucks and includes previously sold
contracts which Ford Credit continues to service; it does not include retail
installment sale contracts purchased by Ford Credit under certain special
financing programs.
(2) Delinquencies represent the daily average number of contracts delinquent.
(3) Delinquencies represent the average monthly end-of-period number of
contracts delinquent.
CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Portfolio Outstanding During
the Period (Millions)
Gross................................ $39,933 $39,539 $40,269 $35,699 $33,703 $31,205 $29,505
Net.................................. $33,517 $33,049 $33,647 $30,015 $28,526 $26,152 $24,637
Percent of Average Gross Portfolio
Outstanding During the Period
without Recourse to Dealers........ 99.5% 99.3% 99.4% 99.1% 98.6% 97.7% 96.4%
Repossessions as a Percent of Average
Number of Contracts Outstanding.... 3.02%(2) 2.66%(2) 3.01% 2.38% 2.15% 2.27% 2.74%
Net Losses as a Percent of Gross
Liquidations(3).................... 2.27% 1.76% 2.21% 1.43% 1.06% 1.16% 1.52%
Net Losses as a Percent of Average
Gross Portfolio Outstanding(3)..... 1.31%(2) 1.02%(2) 1.28% 0.82% 0.62% 0.69% 0.90%
Net Losses as a Percent of Average
Net Portfolio Outstanding(3)....... 1.55%(2) 1.22%(2) 1.53% 0.98% 0.73% 0.82% 1.08%
</TABLE>
- -------------------------
(1) All gross amounts and percentages are based on the gross amount scheduled to
be paid on each contract including unearned finance and other charges. All
net amounts and percentages are based on the net amount scheduled to be paid
on each contract excluding unearned finance and other charges. The
information in the table includes U.S. retail installment sale contracts for
new and used automobiles and light trucks and includes previously sold
contracts which Ford Credit continues to service; it does not include retail
installment sale contracts purchased by Ford Credit under certain special
financing programs.
(2) Annualized rate.
(3) "Net Losses" are equal to the aggregate balance of all contracts which are
determined to be uncollectible in the period less any recoveries on
contracts charged-off in the period or any prior periods. Effective January
1, 1993, net losses include expenses associated with outside collection
agencies. Other expenses associated with collection, repossession, and
disposition of the vehicle continue to be excluded. These other expenses are
not material to the data presented.
As shown above, credit losses have increased since the beginning of 1995
reversing a general trend of improvement that had begun in 1989. The increase
reflects an increase in losses per repossession and an increase in repossession
rates. Ford Credit expects that the upward trend in increased credit losses will
continue through the remainder of 1997. See "Description of the Transfer and
Servicing Agreements -- Servicing Procedures" in the Prospectus.
S-29
<PAGE> 30
POOL FACTORS
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal amount of
such class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal amount of such class of Notes. The "Certificate Pool
Factor" for the Certificates will be a seven-digit decimal which the Servicer
will compute prior to each distribution with respect to the Certificates
indicating the remaining Certificate Balance, as of the applicable Distribution
Date (after giving effect to distributions to be made on such Distribution
Date), as a fraction of the initial Certificate Balance. Each Note Pool Factor
and the Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal amount of the
applicable class of Notes, or the reduction of the Certificate Balance, as the
case may be, as a result of scheduled payments and prepayments and liquidations
of the Receivables. A Noteholder's portion of the aggregate outstanding
principal amount of the related class of Notes is the product of (i) the
original denomination of such Noteholder's Note and (ii) the applicable Note
Pool Factor. A Certificateholder's portion of the aggregate outstanding
Certificate Balance for the Certificates is the product of (a) the original
denomination of such Certificateholder's Certificate and (b) the Certificate
Pool Factor.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. In addition, no principal payments will be
made at any time, including upon the occurrence and during the continuation of
an Event of Default, (i) on the Class A-2 Notes until the Class A-1 Notes have
been paid in full, (ii) on the Class A-3 Notes until the Class A-2 Notes have
been paid in full, (iii) on the Class A-4 Notes until the Class A-3 Notes are
paid in full or (iv) on the Class B Notes until the Class A-4 Notes have been
paid in full. In addition, no distributions of principal on the Certificates
will be made until all the Notes have been paid in full. See "Description of the
Notes -- Payments of Principal" and "Description of the Certificates --
Distributions of Principal Payments" herein. As the rate of payment of principal
of each class of Notes and the Certificates depends on the rate of payment
(including prepayments) of the principal balance of the Receivables, final
payment of any class of Notes and the final distribution in respect of the
Certificates could occur significantly earlier than the respective Final
Scheduled Distribution Dates.
It is expected that final payment of each class of Notes and the final
distribution in respect of the Certificates will occur on or prior to the
respective Final Scheduled Distribution Dates. Failure to make final payment of
any class of Notes on or prior to the respective Final Scheduled Distribution
Dates would constitute an Event of Default under the Indenture. See "Description
of the Notes -- The Indenture -- Events of Default; Rights upon Event of
Default" herein and in the Prospectus. In addition, the Sale and Servicing
Agreement requires that any remaining Certificate Balance be paid in full on the
Final Scheduled Distribution Date. However, no assurance can be given that
sufficient funds will be available to pay each class of Notes and the
Certificates in full on or prior to the respective Final Scheduled Distribution
Dates. If sufficient funds are not available, final payment of any class of
Notes and the final distribution in respect of the Certificates could occur
later than such dates.
The rate of prepayments of the Receivables may be influenced by a variety
of economic, social and other factors, and under certain circumstances relating
to breaches of representations, warranties or covenants, the Seller and/or the
Servicer will be obligated to repurchase Receivables from the Trust. See "The
Receivables Pool" herein and "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the Prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal balance
of the Receivables more quickly
S-30
<PAGE> 31
than expected and thereby reduce anticipated aggregate interest payments on the
Securities. Any reinvestment risks resulting from a faster or slower incidence
of prepayment of Receivables will be borne entirely by the Noteholders and the
Certificateholders as set forth in the priority of distributions herein. Such
reinvestment risks include the risk that interest rates may be lower at the time
such holders received payments from the Trust than interest rates would
otherwise have been had such prepayments not been made or had such prepayments
been made at a different time.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the Receivables could result in an actual yield that is less than the
anticipated yield and, in the case of Securities purchased at a premium, the
risk that a faster than anticipated rate of principal payments on the
Receivables could result in an actual yield that is less than the anticipated
yield.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture, which are hereby incorporated by reference. The following summary
supplements the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth under the headings
"Description of the Notes" and "Certain Information Regarding the Securities" in
the Prospectus, to which description reference is hereby made. The Chase
Manhattan Bank, a New York corporation, will be the Indenture Trustee under the
Indenture.
PAYMENTS OF INTEREST
Each class of Notes will constitute Fixed Rate Securities, as such term is
defined under "Certain Information Regarding the Securities -- Fixed Rate
Securities" in the Prospectus. Interest on the principal amounts of the classes
of the Notes will accrue at the respective per annum Note Interest Rates and
will be payable to the Noteholders monthly on each Distribution Date commencing
November 17, 1997. Interest will accrue for the period (i) with respect to the
Class A-1 Notes, from and including the Closing Date (in the case of the first
Distribution Date) or from and including the most recent Distribution Date on
which interest has been paid to but excluding the following Distribution Date
and (ii) with respect to each class of Notes other than the Class A-1 Notes,
from and including the Closing Date (in the case of the first Distribution Date)
or from and including the fifteenth day of the calendar month preceding each
Distribution Date to but excluding the fifteenth day of the following calendar
month (each, an "Interest Period") and will be due and payable on each
Distribution Date. Interest on the Class A-1 Notes will be calculated on the
basis of actual days elapsed and a 360-day year. Interest on each class of Notes
other than the Class A-1 Notes will be calculated on the basis of a 360-day year
of twelve 30-day months. Interest accrued as of any Distribution Date but not
paid on such Distribution Date will be due on the next Distribution Date,
together with interest on such amount at the applicable Note Interest Rate (to
the extent lawful). Interest payments on the Notes will generally be derived
from the funds on deposit in the Collection Account with respect to the
Collection Period preceding the related Distribution Date (including funds, if
any, deposited therein from the Reserve Account and the Payahead Account)
remaining after the payment of (i) the Servicing Fee and (ii) in the case of the
Class B Notes, interest on the Class A Notes and the First Priority Principal
Distribution Amount. Under certain circumstances, the amount available for
interest payments on the Class A Notes could be less than the amount of interest
payable on the Class A Notes on any Distribution Date, in which case each of the
Class A-1 Noteholders, the Class A-2 Noteholders, the Class A-3 Noteholders and
the Class A-4 Noteholder
S-31
<PAGE> 32
will receive their ratable share (based upon the total amount of interest due to
such Class A Noteholders) of the aggregate amount available to be distributed in
respect of interest on the Class A Notes. Interest on the Class B Notes will not
be paid on any Distribution Date until interest payments on the Class A Notes
and the First Priority Principal Distribution Amount have been paid in full. If
the amount available for interest payments on the Class B Notes is less than the
amount of interest payable on the Class B Notes on any Distribution Date, each
of the Class B Noteholders will receive their ratable share (based upon the
total amount of interest due to such Class B Noteholders) of the aggregate
amount available to be distributed in respect of interest on the Class B Notes.
See "Description of the Transfer and Servicing Agreements -- Distributions" and
"--Reserve Account" herein. An Event of Default will occur if the full amount of
interest due on the Class A Notes is not paid within five days of the related
Distribution Date. Until the Class A Notes have been paid in full, the failure
to pay interest due on the Class B Notes within five days of the related
Distribution Date will not be an Event of Default. See "Description of the Notes
- -- The Indenture -- Events of Default; Rights upon Event of Default" herein and
in the Prospectus.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Distribution
Date in an amount generally equal to the sum of the First Priority Principal
Distribution Amount, the Second Priority Principal Distribution Amount and the
Third Priority Principal Distribution Amount. Principal payments on the Notes
generally will be derived from the funds on deposit in the Collection Account
with respect to the Collection Period preceding the related Distribution Date
(including funds, if any, deposited therein from the Reserve Account and the
Payahead Account) remaining after the payment of (i) the Servicing Fee, (ii) the
interest due on the Class A Notes, (iii) in the case of the Second Priority
Principal Distribution Amount, the First Priority Principal Distribution Amount
and the interest due on the Class B Notes and (iv) in the case of the Third
Priority Principal Distribution Amount, the First Priority Principal
Distribution Amount, the interest due on the Class B Notes, the Second Priority
Principal Distribution Amount, the interest due on the Certificates and all
required deposits to the Reserve Account with respect to such Distribution Date.
Following the occurrence and during the continuation of an Event of Default
resulting in an acceleration of the Notes or following an Insolvency Event or a
dissolution with respect to the Seller or the General Partner, (i) the Class A
Noteholders will be entitled to be paid in full before any distributions of
principal or interest may be made on the Class B Notes and the Certificates and
(ii) the Class B Noteholders will be entitled to be paid in full before any
distributions of principal or interest may be made on the Certificates. See
"Description of the Transfer and Servicing Agreements -- Distributions" and "--
Reserve Account" herein.
On each Determination Date the Indenture Trustee will determine the amount
in the Collection Account for distribution on the related Distribution Date.
Payments to Securityholders will be made on each Distribution Date in accordance
with such determination.
Principal payments on the Notes will be applied on each Distribution Date
(including upon the occurrence and during the continuation of an Event of
Default) in the following order of priority: (i) to the principal amount of the
Class A-1 Notes until such principal amount is paid in full; (ii) to the
principal amount of the Class A-2 Notes until such principal amount is paid in
full; (iii) to the principal amount of the Class A-3 Notes until such principal
amount is paid in full; (iv) to the principal amount of the Class A-4 Notes
until such principal amount is paid in full; and (v) to the principal amount of
the Class B Notes until such principal amount is paid in full. The principal
amount of the Class A-1 Notes, to the extent not previously paid, will be due on
the Class A-1 Final Scheduled Distribution Date, the principal amount of the
Class A-2 Notes, to the extent not previously paid, will be due on the Class A-2
Final Scheduled Distribution Date, the principal amount of the Class A-3 Notes,
to the extent not previously paid, will be due on the Class A-3 Final Scheduled
Distribution Date, the principal amount of the Class A-4 Notes, to the extent
not previously paid, will be due on the Class A-4 Final Scheduled Distribution
Date and the principal
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amount of the Class B Notes, to the extent not previously paid, will be due on
the Class B Final Scheduled Distribution Date. The actual date on which the
aggregate outstanding principal amount of any class of Notes is paid may be
earlier or later than the respective Final Scheduled Distribution Dates set
forth above based on a variety of factors, including those described under
"Maturity and Prepayment Considerations" herein and in the Prospectus.
THE INDENTURE
Events of Default; Rights upon Event of Default. Notwithstanding the Events
of Default described in the Prospectus under the caption "Description of the
Notes -- The Indenture -- Events of Default; Rights upon Event of Default,"
until the Class A Notes have been paid in full, the failure to pay interest due
on the Class B Notes will not be an Event of Default. Pursuant to the Trust
Indenture Act of 1939, as amended, the Indenture Trustee may be deemed to have a
conflict of interest and be required to resign as trustee for either the Class A
Notes or the Class B Notes if a default occurs under the Indenture. In these
circumstances, the Indenture will provide for a successor trustee to be
appointed for one or both of the Class A Notes and Class B Notes, in order that
there be separate trustees for each of the Class A Notes and the Class B Notes.
So long as any amounts remain unpaid with respect to the Class A Notes, only the
indenture trustee for the Class A Noteholders will have the right to exercise
remedies under the Indenture (but the Class B Noteholders will be entitled to
their respective shares of any proceeds of enforcement, subject to the
subordination of the Class B Notes to the Class A Notes as described herein),
and only the Class A Noteholders will have the right to direct or consent to any
action to be taken, including sale of the Receivables, until the Class A Notes
are paid in full. Upon repayment of the Class A Notes in full, all rights to
exercise remedies under the Indenture will transfer to the trustee for the Class
B Notes. Any resignation of the original Indenture Trustee as described above
with respect to any class of Notes will become effective only upon the
appointment of a successor trustee for such class of Notes and such successor's
acceptance of such appointment.
OPTIONAL REDEMPTION
The Class A-4 Notes and the Class B Notes will be redeemed in whole, but
not in part, on any Distribution Date on which the Servicer exercises its option
to purchase the Receivables. The Servicer may purchase the Receivables when the
Pool Balance shall have declined to 10% or less of the Initial Pool Balance, as
described in the Prospectus under "Description of the Transfer and Servicing
Agreements -- Termination." The redemption price for the Class A-5 Notes and the
Class B Notes will be equal to the unpaid principal amount of such Notes plus
accrued and unpaid interest thereon at the applicable Note Interest Rate plus
interest on any past due interest at the applicable Note Interest Rate (to the
extent lawful).
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes
certain terms of the Certificates and the Trust Agreement. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Certificates and the Trust Agreement.
The following summary supplements the description of the general terms and
provisions of the Certificates of any given series and the related Trust
Agreement set forth under the headings "Description of the Certificates,"
"Certain Information Regarding the Securities" and "Description of the Transfer
and Servicing Agreements" in the Prospectus, to which description reference is
hereby made.
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DISTRIBUTIONS OF INTEREST INCOME
On each Distribution Date, commencing November 17, 1997, the
Certificateholders will be entitled to distributions in an amount equal to the
amount of interest that would accrue on the Certificate Balance at the
Certificate Rate. The Certificates will constitute Fixed Rate Securities, as
such term is defined under "Certain Information Regarding the Securities --
Fixed Rate Securities" in the Prospectus. Interest will accrue from and
including the Closing Date (in the case of the first Distribution Date) or from
and including the fifteenth day of the calendar month preceding each
Distribution Date to but excluding the fifteenth day of the following calendar
month, and will be calculated on the basis of a 360-day year of twelve 30-day
months. Interest distributions due for any Distribution Date but not distributed
on such Distribution Date will be due on the next Distribution Date increased by
an amount equal to interest on such amount at the Certificate Rate (to the
extent lawful). Interest distributions with respect to the Certificates will
generally be funded from the portion of the funds on deposit in the Collection
Account with respect to the Collection Period preceding the related Distribution
Date (including funds, if any, deposited therein from the Reserve Account and
the Payahead Account) remaining after the payment of (i) the Servicing Fee, (ii)
the interest due on the Class A Notes, (iii) the First Priority Principal
Distribution Amount, (iv) the interest due on the Class B Notes and (v) the
Second Priority Principal Distribution Amount. However, following the occurrence
of an Event of Default resulting in an acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to the Seller or the General
Partner, the Noteholders will be entitled to be paid in full before any
distributions may be made on the Certificates. See "Description of the Transfer
and Servicing Agreements -- Distributions" and "--Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions with respect to
principal payments on each Distribution Date, commencing with the Distribution
Date on which all of the Notes have been paid in full, in an amount generally
equal to the sum of the First Priority Principal Distribution Amount, the Second
Priority Principal Distribution Amount and the Third Priority Principal
Distribution Amount (in each case, after giving effect to any portion thereof
payable to Noteholders). Distributions with respect to principal payments will
generally be funded from the portion of the funds on deposit in the Collection
Account with respect to the Collection Period preceding the related Distribution
Date (including funds, if any, deposited therein from the Reserve Account and
the Payahead Account) remaining after the payment of (i) the Servicing Fee, (ii)
the interest due on the Class A Notes, (iii) in the case of the Second Priority
Principal Distribution Amount, the First Priority Principal Distribution Amount
and the interest due on the Class B Notes and (iv) in the case of the Third
Priority Principal Distribution Amount, the First Priority Principal
Distribution Amount, the interest due on the Class B Notes, the Second Priority
Principal Distribution Amount, the interest due on the Certificates and all
required deposits to the Reserve Account with respect to such Distribution Date.
However, following the occurrence of an Event of Default resulting in an
acceleration of the Notes or following an Insolvency Event or a dissolution with
respect to the Seller or the General Partner, the Noteholders will be entitled
to be paid in full before any distributions may be made on the Certificates. See
"Description of the Transfer and Servicing Agreements -- Distributions" and "--
Reserve Account" herein.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 10% or less of the Initial Pool Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued interest at the
Certificate Rate plus interest on any past due interest at the Certificate Rate
(to the extent lawful), which distribution shall effect the early retirement of
the Certificates. See "Description of the Transfer and Servicing Agreements --
Termination" in the Prospectus.
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PRIORITY OF NOTES
The rights of Certificateholders to receive distributions of interest are
subordinated to a certain extent to the rights of Noteholders to receive
payments of interest and principal. In addition, the Certificateholders will
have no right to receive distributions of principal until the aggregate
principal amount of all the Notes has been paid in full. Consequently, funds on
deposit in the Collection Account with respect to the Collection Period
preceding the related Distribution Date (including funds, if any, deposited
therein from the Reserve Account and the Payahead Account) will be applied to
the payment of the interest due on the Class A Notes, the First Priority
Principal Distribution Amount, interest due on the Class B Notes and the Second
Priority Principal Distribution Amount before distributions of interest on the
Certificates and will be applied to the payment of principal on the Notes in
full before distributions of principal on the Certificates. In addition,
following the occurrence of an Event of Default which has resulted in an
acceleration of the Notes or following an Insolvency Event or a dissolution with
respect to the Seller or the General Partner, the Noteholders will be entitled
to be paid in full before the Certificateholders are entitled to any
distributions. See "Description of the Transfer and Servicing Agreements --
Insolvency Event or Dissolution" in the Prospectus.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement. Copies of
the Transfer and Servicing Agreements will be filed with the Commission
following the issuance of the Securities. The summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Transfer and Servicing Agreements. The following summary
supplements the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth under the heading "Description of the
Transfer and Servicing Agreements" in the Prospectus, to which description
reference is hereby made.
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Indenture Trustee
will create an administrative subaccount within the Collection Account for the
benefit of the Securityholders entitled the Principal Distribution Account (such
sub-account, the "Principal Distribution Account") and the Servicer will
establish and will maintain with the Indenture Trustee the Reserve Account, in
the name of the Indenture Trustee on behalf of the Securityholders. The Servicer
will also establish and will maintain with the Indenture Trustee the Payahead
Account, in the name of the Indenture Trustee. The Payahead Account will not be
included in the property of the Trust.
SERVICING COMPENSATION AND EXPENSES
The Servicer is entitled to receive on each Distribution Date a fee for
servicing the Receivables (the "Servicing Fee") equal to the product of
one-twelfth of 1.00% (the "Servicing Fee Rate") and the Pool Balance as of the
first day of the related Collection Period. The Servicing Fee (together with any
portion of the Servicing Fee that remains unpaid from prior Distribution Dates)
will be paid on each Distribution Date to the extent of the funds on deposit in
the Collection Account with respect to the Collection Period preceding such
Distribution Date (including funds, if any, deposited therein from the Reserve
Account and the Payahead Account). The Servicer is also entitled to receive a
supplemental servicing fee (the "Supplemental Servicing Fee" and, together with
the Servicing Fee, the "Servicer Fee") for each Collection Period equal to any
late, prepayment, and other administrative fees and expenses collected during
the Collection Period, plus any interest earned during the
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Collection Period on deposits made with respect to the Receivables. See
"Description of the Transfer and Servicing Agreements -- Servicing Compensation
and Expenses" in the Prospectus.
RIGHTS UPON EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, the Indenture Trustee or the
Class A Noteholders evidencing not less than a majority of the principal amount
of the Class A Notes may remove the Servicer without the consent of any of the
Class B Noteholders or the Certificateholders. The Class B Noteholders will not
have the ability to remove the Servicer if an Event of Servicing Termination
occurs until the Class A Notes have been paid in full and the Certificateholders
will not have the ability to remove the Servicer if an Event of Servicing
Termination occurs until the Class A Notes and the Class B Notes have been paid
in full.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, the Class A Noteholders
evidencing not less than a majority of the principal amount of the Class A Notes
may, with certain specified exceptions, waive any Events of Servicing
Termination, without the consent of any of the Class B Noteholders or the
Certificateholders. The Class B Noteholders will not have the right to determine
whether any Event of Servicing Termination should be waived until the Class A
Notes have been paid in full and the Certificateholders will not have the right
to determine whether any Event of Servicing Termination should be waived until
the Class A Notes and the Class B Notes have been paid in full.
DISTRIBUTIONS
Deposits to Collection Account. On or before the Business Day preceding
each Distribution Date, the Servicer will cause all collections, Precomputed
Advances, Simple Interest Advances and other amounts constituting the Available
Funds to be deposited into the Collection Account. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables," "--
Collections" and "-- Advances" in the Prospectus. On or before each Distribution
Date, the Servicer shall notify the Indenture Trustee to withdraw from the
Reserve Account and deposit in the Collection Account an amount equal to the
excess, if any, of (i) the amount of cash or other immediately available funds
in the Reserve Account on such Distribution Date (prior to giving effect to any
withdrawals therefrom relating to such Distribution Date) over (ii) the
Specified Reserve Balance with respect to such Distribution Date (such excess,
the "Reserve Account Release Amount"). In addition, the Servicer shall notify
the Indenture Trustee to withdraw from the Reserve Account and deposit in the
Collection Account an amount equal to the lesser of (i) the amount of cash or
other immediately available funds in the Reserve Account on such Distribution
Date (after giving effect to any withdrawals therefrom relating to the Reserve
Account Release Amount for such Distribution Date), and (ii) the amount, if any,
by which (x) the Total Required Payment exceeds (y) the Available Funds for such
Distribution Date. On or before the Final Scheduled Distribution Date with
respect to any class of Notes or the Certificates, the Servicer shall notify the
Indenture Trustee to withdraw from the Reserve Account and deposit in the
Collection Account an amount equal to the lesser of (i) the amount of cash or
other immediately available funds in the Reserve Account on such Distribution
Date (after giving effect to any withdrawals therefrom relating to the Reserve
Account Release Amount and the amount by which the Total Required Payment
exceeds the Available Funds for such Distribution Date) and (ii) the amount, if
any, by which the sum of the Available Funds plus the amount, if any, withdrawn
from the Reserve Account in respect of the excess of the Total Required Payment
over the Available Funds for such Distribution Date is insufficient to pay such
class of Notes or the Certificates in full in accordance with the priorities
described in "-- Monthly Withdrawals from Collection Account" below. The
"Available Funds" for a Distribution Date shall be the sum of the Available
Collections and the Reserve Account Release Amount.
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The "Available Collections" for a Distribution Date will generally be the
sum of the following amounts with respect to the Collection Period preceding
such Distribution Date: (i) all scheduled payments and all prepayments in full
(and certain partial prepayments) collected with respect to Precomputed
Receivables (including amounts withdrawn from the Payahead Account but excluding
amounts deposited into the Payahead Account) and all payments collected with
respect to Simple Interest Receivables; (ii) all proceeds of the liquidation of
defaulted Receivables ("Liquidated Receivables"), net of expenses incurred by
the Servicer in connection with such liquidation and any amounts required by law
to be remitted to the Obligor on such Liquidated Receivables ("Liquidation
Proceeds"), in accordance with the Servicer's customary servicing procedures,
and all recoveries in respect of Liquidated Receivables which were written off
in prior Collection Periods; (iii) all Precomputed Advances made by the Servicer
of principal due on the Precomputed Receivables; (iv) all Advances made by the
Servicer of interest due on the Receivables; (v) all advances, if any, of
interest made by the Servicer in respect of Receivables which were prepaid in
full; (vi) the Purchase Amount of each Receivable that was repurchased by the
Seller or purchased by the Servicer under an obligation which arose during the
related Collection Period; and (vii) partial prepayments of any refunded item
included in the principal balance of a Receivable, such as extended warranty
protection plan costs, or physical damage, credit life, disability insurance
premiums, or any partial prepayment which causes a reduction in the Obligor's
periodic payment to an amount below the scheduled payment as of the Cutoff Date.
The Available Collections shall be determined on the related Determination Date
based on the methodology described under "Description of the Notes -- Payments
of Principal" herein and "Description of the Transfer and Servicing Agreements
- -- Distributions" in the Prospectus.
The Available Collections on any Distribution Date shall exclude the
following: (i) amounts received on Precomputed Receivables to the extent that
the Servicer has previously made an unreimbursed Precomputed Advance; (ii)
Liquidation Proceeds with respect to a particular Precomputed Receivable to the
extent of any unreimbursed Precomputed Advances thereon; (iii) all payments and
proceeds (including Liquidation Proceeds) of any Receivables the Purchase Amount
of which has been included in the Available Funds in a prior Collection Period;
(iv) Liquidation Proceeds with respect to a Simple Interest Receivable
attributable to accrued and unpaid interest thereon (but not including interest
for the then current Collection Period) but only to the extent of any
unreimbursed Simple Interest Advances; and (v) amounts constituting the
Supplemental Servicing Fee.
Monthly Withdrawals from Collection Account. On each Distribution Date, the
Servicer will allocate amounts on deposit in the Collection Account as described
under "Description of the Transfer and Servicing Agreements -- Distributions" in
the Prospectus and will instruct the Indenture Trustee to make the following
deposits and distributions, to the extent of funds then on deposit in the
Collection Account with respect to the Collection Period preceding such
Distribution Date (including funds, if any, deposited therein from the Reserve
Account and the Payahead Account), in the following order of priority:
(i) to the Servicer, the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(ii) to the Class A Noteholders, the Accrued Class A Note Interest;
(iii) to the Principal Distribution Account, the First Priority
Principal Distribution Amount;
(iv) to the Class B Noteholders, the Accrued Class B Note Interest;
(v) to the Principal Distribution Account, the Second Priority
Principal Distribution Amount;
(vi) to the Certificate Distribution Account, the Accrued Certificate
Interest;
(vii) to the Reserve Account, the amount required to reinstate the
amount in the Reserve Account up to the Specified Reserve Balance;
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(viii) to the Principal Distribution Account, the Third Priority
Principal Distribution Amount; and
(ix) to the Seller, any funds remaining on deposit in the Collection
Account with respect to the Collection Period preceding such Distribution
Date.
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes or following an Insolvency Event or a dissolution with respect to the
Seller or the General Partner, the funds on deposit in the Collection Account
(including funds, if any, deposited therein from the Reserve Account and the
Payahead Account) remaining after the application of clauses (i) and (ii) above
will be deposited in the Principal Distribution Account to the extent necessary
to reduce the principal amount of all the Notes to zero, and the
Certificateholders will not receive any distributions until the principal amount
and accrued interest on all the Notes has been paid in full.
On and after the Distribution Date on which the principal amount of the
Notes has been paid in full, amounts in respect of the First Priority Principal
Distribution Amount, if any, the Second Priority Principal Distribution Amount,
if any, and the Third Priority Principal Distribution Amount, if any (in each
case, after giving effect to any portion thereof payable to Noteholders) as
described in clauses (iii), (v) and (viii) above, respectively, will be
deposited into the Certificate Distribution Account.
On each Determination Date, the Servicer will provide the Indenture Trustee
with certain information with respect to the Collection Period preceding such
Determination Date, including the amount of aggregate collections on the
Receivables, the aggregate amount of Liquidated Receivables, the aggregate
Advances to be made by the Servicer and the aggregate Purchase Amount of
Receivables to be repurchased by the Seller or to be purchased by the Servicer.
For purposes hereof, the following terms shall have the following meanings:
"Accrued Certificate Interest" means, with respect to any Distribution
Date, the sum of the Certificateholders' Monthly Accrued Interest for such
Distribution Date and the Certificateholders' Interest Carryover Shortfall for
such Distribution Date.
"Accrued Class A Note Interest" means, with respect to any Distribution
Date, the sum of the Class A Noteholders' Monthly Accrued Interest for such
Distribution Date and the Class A Noteholders' Interest Carryover Shortfall for
such Distribution Date.
"Accrued Class B Note Interest" means, with respect to any Distribution
Date, the sum of the Class B Noteholders' Monthly Accrued Interest for such
Distribution Date and the Class B Noteholders' Interest Carryover Shortfall for
such Distribution Date.
"Actual Class A Note Overcollateralization Amount" means, with respect to
any Distribution Date, the sum of (x) the Pool Balance at the end of the
Collection Period preceding such Distribution Date minus (y) the aggregate
outstanding principal amount of the Class A Notes as of the preceding
Distribution Date (after giving effect to any principal payments made on such
preceding Distribution Date).
"Actual Class B Note Overcollateralization Amount" means, with respect to
any Distribution Date, the sum of (x) the Pool Balance at the end of the
Collection Period preceding such Distribution Date minus (y) the aggregate
outstanding principal amount of the Notes as of the preceding Distribution Date
(after giving effect to any principal payments made on such preceding
Distribution Date).
"Certificate Balance" means, initially, $25,501,000.00 and, thereafter,
means the initial Certificate Balance reduced by all amounts allocable to
principal previously distributed to Certificateholders.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution
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Account on such preceding Distribution Date, plus 30 days of interest on such
excess, to the extent permitted by law, at the Certificate Rate.
"Certificateholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) at the Certificate Rate on the Certificate
Balance on the immediately preceding Distribution Date or the Closing Date, as
the case may be, after giving effect to all distributions allocable to the
reduction of the Certificate Balance made on or prior to such preceding
Distribution Date.
"Class A Noteholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Class A Noteholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding Class A
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually paid to Class A
Noteholders on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Class A Noteholders on the preceding Distribution
Date, to the extent permitted by law, at the respective Note Interest Rates
borne by such Class A Notes for the related Interest Period.
"Class A Noteholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, the aggregate amount of interest accrued for the related
Interest Period on the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes at the respective Note Interest Rate for such class on
the outstanding principal amount of the Notes of such class on the immediately
preceding Distribution Date or the Closing Date, as the case may be, after
giving effect to all payments of principal to the Noteholders of such class on
or prior to such preceding Distribution Date.
"Class B Noteholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Class B Noteholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding Class B
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually paid to Class B
Noteholders on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Class B Noteholders on the preceding Distribution
Date, to the extent permitted by law, at the Class B Rate for the related
Interest Period.
"Class B Noteholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, interest accrued for the related Interest Period on the the
Class B Notes at the Class B Rate on the outstanding principal amount of the
Class B Notes on the immediately preceding Distribution Date or the Closing
Date, as the case may be, after giving effect to all payments of principal to
the Class B Noteholders on or prior to such preceding Distribution Date.
"First Priority Principal Distribution Amount" means, with respect to any
Distribution Date, an amount equal to the excess, if any, of (a) the Minimum
Required Class A Note Overcollateralization Amount over (b) the Actual Class A
Note Overcollateralization Amount; provided, however, that the First Priority
Principal Distribution Amount shall not exceed the outstanding principal amount
of all the Notes and the Certificate Balance on such Distribution Date (prior to
giving effect to any principal payments made on such Distribution Date); and
provided, further, that (i) the First Priority Principal Distribution Amount on
the Class A-1 Final Scheduled Distribution Date shall not be less than the
amount that is necessary to reduce the outstanding principal amount of the Class
A-1 Notes to zero; (ii) the First Priority Principal Distribution Amount on the
Class A-2 Final Scheduled Distribution Date shall not be less than the amount
that is necessary to reduce the outstanding principal amount of the Class A-2
Notes to zero; (iii) the First Priority Principal Distribution Amount on the
Class A-3 Final Scheduled Distribution Date shall not be less than the amount
that is necessary to reduce the outstanding principal amount of the Class A-3
Notes to zero; and (iv) the First Priority Principal Distribution Amount on the
Class A-4 Final Scheduled Distribution Date shall
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not be less than the amount that is necessary to reduce the outstanding
principal amount of the Class A-4 Notes to zero.
"Minimum Required Class A Note Overcollateralization Amount" means, with
respect to any Distribution Date, the lesser of (x) $80,750,332 and (y) 7.50% of
the Pool Balance at the end of the Collection Period preceding such Distribution
Date.
"Minimum Required Class B Note Overcollateralization Amount" means, with
respect to any Distribution Date, the lesser of (x) $8,500,035 and (y) 5.00% of
the Pool Balance at the end of the Collection Period preceding such Distribution
Date.
"Second Priority Principal Distribution Amount" means, with respect to any
Distribution Date, an amount not less than zero equal to the sum of (i) the
excess, if any, of (a) the Minimum Required Class B Note Overcollateralization
Amount over (b) the Actual Class B Note Overcollateralization Amount, minus (ii)
the First Priority Principal Distribution Amount, if any, with respect to such
Distribution Date; provided, however, that the Second Priority Principal
Distribution Amount shall not exceed the outstanding principal amount of all the
Notes and the Certificate Balance on such Distribution Date (after giving effect
to any principal payments made on such Distribution Date in respect of the First
Priority Principal Distribution Amount, if any); and provided, further, that the
Second Priority Principal Distribution Amount on the Class B Final Scheduled
Distribution Date shall not be less than the amount that is necessary to reduce
the outstanding principal amount of the Class B Notes to zero.
"Specified Credit Enhancement Amount" means, with respect to any
Distribution Date, the greater of $17,000,070 or 5.00% of the Pool Balance at
the end of the Collection Period preceding such Distribution Date.
"Specified Overcollateralization Amount" means, with respect to any
Distribution Date, the excess, if any, of (a) the Specified Credit Enhancement
Amount over (b) the Specified Reserve Balance, each with respect to such
Distribution Date.
"Third Priority Principal Distribution Amount" means, with respect to any
Distribution Date, an amount not less than zero equal to the sum of (i) the
greater of (1) the aggregate outstanding principal amount of the Class A-1 Notes
as of the preceding Distribution Date (after giving effect to any principal
payments made on such preceding Distribution Date) or Closing Date, as the case
may be, and (2) the excess, if any, of (a) the sum of the aggregate outstanding
principal amount of the Notes and the Certificate Balance as of the preceding
Distribution Date (after giving effect to any principal payments made on such
preceding Distribution Date) or Closing Date, as the case may be, over (b) the
sum of (x) the Pool Balance at the end of the Collection Period preceding such
Distribution Date minus (y) the Specified Overcollateralization Amount with
respect to such Distribution Date, minus (ii) the sum of the First Priority
Principal Distribution Amount, if any, and the Second Priority Principal
Distribution Amount, if any, each with respect to such Distribution Date;
provided, however, that the Third Priority Principal Distribution Amount shall
not exceed the outstanding principal amount of all the Notes and the Certificate
Balance on such Distribution Date (after giving effect to any principal payments
made on such Distribution Date in respect of the First Priority Principal
Distribution Amount, if any, and the Second Priority Principal Distribution
Amount, if any); and provided, further, that the Third Priority Principal
Distribution Amount on the Final Scheduled Distribution Date shall not be less
than the amount that is necessary to reduce the Certificate Balance to zero.
"Total Required Payment" means, on any Distribution Date, the sum of the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods, the
Accrued Class A Note Interest, the First Priority Principal Distribution Amount,
the Accrued Class B Note Interest, the Second Priority Principal Distribution
Amount and the Accrued Certificate Interest; provided, however, that following
the occurrence and during the continuation of an Event of Default which has
resulted in an acceleration of the Notes or following an Insolvency Event or a
dissolution with respect to the Seller
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or the General Partner, on any Distribution Date until the Distribution Date on
which the outstanding principal amount of all the Notes has been paid in full,
the Total Required Payment shall mean the sum of the Servicing Fee and all
unpaid Servicing Fees from prior Collection Periods, the Accrued Class A Note
Interest, the Accrued Class B Note Interest and the amount necessary to reduce
the outstanding principal amount of all the Notes to zero.
On each Distribution Date, all amounts on deposit in the Principal
Distribution Account will be paid in the following order of priority:
(i) to the Class A-1 Noteholders in reduction of principal until the
principal amount of the Class A-1 Notes has been paid in full;
(ii) to the Class A-2 Noteholders in reduction of principal until the
principal amount of the Class A-2 Notes has been paid in full;
(iii) to the Class A-3 Noteholders in reduction of principal until the
principal amount of the Class A-3 Notes has been paid in full;
(iv) to the Class A-4 Noteholder in reduction of principal until the
principal amount of the Class A-4 Notes has been paid in full;
(v) to the Class B Noteholders in reduction of principal until the
principal amount of the Class B Notes has been paid in full;
(vi) to the Certificate Distribution Account, in reduction of the
Certificate Balance, until the Certificate Balance has been reduced to
zero; and
(vii) to the Seller, any funds remaining on deposit in the Principal
Distribution Account.
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
RESERVE ACCOUNT
The Reserve Account will be established by the Seller and held in the name
of the Indenture Trustee for the benefit of the Securityholders. To the extent
that amounts on deposit in the Reserve Account are depleted, Securityholders
will have no recourse to the assets of the Seller as a source of payment.
The Reserve Account will be funded by a deposit by the Seller on the
Closing Date in the amount of the Reserve Initial Deposit. The amount on deposit
in the Reserve Account may increase from time to time by application of certain
funds from the Collection Account up to the Specified Reserve Balance and may
decrease (i) on each Distribution Date by withdrawal of the Reserve Account
Release Amount, if any, with respect to such Distribution Date, (ii) on each
Distribution Date by withdrawal of any shortfall between the Total Required
Payment and Available Funds on such Distribution Date and (iii) on the Final
Scheduled Distribution Date with respect to any class of Notes or the
Certificates, by withdrawal of the amount, if any, by which the sum of the
Available Funds plus the amount, if any, withdrawn from the Reserve Account in
respect of the excess of the Total Required Payment over the Available Funds for
such Distribution Date is insufficient to pay such class of Notes or the
Certificates in full in accordance with the priorities described in "Description
of the Transfer and Servicing Agreements -- Distributions" herein.
On each Distribution Date, after payment of the Total Required Payment for
such Distribution Date, the Indenture Trustee will withdraw from the Collection
Account and deposit into the Reserve Account, to the extent of funds available
in the Collection Account with respect to the Collection Period preceding such
Distribution Date, the amount required to reinstate the amount in the Reserve
Account up to the Specified Reserve Balance. Amounts on deposit in the Reserve
Account will be invested by the Indenture Trustee at the direction of the Seller
in Permitted Investments and investment earnings (net of losses and investment
expenses) therefrom will be deposited into the Reserve Account.
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Amounts on deposit in the Reserve Account from time to time are intended to
enhance the likelihood of receipt by Securityholders of amounts due them and to
decrease the likelihood that the Securityholders will experience losses. If the
amount required to be withdrawn from the Reserve Account to cover shortfalls in
funds on deposit in the Collection Account exceeds the amount on deposit in the
Reserve Account, a temporary shortfall in the amounts distributed to the
Securityholders could result. In addition, depletion of the Reserve Account
ultimately could result in losses to Securityholders.
The "Specified Reserve Balance" means (i) with respect to any Distribution
Date prior to the Reserve Account Determination Date, $34,000,140 and (ii) with
respect to any Distribution Date on or after the Reserve Account Determination
Date, the greater of $8,500,035 or 2.00% of the Pool Balance at the end of the
Collection Period preceding such Distribution Date; provided, however, that the
Specified Reserve Balance may be reduced from time to time if the Rating
Agencies have delivered prior written notice to the Seller, the Servicer, the
Indenture Trustee and the Owner Trustee that such reduction will not result in a
reduction, withdrawal or qualification of each Rating Agency's then current
ratings of each class of the Notes and the Certificates. The "Reserve Account
Determination Date" means the November 1998 Distribution Date.
After the payment in full, or the provision for such payment, of (i) all
accrued and unpaid interest on the Securities and (ii) the outstanding principal
amount of the Securities, any funds remaining on deposit in the Reserve Account,
subject to certain limitations, will be paid to the Seller.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS") rulings on similar transactions involving both
debt instruments and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The Trust will be provided
with an opinion of Special Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of Special Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS.
SCOPE OF THE TAX OPINIONS
Upon issuance of the Notes and Certificates, Special Tax Counsel will
deliver its opinion that, under current law and subject to the discussion set
forth below, the Trust will not be classified as an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
Further, with respect to the Class A Notes, Special Tax Counsel will advise the
Trust that the Class A Notes will be classified as debt for federal income tax
purposes. Finally, with respect to the Class B Notes, while there is no
authority directly addressing analogous situations and the issue is not free
from doubt, Special Tax Counsel will advise the Trust that the Class B Notes
should be classified as debt for federal income tax purposes. Class B
Noteholders are advised that the opinion
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of Special Tax Counsel is not binding on the IRS. In the event that the Class B
Notes were treated as equity interests in the Trust, the consequences governing
the Certificates described under the heading "-- Tax Consequences to Holders of
Certificates" would apply to the Class B Noteholders. In particular, in such a
case, income to certain tax-exempt entities would be "unrelated business taxable
income." Class B Noteholders are strongly urged to review the disclosure under
the headings "-- Tax Consequences to Holders of the Notes -- Possible
Alternative Treatments of the Notes" and "Tax Consequences to Holders of
Certificates" below, and to consult their tax advisers regarding the treatment,
for federal income tax purposes, of the Class B Notes.
In addition, Special Tax Counsel has prepared or reviewed the statements
under the heading "Summary -- Tax Status" as they relate to federal income tax
matters and under the heading "Certain Federal Income Tax Consequences" herein
and in the Prospectus and is of the opinion that such statements are correct in
all material respects. Such statements are intended as an explanatory discussion
of the possible effects of the classification of the Trust as a partnership for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to the investor's specific tax
circumstances that would be provided by an investor's own tax adviser.
Accordingly, each investor is advised to consult its own tax advisers with
regard to the tax consequences to it of investing in Notes and Certificates.
TAX CHARACTERIZATION OF THE TRUST
As set forth above, Special Tax Counsel will deliver its opinion that the
Trust will not be classified as an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. This opinion will be
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on counsel's conclusions that (1) the Trust
does not have certain characteristics necessary for a business trust to be
classified as an association taxable as a corporation and (2) either the nature
of the income of the Trust will exempt it from the provisions of the Code
requiring certain publicly traded partnerships to be taxed as corporations or
the Trust will otherwise qualify for an exemption from the rules governing
publicly traded partnerships.
Opinions of counsel are not binding on the IRS. If the Trust were taxable
as a corporation for federal income tax purposes, the Trust would be subject to
corporate income tax on its taxable income. The Trust's taxable income would
include all of its income on the Receivables, possibly reduced by its interest
expense on the Notes. Any such corporate income tax could materially reduce the
amount of cash available to make payments on the Notes and distributions on the
Certificates, and Certificateholders and, possibly, the Class B Noteholders
could be liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Noteholders will be deemed to
agree, by their purchase of the Notes, to treat the Notes as debt for federal
income tax purposes. The discussion below assumes that this characterization of
the Class A Notes and the Class B Notes is correct.
Original Issue Discount. Unless a Note is a Short-Term Note (as described
below), it will be treated as issued with original issue discount ("OID") if the
excess of the Note's "stated redemption price at maturity" over the issue price
equals or exceeds a de minimis amount equal to 1/4 of 1 percent of the Note's
stated redemption price at maturity multiplied by the number of complete years
(based on the anticipated weighted average life of a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method taking into account an economic accrual of the discount. In
general, OID must be included in income in advance of the receipt of the cash
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representing that income. The amount of OID on a Note will be considered to be
zero if it is less than a de minimis amount determined as described above.
However, the amount of any de minimis OID must be included in income as
principal payments are received on a Note, in the proportion that each such
payment bears to the original principal amount of the Note. The issue price of a
Note will generally be the initial offering price at which a substantial amount
of the Notes are sold. The Trust intends to treat the issue price as including,
in addition, the amount paid by the Noteholder for accrued interest, if any,
that relates to a period prior to the Closing Date. Under applicable Treasury
regulations governing the accrual of OID (the "OID Regulations"), the stated
redemption price at maturity is the sum of all payments on the Note other than
any "qualified stated interest" payments. Qualified stated interest is defined
as any one of a series of payments equal to the product of the outstanding
principal amount of the Note and a single fixed rate or certain variable rates
of interest that is unconditionally payable at least annually.
The holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period(s). In the case of an obligation the principal on which
is subject to prepayment as a result of prepayments on the underlying collateral
(a "Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). The Prepayment Assumption that will be
used in determining the rate of accrual of OID, premium and market discount, if
any, is 1.5% ABS. The amount of OID that will accrue during an accrual period
(generally the period between interest payments or compounding dates) is the
excess, if any, of the sum of (a) the present value of all payments remaining to
be made on the Note as of the close of the accrual period and (b) the payments
during the accrual period of amounts included in the stated redemption price of
the Note, over the "adjusted issue price" of the Note at the beginning of the
accrual period. An "accrual period" is the period over which OID accrues, and
may be of any length, provided that each accrual period is no longer than one
year and each scheduled payment of interest or principal occurs on either the
last day or the first day of an accrual period. The Issuer intends to report OID
on the basis of an accrual period that corresponds to the interval between
Distribution Dates. The adjusted issue price of a Note is the sum of its issue
price plus prior accruals of OID, reduced by the total payments made with
respect to such Note in all prior periods, other than qualified stated interest
payments. The present value of the remaining payments is determined on the basis
of three factors: (i) the original yield to maturity of the Note (determined on
the basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Noteholder to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Noteholder to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Noteholders based on the Prepayment Assumption, no
representation is made to Noteholders that the Receivables will be prepaid at
that rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price will not include any OID in gross income. A subsequent
holder of a Note which acquires the Note for an amount that is less than its
stated redemption price will be required to include OID in gross income, but
such a holder who purchases such Note for an amount that exceeds its adjusted
issue price will be entitled (as will an initial holder who pays more than a
Note's issue price) to reduce the amount of OID included in income in each
period by the amount of OID multiplied by a fraction, the numerator of which is
the excess of (w) the purchaser's adjusted basis in the Note
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immediately after purchase thereof over (x) the adjusted issue price of the
Note, and the denominator of which is the excess of (y) all amounts remaining to
be paid on the Note after the purchase date, other than qualified stated
interest, over (z) the adjusted issue price of the Note.
Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium, and acquisition premium, a holder of a Note (other
than a Short-Term Note, as described below) may elect to include all income that
accrues on the Note using the constant yield method. If a Noteholder makes this
election, income on a Note will be calculated as though (i) the issue price of
the Note were equal to the Noteholder's adjusted basis in the Note immediately
after its acquisition by the Noteholder; (ii) the Note were issued on the
Noteholder's acquisition date; and (iii) none of the interest payments on the
Note were "qualified stated interest." A Noteholder may make such an election
for a Note that has premium or market discount, respectively, only if the
Noteholder makes, or has previously made, an election to amortize bond premium
or to include market discount in income currently. See "-- Market Discount" and
"-- Amortizable Bond Premium" below.
Market Discount. The Notes, whether or not issued with OID, will be subject
to the "market discount rules" of Section 1276 of the Code. In general, these
rules provide that if the Note Owner acquires a Note at a market discount (that
is, a discount from its stated redemption price at maturity or, if the Notes
were issued with OID, its original issue price plus any accrued OID that exceeds
a de minimis amount specified in the Code) and thereafter (a) recognizes gain
upon a disposition, or (b) receives payments of principal, the lesser of (i)
such gain or principal payment or (ii) the accrued market discount will be taxed
as ordinary interest income. Generally, the accrued market discount will be the
total market discount on the Note multiplied by a fraction, the numerator of
which is the number of days the Note Owner held the Note and the denominator of
which is the number of days from the date the Note Owner acquired the Note until
its maturity date. The Note Owner may elect, however, to determine accrued
market discount under the constant yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at a
premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
Short-Term Notes. Under the Code, special rules apply to Notes that have a
maturity of one year or less from their date of original issuance ("Short-Term
Notes"). Such Notes are treated as issued with "acquisition discount" which is
calculated and included in income under principles similar to those governing
OID except that acquisition discount is equal to the excess of all payments of
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principal and interest on the Short-Term Notes over their issue price. In
general, an individual or other cash basis holder of a short-term obligation is
not required to accrue acquisition discount for federal income tax purposes
unless it elects to do so. Accrual basis Noteholders and certain other
Noteholders, including banks, regulated investment companies, dealers in
securities and cash basis Noteholders who so elect, are required to accrue
acquisition discount on Short-Term Notes on either a straight-line basis or
under a constant yield method (based on daily compounding), at the election of
the Noteholder. In the case of a Noteholder not required and not electing to
include acquisition discount in income currently, any gain realized on the sale
or retirement of the Short-Term Notes will be ordinary income to the extent of
the acquisition discount accrued on a straight-line basis (unless an election is
made to accrue the acquisition discount under the constant yield method) through
the date of sale or retirement. Noteholders who are not required and do not
elect to accrue acquisition discount on Short-Term Notes will be required to
defer deductions for interest on borrowings allocable to short-term obligations
in an amount not exceeding the deferred income until the deferred income is
realized.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder generally will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by any bond premium previously amortized and
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss and any gain or loss realized upon prepayment of a
Note (other than unamortized OID, whether or not accrued) will be capital gain
or loss if the Note was held as a capital asset, except for gain representing
accrued interest, accrued market discount or OID that has not previously
accrued, in each case to the extent not previously included in income. Capital
losses incurred on sale or disposition of a Note generally may be used only to
offset capital gains.
Non-U.S. Persons. In general, a non-U.S. Person that is a Note Owner of a
Class A Note (a "non-U.S. Class A Note Owner") will not be subject to United
States federal income tax on interest (including OID) on a beneficial interest
in a Class A Note unless (i) the non-U.S. Class A Note Owner actually or
constructively owns 10 percent or more of the total combined voting power of all
classes of stock of the Seller (or affiliate of the Seller) entitled to vote (or
of a profits or capital interest of the Trust), (ii) the non-U.S. Class A Note
Owner is a controlled foreign corporation that is related to the Seller (or the
Trust) through stock ownership, (iii) the non-U.S. Class A Note Owner is a bank
receiving interest described in Code Section 881(c)(3)(A), (iv) such interest is
contingent interest described in Code Section 871(h)(4), or (v) the non-U.S.
Class A Note Owner bears certain relationships to any Certificateholder and, in
the event that the Class B Notes are not classified as debt, any Class B
Noteholder. To qualify for the exemption from taxation, the non-U.S. Class A
Note Owner must comply with applicable certification requirements.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Class A Note by a non-U.S. Class A Note Owner will be
exempt from United States federal income tax and withholding tax, provided that
(i) such gain is not effectively connected with the conduct of a trade or
business in the United States by the non-U.S. Class A Note Owner and (ii) in the
case of an individual non-U.S. Class A Note Owner, the non-U.S. Class A Note
Owner is not present in the United States for 183 days or more in the taxable
year.
The Class B Notes may not be purchased by persons other than U.S. Persons.
Backup Withholding. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct taxpayer identification number and a statement that the holder is not
subject to backup withholding. Should a nonexempt Noteholder fail to provide the
required certification, the Trust will
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be required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If the IRS successfully
asserted that one or more of the Notes did not represent debt for federal income
tax purposes, the Notes might be treated as equity interests in the Trust. If so
treated, the Trust might be treated as a publicly traded partnership that would
not be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income," income to non-U.S. Class A
Note Owners generally would be subject to U.S. federal tax and U.S. federal tax
return filing and withholding requirements, individual holders might be subject
to certain limitations on their ability to deduct their share of Trust expenses,
and taxpayers such as regulated investment companies and real estate investment
trusts could be adversely affected.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES
Treatment of the Trust as a Partnership. The Seller and the Servicer will
agree, and the Certificateholders will be deemed to agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Seller and the
Certificateholders, and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to those contemplated herein.
A variety of alternative characterizations of the Certificates are
possible. For example, because the Certificates generally will have certain
features characteristic of debt, the Certificates might be considered debt of
the Seller or the Trust. Any such characterization would not result in
materially adverse tax consequences to Certificateholders as compared to the
consequences from treatment of the Certificates as equity in a partnership,
described below. The following discussion assumes that the Certificates
represent equity interests in a partnership.
Partnership Taxation. Assuming that the Trust is classified as a
partnership, the Trust will not be subject to federal income tax, but each
Certificateholder will be required to take into account separately such holder's
allocated share of income, gains, losses, deductions and credits of the Trust.
The Trust's income will consist primarily of interest accrued on the Receivables
(including appropriate adjustments for market discount (as discussed below), and
any OID and bond premium), investment income from investments of collections
held between Distribution Dates, any gain upon, or with respect to, collection
or disposition of the Receivables and any income earned on any notional
principal contracts. The Trust's deductions will consist primarily of interest
accruing on the Notes, servicing and other fees and losses or deductions upon,
or with respect to, collection or the disposition of the Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. In the Trust
Agreement, the Certificateholders will agree that the yield on a Certificate is
intended to qualify as a "guaranteed payment" and not as a distributive share of
partnership income. A guaranteed payment would be treated by a Certificateholder
as ordinary income, but may well not be treated as interest income. The Trust
Agreement will provide that, to the extent that such treatment is not respected,
the Certificateholders will be allocated ordinary gross income of the Trust for
each interest period equal to the sum of (i) the amount of interest that accrues
on the Certificates for such interest period based on the Certificate Rate; (ii)
an amount equivalent to interest that accrues during such interest period on
amounts previously due on the Certificates but not yet distributed; and (iii)
any Trust income attributable to discount on the Receivables that corresponds to
any excess of the principal balance of the
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Certificates over their initial issue price. All remaining taxable income of the
Trust generally will be allocated to the Seller, as "general partner" of the
Trust.
Except as set forth below, losses and deductions generally will not be
allocated to the Certificateholders except to the extent the Certificateholders
are reasonably expected to bear the economic burden of such losses or
deductions. Any losses allocated to Certificateholders could be characterized as
capital losses, and the Certificateholders generally would only be able to
deduct such losses against capital gain income, and deductions would be subject
to the limitations set forth below. Accordingly, a Certificateholder's taxable
income from the Trust could exceed the cash it is entitled to receive from the
Trust.
Although the allocation of gross income to Certificateholders described
above if the Certificateholders are not treated as receiving a "guaranteed
payment" is intended to comply with applicable Treasury regulations and other
authorities, no assurance can be given that the IRS would not instead require
that Certificateholders be allocated a distributive share of partnership net
income or loss. Moreover, if losses or deductions were allocated to
Certificateholders, such losses or deductions would, to the extent that funds
were available therefor, later be reimbursed through allocations of ordinary
income.
It is believed that allocating partnership income on the foregoing basis
should comport with the partners' economic interests in the partnership,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to Certificateholders. Moreover, under the
foregoing method of allocation, Certificateholders may be allocated income equal
to the amount of interest accruing on the Certificates based on the Certificate
Rate even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis Certificateholders will in effect
be required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes. In addition, because tax
allocation and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Certificateholders will be required to report items of income, loss and
deduction allocated to them by the Trust in the taxable year in which or with
which the taxable year of the Trust to which such allocations relate ends. The
Code prescribes certain rules for determining the taxable year of the Trust. It
is likely that, under these rules, the taxable year of the Trust will be the
calendar year. However, in the event that all of the Certificateholders
possessing a 5 percent or greater interest in the equity or the profits of the
Trust share a taxable year that is other than the calendar year, the Trust would
be required to use that year as its taxable year.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code. The
characterization under the Trust Agreement of yield on the Certificates as a
guaranteed payment could adversely affect taxpayers, such as regulated
investment companies and real estate investment trusts, that expect to earn
"interest" income.
Limitations on Losses and Deductions. In the event that losses or
deductions are allocated to Certificateholders in the circumstances described
above, the following rules will apply. Under the "passive activity" rules of the
Code, any loss allocated to a Certificateholder who is a natural person, estate,
trust, closely held "C" corporation, or personal service corporation would be a
passive activity loss while, for purposes of those rules, income allocated to
such a Certificateholder would be "portfolio income." Moreover, any losses
allocated to a Certificateholder may be capital losses.
S-48
<PAGE> 49
In addition, a taxpayer that is an individual, trust or estate may
generally deduct miscellaneous itemized deductions (which do not include
interest expense) only to the extent that they exceed two percent of the
taxpayer's adjusted gross income. Those limitations would apply to an individual
Certificateholder's share of expenses of the Trust (including fees paid to the
Servicer) and might result in such holder having taxable income that exceeds the
amount of cash which the Certificateholder is entitled to receive over the life
of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables were not issued
with OID or imputed interest, and, therefore, the Trust should not have OID or
imputed interest income. However, the purchase price paid by the Trust for the
Receivables may be greater or less than the remaining principal balance of the
Receivables at the time of purchase. If so, the Receivables will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will, however, recognize gain to the extent any money
distributed exceeds the Certificateholder's adjusted basis in the Certificates
(as described below under "-- Disposition of Certificates") immediately before
distribution, and a Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in the Trust if the
Trust only distributes money to the Certificateholder and the amount distributed
is less than the Certificateholder's adjusted basis in the Certificates. Any
such gain or loss would be long-term capital gain or loss if the holding period
of the Certificates were more than one year, assuming that the Certificates are
held as capital assets.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
S-49
<PAGE> 50
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special federal
income tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed miscellaneous itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal balance of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future Treasury regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and federal income tax purposes on an accrual basis and the
fiscal year of the Trust will be the calendar year. The Owner Trustee will file
a partnership information return (Form 1065) with the IRS for each taxable year
of the Trust and will report each Certificateholder's allocable share of items
of Trust income and expense to holders and the IRS on Schedule K-1. The Trust
will provide the Schedule K-1 information to nominees that fail to provide the
Trust with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file federal income tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and federal taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and federal taxpayer identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or any
wholly owned agency or instrumentality of either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf of
such person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to the
Trust information as to
S-50
<PAGE> 51
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Code provides for administrative examination of a partnership as if the
partnership were a separate taxpayer. Under these audit procedures, the tax
treatment of items of Trust income, gain, loss, deduction and credit would be
determined at the Trust level in a unified proceeding, rather than in separate
proceedings with each Certificateholder. Generally, the statute of limitations
for Trust items does not expire before three years after the date on which the
partnership information return is filed. The Seller will be designated the "tax
matters partner" for the Trust and, as such, is designated to receive notice on
behalf of, and to provide notice to those Certificateholders not receiving
notice from, the IRS, and to represent the Certificateholders in any dispute
with the IRS. Any adverse determination following an audit of the return of the
Trust by the appropriate taxing authorities could result in an adjustment of the
returns of the Certificateholders, and while the Certificateholders may
participate in any adjudicative process that is undergone at the Trust level in
arriving at such a determination, such Certificateholders will be precluded from
separately litigating a proposed adjustment to the items of the Trust. As the
tax matters partner, the Seller may enter into a binding settlement on behalf of
all Certificateholders with a less than a 1 percent interest in the Partnership
(except for any group of such Certificateholders with an aggregate interest of 5
percent or more in Trust profits that elects to form a notice group or
Certificateholders who otherwise notify the IRS that the Seller is not
authorized to settle on their behalf). In the absence of a proceeding at the
Trust level, a Certificateholder under certain circumstances may pursue a claim
for credit or refund on his own behalf by filing a request for administrative
adjustment of a Trust item. Each Certificateholder is advised to consult its own
tax advisor with respect to the impact of these procedures on its particular
case.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will not be subject to a "backup" withholding
tax of 31% unless, in general, the Certificateholder fails to comply with
certain identification procedures and is not an exempt recipient under
applicable provisions of the Code.
No Non-U.S. Persons. The Certificates may not be purchased by persons other
than U.S. Persons.
CERTAIN STATE TAX CONSEQUENCES
Because of the variation in each state's and locality's tax laws, it is
impossible to predict the tax classification of the Trust or the tax
consequences to the Trust or to holders of Notes and Certificates in all of the
state and local taxing jurisdictions in which they may be subject to tax.
Noteholders and Certificateholders are urged to consult their own tax advisors
with respect to state and local taxation of the Trust and state and local tax
consequences of the purchase, ownership and disposition of Notes and
Certificates.
MICHIGAN TAX CONSEQUENCES
The State of Michigan imposes a state individual income tax and a Single
Business Tax which is based partially upon the net income of corporations,
partnerships and other entities doing business in the State of Michigan. This
discussion is based upon present provisions of Michigan statutes and the
regulations promulgated thereunder, and applicable judicial or ruling authority,
all of which are subject to change, which change may be retroactive. No ruling
on any of the issues discussed below will be sought from the Michigan Department
of Treasury.
S-51
<PAGE> 52
MICHIGAN TAX CONSEQUENCES WITH RESPECT TO THE NOTES
Michigan Tax Counsel will deliver his opinion that, assuming the Notes will
be treated as debt for federal income tax purposes, the Notes will be treated as
debt for Michigan income and Single Business Tax purposes. Accordingly,
Noteholders not otherwise subject to taxation in Michigan should not become
subject to taxation in Michigan solely because of a holder's ownership of Notes.
However, a Noteholder already subject to Michigan's income tax or Single
Business Tax could be required to pay additional Michigan tax as a result of the
holder's ownership or disposition of Notes. However, in the event that the Class
B Notes were treated as equity interests in the Trust, the consequences
governing the Certificates described under the heading "-- Michigan Tax
Consequences With Respect to the Certificates" would apply to the Class B
Noteholders.
MICHIGAN TAX CONSEQUENCES WITH RESPECT TO THE CERTIFICATES
If the arrangement created by the Trust Agreement is treated as a
partnership (not taxable as a corporation) for federal income tax purposes,
Michigan Tax Counsel will deliver his opinion that the same treatment should
also apply for Michigan tax purposes. In such case, the partnership should have
no Michigan Single Business Tax liability (which could otherwise result in
reduced distributions to Certificateholders). The Certificateholders also should
not be subject to the Michigan Single Business Tax on income received through
the partnership.
Individual Certificateholders that are nonresidents of Michigan and are not
otherwise subject to Michigan taxes may be subject to Michigan Individual Income
Tax of 4.4% on the income from the partnership. Michigan law is not clear with
respect to this issue. Other states, with similar laws, do take the position
that individual partners are subject to personal income tax on income from a
partnership when a partnership is doing business in their state. A
Certificateholder not otherwise subject to taxation in Michigan would not be
subject to Michigan Individual Income Tax on income beyond that derived from the
Certificates.
If the Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, then the hypothetical entity would be subject to the Michigan
Single Business Tax (which would result in reduced distributions to
Certificateholders). A Certificateholder not otherwise subject to tax in
Michigan would not become subject to Michigan tax as a result of its mere
ownership of such an interest.
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase by money
market funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended.
ERISA CONSIDERATIONS
THE CLASS A NOTES
The Class A Notes may, in general, be purchased by or on behalf of (i)
"employee benefit plans" (as defined in Section 3(3) of ERISA), (ii) "plans"
described in Section 4975(e)(1) of the Code, including individual retirement
accounts and Keogh Plans, or (iii) entities whose underlying
S-52
<PAGE> 53
assets include plan assets by reason of a plan's investment in such entity
(each, a "Plan"). However, the acquisition and holding of Class A Notes by or on
behalf of a Plan could be considered to give rise to a prohibited transaction
under ERISA and Section 4975 of the Code if the Trust, the Owner Trustee, the
Indenture Trustee, any Class B Noteholder, any Certificateholder or any of their
respective affiliates, is or becomes a "party in interest" or a "disqualified
person" (as defined in ERISA and the Code, respectively) with respect to such
Plan. In such case, certain exemptions from the prohibited transaction rules
could be applicable to such acquisition and holding by a Plan depending on the
type and circumstances of the Plan fiduciary making the decision to acquire a
Class A Note. For additional information regarding treatment of the Class A
Notes under ERISA, see "ERISA Considerations" in the Prospectus.
THE CLASS B NOTES AND THE CERTIFICATES
The Class B Notes and the Certificates may not be acquired by a Plan
subject to the fiduciary responsibility provisions of ERISA or Section 4975 of
the Code or a person investing "plan assets" of such a Plan (including without
limitation, for this purpose, any insurance company general account, but
excluding any entity registered under the Investment Company Act of 1940, as
amended) (each, a "Plan Investor"). In addition, investors other than Plan
Investors should be aware that a prohibited transaction under ERISA and the Code
could be deemed to occur if any holder of the Class B Notes or the Certificates
or any of their respective affiliates is or becomes a party in interest or a
disqualified person with respect to any such Plan that acquires and holds the
Class A Notes without such Plan being covered by one or more exemptions from the
prohibited transaction rules. Each purchaser of the Class B Notes or the
Certificates will be required to represent and certify that it is neither such a
Plan nor is acquiring such Class B Notes or such Certificates on behalf of any
such Plan. For additional information regarding treatment of the Class B Notes
and the Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
The treatment of the Certificates under ERISA as described in the Prospectus
under "ERISA Considerations -- Securities Issued by Trusts that Issue Both Notes
and Certificates -- The Certificates" applies to the treatment of the Class B
Notes under ERISA.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Class A-1 Note Underwriting Agreement"), the Seller has agreed to cause
the Trust to sell to each of the Class A-1 Note underwriters named below
(collectively, the "Class A-1 Note Underwriters"), and each of the Class A-1
Note Underwriters has severally agreed to purchase the initial principal amount
of Class A-1 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A-1
CLASS A-1 NOTE UNDERWRITERS NOTES
--------------------------- ---------
<S> <C>
Goldman, Sachs & Co......................................... $ 1,000,000.00
Ford Financial Services, Inc................................ 489,000,000.00
---------------
Total.................................................. $490,000,000.00
===============
</TABLE>
The Seller has been advised by the Class A-1 Note Underwriters that they
propose initially to offer the Class A-1 Notes to the public at the prices set
forth herein. After the initial public offering of the Class A-1 Notes, the
public offering price may be changed. Ford Financial Services, Inc. is a wholly
owned subsidiary of the Servicer.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Class A-2 Note/Class A-3 Note Underwriting Agreement"), the Seller has
agreed to cause the Trust to sell to each of the Class A-2 Note/Class A-3 Note
underwriters named below (collectively, the "Class A-2 Note/Class A-3 Note
Underwriters"), and each of the Class A-2 Note/Class A-3 Note Underwriters
S-53
<PAGE> 54
has severally agreed to purchase, the initial principal amount of Class A-2
Notes and Class A-3 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF
CLASS A-2 NOTE/CLASS A-3 CLASS A-2 CLASS A-3
NOTE UNDERWRITERS NOTES NOTES
------------------------ --------- ---------
<S> <C> <C>
Goldman, Sachs & Co.................................... $ 67,600,000.00 $ 82,800,000.00
Credit Suisse First Boston Corporation................. 67,600,000.00 82,800,000.00
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................. 67,600,000.00 82,800,000.00
J.P. Morgan Securities Inc............................. 67,600,000.00 82,800,000.00
Salomon Brothers Inc .................................. 67,600,000.00 82,800,000.00
ABN AMRO Chicago Corporation........................... 10,000,000.00 20,000,000.00
Chase Securities Inc. ................................. 10,000,000.00 20,000,000.00
Citicorp Securities, Inc. ............................. 10,000,000.00 20,000,000.00
First Chicago Capital Markets, Inc. ................... 10,000,000.00 20,000,000.00
Blaylock & Partners, L.P. ............................. 10,000,000.00 20,000,000.00
--------------- ---------------
Total............................................. $388,000,000.00 $514,000,000.00
=============== ===============
</TABLE>
The Seller has been advised by the Class A-2 Note/Class A-3 Note
Underwriters that they propose initially to offer the Class A-2 Notes and the
Class A-3 Notes to the public at the prices set forth herein, and to certain
dealers at such prices less the initial concession not in excess of 0.105% per
Class A-2 Note and 0.125% per Class A-3 Note. The Class A-2 Note/Class A-3 Note
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.060% per Class A-2 Note and 0.075% per Class A-3 Note to certain other
dealers. After the initial public offering of the Class A-2 Notes and the Class
A-3 Notes, the public offering price and such concessions may be changed.
FCAR Owner Trust, a Delaware business trust, will purchase directly from
the Seller the entire initial principal amount of the Class A-4 Notes.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Class B Note/Certificate Underwriting Agreement"), the Seller has agreed
to cause the Trust to sell to Goldman, Sachs & Co. (the "Class B
Note/Certificate Underwriter" and, together with the Class A-1 Note Underwriters
and the Class A-2 Note/Class A-3 Note Underwriters, the "Underwriters"), and the
Class B Note/Certificate Underwriter has agreed to purchase, the entire initial
principal amount of the Class B Notes and the entire initial Certificate Balance
of the Certificates.
The Seller has been advised by the Class B Note/Certificate Underwriter
that it proposes initially to offer the Class B Notes and the Certificates to
the public at the prices set forth herein, and to certain dealers at such prices
less the initial concession not in excess of 0.150% per Class B Notes and 0.210%
per Certificate. The Class B Note/Certificate Underwriter may allow, and such
dealers may reallow, a concession not in excess of 0.090% per Class B Note and
0.125% per Certificate to certain other dealers. After the initial public
offering of the Class B Notes and the Certificates, the public offering price
and such concessions may be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Securities. As an exception to these rules,
Goldman, Sachs & Co. ("Goldman Sachs"), on behalf of the Class A-2 Note/Class
A-3 Note Underwriters, is permitted to engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Class A-2 Notes and the Class A-3 Notes in accordance with
Regulation M under the Exchange Act.
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<PAGE> 55
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Class A-2 Notes or the Class A-3 Notes so long as
the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Class A-2 Notes or the Class A-3 Notes in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit Goldman Sachs to reclaim a
selling concession from a syndicate member when the Class A-2 Notes or the Class
A-3 Notes originally sold by such syndicate member are purchased in a syndicate
covering transaction.
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Class A-2
Notes and the Class A-3 Notes to be higher than they would otherwise be in the
absence of such transactions. Neither the Issuer, the Seller, Ford Credit, nor
any of the Underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Class A-2 Notes and the Class A-3 Notes. In addition,
neither the Issuer, the Seller, Ford Credit nor any of the Underwriters
represent that the Class A-2 Note/Class A-3 Note Underwriters will engage in any
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
This Prospectus Supplement and the Prospectus may be used by Ford Financial
Services, Inc. in connection with offers and sales related to market-making
transactions in the Class A-1 Notes. Ford Financial Services, Inc. may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. Ford Financial
Services, Inc. has no obligation to make a market in the Class A-1 Notes and any
such market-making may be discontinued at any time without notice, in its sole
discretion.
The Seller and Ford Credit have agreed to indemnify the Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments which the Underwriters may be required to make
in respect thereof.
The closings of the sale of each class of the Notes and the Certificates
are conditioned on the closing of the sale of each other class of Securities.
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
the Seller or the Underwriter will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
LEGAL OPINIONS
Certain legal and state tax matters relating to the Notes and the
Certificates will be passed upon for the Seller and the Servicer by J.D.
Bringard, Esq., Vice President -- General Counsel of the Servicer. Certain legal
matters relating to the Notes and the Certificates will be passed upon for the
Underwriters and certain federal income tax and other matters will be passed
upon for the Seller by Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Bringard is
a full-time employee of Ford Credit and owns and holds options to purchase
shares of Common Stock of Ford. Skadden, Arps, Slate, Meagher & Flom LLP have
from time to time represented Ford, Ford Credit and their affiliates in
connection with certain transactions.
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<PAGE> 56
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Terms" in the
Prospectus.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABS......................................................... S-25
ABS Table................................................... S-26
Accrued Certificate Interest................................ S-38
Accrued Class A Note Interest............................... S-38
Accrued Class B Note Interest............................... S-38
Actual Class A Note Overcollateralization Amount............ S-10, S-38
Actual Class B Note Overcollateralization Amount............ S-10, S-38
APR......................................................... S-7
Available Collections....................................... S-37
Available Funds............................................. S-36
Business Day................................................ S-8
Cedel....................................................... S-1, I-1
Certificate Balance......................................... S-38
Certificateholders.......................................... S-13
Certificateholders' Interest Carryover Shortfall............ S-38
Certificateholders' Monthly Accrued Interest................ S-39
Certificate Pool Factor..................................... S-30
Certificate Rate............................................ S-13
Certificates................................................ S-2, S-6
Class A Noteholders......................................... S-5
Class A Noteholders' Interest Carryover Shortfall........... S-39
Class A Noteholders' Monthly Accrued Interest............... S-39
Class A Notes............................................... S-2, S-5
Class A-1 Final Scheduled Distribution Date................. S-12
Class A-1 Noteholders....................................... S-9
Class A-1 Notes............................................. S-1, S-5
Class A-1 Note Underwriters................................. S-53
Class A-1 Note Underwriting Agreement....................... S-53
Class A-1 Rate.............................................. S-8
Class A-2 Final Scheduled Distribution Date................. S-12
Class A-2 Note/Class A-3 Note Underwriters.................. S-53
Class A-2 Note/Class A-3 Note Underwriting Agreement........ S-53
Class A-2 Noteholders....................................... S-9
Class A-2 Notes............................................. S-1, S-5
Class A-2 Rate.............................................. S-8
Class A-3 Final Scheduled Distribution Date................. S-12
Class A-3 Noteholders....................................... S-9
Class A-3 Notes............................................. S-1, S-5
Class A-3 Rate.............................................. S-8
Class A-4 Final Scheduled Distribution Date................. S-12
Class A-4 Noteholder........................................ S-9
Class A-4 Notes............................................. S-2, S-5
Class A-4 Rate.............................................. S-8
Class B Final Scheduled Distribution Date................... S-12
Class B Note/Certificate Underwriter........................ S-54
</TABLE>
S-56
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Class B Note/Certificate Underwriting Agreement............. S-54
Class B Noteholders......................................... S-5
Class B Noteholders' Interest Carryover Shortfall........... S-39
Class B Noteholders' Monthly Accrued Interest............... S-39
Class B Notes............................................... S-2, S-5
Class B Rate................................................ S-8
Closing Date................................................ S-7
Code........................................................ S-6, S-42
Collection Account.......................................... S-15
Collection Period........................................... S-11
Commission.................................................. S-3
Cutoff Date................................................. S-7
Definitive Certificates..................................... S-6
Definitive Class A-4 Notes.................................. S-6
Definitive Class B Notes.................................... S-6
Determination Date.......................................... S-11
Distribution Date........................................... S-2, S-8
DTC......................................................... S-1, I-1
ERISA....................................................... S-6
Euroclear................................................... S-1, I-1
Exchange Act................................................ S-3
Final Scheduled Distribution Date........................... S-14
Final Scheduled Maturity Date............................... S-7
First Priority Principal Distribution Amount................ S-10, S-39
Ford Credit................................................. S-5
General Partner............................................. S-2
Global Notes................................................ I-1
Goldman Sachs............................................... S-54
Indenture................................................... S-5
Indenture Trustee........................................... S-5
Initial Pool Balance........................................ S-12
Interest Period............................................. S-9, S-31
IRS......................................................... S-42
Issuer...................................................... S-5
Liquidated Receivables...................................... S-37
Liquidation Proceeds........................................ S-37
Michigan Tax Counsel........................................ S-17
Minimum Required Class A Note Overcollateralization
Amount.................................................... S-10, S-40
Minimum Required Class B Note Overcollateralization
Amount.................................................... S-10, S-40
Net Losses.................................................. S-29
non-U.S. Class A Note Owner................................. S-46
Noteholders................................................. S-8
Note Interest Rates......................................... S-8
Note Owner.................................................. S-6
Note Pool Factor............................................ S-30
Notes....................................................... S-2, S-5
OID......................................................... S-43
OID Regulations............................................. S-44
Owner Trustee............................................... S-5
Plan........................................................ S-53
Plan Investor............................................... S-53
Pool Balance................................................ S-8
</TABLE>
S-57
<PAGE> 58
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prepayable Obligation....................................... S-44
Prepayment Assumption....................................... S-44
Principal Distribution Account.............................. S-35
Prospectus.................................................. S-3
Purchase Agreement.......................................... S-7
Rating Agencies............................................. S-21
Realized Losses............................................. S-8
Receivables................................................. S-2, S-7
Receivables Pool............................................ S-22
Record Date................................................. S-8, S-13
Reserve Account Determination Date.......................... S-11, S-42
Reserve Account Release Amount.............................. S-36
Reserve Initial Deposit..................................... S-14
Sale and Servicing Agreement................................ S-7
Second Priority Principal Distribution Amount............... S-10, S-40
Securities.................................................. S-2, S-6
Securityholders............................................. S-13
Seller...................................................... S-1, S-5
Servicer.................................................... S-5
Servicer Fee................................................ S-16, S-35
Servicing Fee............................................... S-16, S-35
Servicing Fee Rate.......................................... S-16, S-35
Short-Term Notes............................................ S-45
Special Tax Counsel......................................... S-17
Specified Credit Enhancement Amount......................... S-11, S-40
Specified Overcollateralization Amount...................... S-11, S-40
Specified Reserve Balance................................... S-11, S-42
Supplemental Servicing Fee.................................. S-16, S-35
Third Priority Principal Distribution Amount................ S-11, S-40
Total Required Payment...................................... S-14, S-40
Transfer and Servicing Agreements........................... S-35
Trust....................................................... S-1, S-5
Trust Agreement............................................. S-5
Underwriters................................................ S-54
U.S. Person................................................. I-4
</TABLE>
S-58
<PAGE> 59
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Ford Credit
Auto Owner Trust 1997-B Class A-1 5.748% Asset Backed Notes, Class A-2 5.95%
Asset Backed Notes and Class A-3 6.05% Asset Backed Notes (collectively, the
"Global Notes") will be available only in book-entry form. Investors in the
Global Notes may hold such Global Notes through any of The Depository Trust
Company ("DTC"), Cedel Bank, societe anonyme ("Cedel") or the Euroclear System
("Euroclear"). The Global Notes will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Notes through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (that is, seven calendar day settlement).
Secondary market trading between investors holding Global Notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Notes will be subject to
U.S. withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Notes will be held in book-entry form by DTC in the name of Cede
& Co. as nominee of DTC. Investors' interests in the Global Notes will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Notes through Cedel or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no
"lock-up" or restricted period. Global Notes will be credited to the securities
custody accounts on the settlement date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
<PAGE> 60
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Notes are to be transferred from the account of a DTC Participant to the account
of a Cedel Participant or a Euroclear Participant, the purchaser will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Notes against payment. Payment will include interest accrued on the
Global Notes from and including the last coupon payment date to and excluding
the settlement date. Payment will then be made by the respective Depositary to
the DTC Participant's account against delivery of the Global Notes. After
settlement has been completed, the Global Notes will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the Global Notes will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (that
is, the trade fails), the Cedel or Euroclear cash debit will be valued instead
as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global Notes
are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Notes would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Notes were credited to their accounts. However,
interest on the Global Notes would accrue from the value date. Therefore, in
many cases the investment income on the Global Notes earned during that one-day
period may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Cedel Participant's or Euroclear
Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Notes to the
respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global Notes are
to be transferred by the respective clearing system, through the respective
Depositary, to a DTC Participant. The seller will send instructions to Cedel or
Euroclear through a Cedel Participant or Euroclear Participant at least one
business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the respective Depositary, as appropriate, to deliver the bonds to the
DTC Participant's account against payment. Payment will include interest accrued
on the Global Notes from and including the last coupon payment date to and
excluding the settlement date. The payment will then be reflected in the account
of the Cedel Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant
I-2
<PAGE> 61
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debit in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date (that is, the trade fails), receipt of the cash proceeds in
the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Notes from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Notes in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Notes
sufficient time to be reflected in their Cedel or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Notes holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Notes that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Notes
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the beneficial
owner of Global Notes or its agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
I-3
<PAGE> 62
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Note or in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
Recently enacted Treasury regulations provide that as of January 1, 1999,
the current versions of Form 1001 and Form W-8 will be replaced with a unified
Form W-8. Therefore, at such time, beneficial owners must file the revised Form
W-8 in order to continue to obtain an exemption or reduced tax rate.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source, (iv) a trust if a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more U.S.
Persons has the authority to control all substantial decisions of the trust or
(v) for purposes of identifying persons eligible to purchase the Class B Notes
and the Certificates, a person not described in clauses (i) to (iv) above whose
ownership of the Class B Notes or the Certificates is effectively connected with
such person's conduct of a trade or business within the United States (within
the meaning of the Code) and who provides the Trust and the Seller with a Form
4224 (and such other certifications, representations, or opinions of counsel as
may be requested by the Trust or the Seller). This summary does not deal with
all aspects of U.S. federal income tax withholding that may be relevant to
foreign holders of the Global Notes. Investors are advised to consult their own
tax advisers for specific tax advice concerning their holding and disposing of
the Global Notes.
I-4
<PAGE> 63
FORD LOGO
FORD CREDIT AUTO TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
FORD CREDIT AUTO RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described herein
may be sold from time to time in one or more series, in amounts, at prices and
on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement"). Each series of
Securities, which may include one or more classes of Notes and/or one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "Trust"). Each Trust will be formed pursuant to either a
Trust Agreement to be entered into between Ford Credit Auto Receivables Two
L.P., as Seller (the "Seller"), and the Trustee specified in the related
Prospectus Supplement (the "Trustee") or a Pooling and Servicing Agreement to be
entered into among the Trustee, the Seller and Ford Motor Credit Company, as
Servicer (the "Servicer"). If a series of Securities includes Notes, such Notes
of a series will be issued and secured pursuant to an Indenture between the
Trust and the Indenture Trustee specified in the related Prospectus Supplement
(the "Indenture Trustee") and will represent indebtedness of the related Trust.
The Certificates of a series will represent fractional undivided interests in
the related Trust. The related Prospectus Supplement will specify which class or
classes of Notes, if any, and which class or classes of Certificates, if any, of
the related series are being offered thereby. The property of each Trust will
include a pool of motor vehicle retail installment sale contracts secured by new
or used automobiles and light trucks (the "Receivables"), certain monies due or
received thereunder on or after the applicable Cutoff Date set forth in the
related Prospectus Supplement, security interests in the vehicles financed
thereby and certain other property, all as described herein and in the related
Prospectus Supplement. In addition, if so specified in the related Prospectus
Supplement, the property of the Trust will include monies on deposit in a trust
account (the "Pre-Funding Account") to be established with the Indenture Trustee
or the applicable Trustee, as the case may be, which will be used to purchase
additional motor vehicle retail installment sale contracts (the "Subsequent
Receivables") from the Seller from time to time during the Funding Period
specified in the related Prospectus Supplement.
Each class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Receivables, at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. If a series includes multiple classes of
Securities, the rights of one or more classes of Securities to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of such series. Distributions on Certificates of a series may be subordinated in
priority to payments due on any related Notes to the extent described herein and
in the related Prospectus Supplement. A series may include one or more classes
of Notes and/or Certificates which differ as to the timing and priority of
payment, interest rate or amount of distributions in respect of principal or
interest or both. A series may include one or more classes of Notes or
Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. The rate of payment in respect of principal of any class of Notes and
distributions in respect of the Certificate Balance of the Certificates of any
class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, defaults, liquidations and
repurchases of Receivables) on the related Receivables. A rate of payment lower
or higher than that anticipated may affect the weighted average life of each
class of Securities in the manner described herein and in the related Prospectus
Supplement.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" ON PAGE 12 HEREIN.
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY,
FORD CREDIT AUTO RECEIVABLES TWO L.P., FORD CREDIT AUTO RECEIVABLES TWO, INC.,
FORD MOTOR CREDIT COMPANY, FORD MOTOR COMPANY OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is October 24, 1997.
<PAGE> 64
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes and the Certificates offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at Northwestern Atrium Center, 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661 and Seven World Trade
Center, New York, New York 10048. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by each Trust pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Securities shall be deemed to be incorporated by reference in
this Prospectus. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Securities, 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 or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Ford Credit Auto Receivables Two L.P., c/o
Secretary, Ford Credit Auto Receivables Two, Inc., The American Road, Dearborn,
Michigan 48121 (Telephone: (313) 322-1989).
2
<PAGE> 65
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms."
ISSUER........................ With respect to each series of Securities, the
Trust to be formed pursuant to either a Trust
Agreement (as amended and supplemented from
time to time, a "Trust Agreement") between
the Seller and the Trustee for such Trust
(the "Trust" or the "Issuer") or a Pooling
and Servicing Agreement (as amended and
supplemented from time to time, the "Pooling
and Servicing Agreement") among the Trustee,
the Seller and Ford Motor Credit Company, as
Servicer.
SELLER........................ Ford Credit Auto Receivables Two L.P., a
Delaware limited partnership (the "Seller").
SERVICER...................... Ford Motor Credit Company, a Delaware
corporation (the "Servicer" or "Ford
Credit").
TRUSTEE....................... With respect to each series of Securities, the
Trustee specified in the related Prospectus
Supplement.
INDENTURE TRUSTEE............. With respect to any applicable series of
Securities, the Indenture Trustee specified
in the related Prospectus Supplement.
THE NOTES..................... A series of Securities may include one or more
classes of Notes, which will be issued
pursuant to an Indenture between the Trust
and the Indenture Trustee (as amended and
supplemented from time to time, an
"Indenture"). The related Prospectus
Supplement will specify which class or
classes, if any, of Notes of the related
series are being offered thereby.
Notes will be available for purchase in the
denominations specified in the related
Prospectus Supplement and will be available
in book-entry form only. No person acquiring
a beneficial ownership interest in Notes (a
"Note Owner") will be entitled to receive
Definitive Notes, except in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities --
Definitive Securities."
Each class of Notes may have a stated principal
amount and may bear interest at a specified
rate or rates (with respect to each class of
Notes, the "Note Interest Rate"). Each
3
<PAGE> 66
class of Notes may have a different Note
Interest Rate, which may be a fixed, variable
or adjustable Note Interest Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the stated
principal amount and the Note Interest Rate
for each class of Notes or the method for
determining such Note Interest Rate.
With respect to a series that includes two or
more classes of Notes, each class may differ
as to the timing and priority of payments,
seniority, allocations of losses, Note
Interest Rate or amount of payments of
principal or interest, or payments of
principal or interest in respect of any such
class or classes may or may not be made upon
the occurrence of specified events or on the
basis of collections from designated portions
of the Receivables Pool. In addition, a
series may include one or more classes of
Notes ("Strip Notes") entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments.
If the Servicer exercises its option to
purchase the Receivables of a Trust (or, if
not, and if and to the extent provided in the
related Prospectus Supplement, if
satisfactory bids for the purchase of such
Receivables are received), in the manner and
on the respective terms and conditions
described under "Description of the Transfer
and Servicing Agreements -- Termination," the
outstanding Notes will be redeemed as set
forth in the related Prospectus Supplement.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account (as
such term is defined in the related
Prospectus Supplement, the "Pre-Funding
Account"), one or more classes of the
outstanding Notes will be subject to partial
redemption on or immediately following the
end of the Funding Period (as such term is
defined in the related Prospectus Supplement,
the "Funding Period") in an amount and manner
specified in the related Prospectus
Supplement. In the event of such partial
redemption, the Noteholders may be entitled
to receive a prepayment premium from the
Trust, in the amount and to the extent
provided in the related Prospectus
Supplement.
THE CERTIFICATES.............. A series of Securities will include one or more
classes of Certificates and may or may not
include any Notes. The related Prospectus
Supplement will specify which class or
classes, if any, of the Certificates are
being offered thereby.
4
<PAGE> 67
Certificates will be available for purchase in
the denominations specified in the related
Prospectus Supplement and may be available in
book-entry form. If Certificates are issued
in book-entry form, no person acquiring a
beneficial ownership interest in Certificates
(a "Certificate Owner") will be entitled to
receive Definitive Certificates, except in
the limited circumstances described herein or
in the related Prospectus Supplement. See
"Certain Information Regarding the Securities
-- Definitive Securities."
Each class of Certificates may have a stated
Certificate Balance (with respect to each
class of Certificates, the "Certificate
Balance") and may accrue interest on such
Certificate Balance at a specified rate (with
respect to each class of Certificates, the
"Certificate Rate"). Each class of
Certificates may have a different Certificate
Rate, which may be a fixed, variable or
adjustable Certificate Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Certificate Balance and the Certificate Rate
for each class of Certificates or the method
for determining the Certificate Rate.
With respect to a series that includes two or
more classes of Certificates, each class may
differ as to timing and priority of
distributions, seniority, allocations of
losses, Certificate Rate or amount of
distributions in respect of principal or
interest, or distributions in respect of
principal or interest in respect of any such
class or classes may or may not be made upon
the occurrence of specified events or on the
basis of collections from designated portions
of the Receivables Pool. In addition, a
series may include one or more classes of
Certificates ("Strip Certificates") entitled
to (i) distributions in respect of principal
with disproportionate, nominal or no interest
distributions or (ii) interest distributions
with disproportionate, nominal or no
distributions in respect of principal.
If a series of Securities includes classes of
Notes, distributions in respect of the
Certificates may be subordinated in priority
of payment to payments on the Notes to the
extent specified in the related Prospectus
Supplement.
If the Servicer exercises its option to
purchase the Receivables of a Trust (or, if
not, and if and to the extent provided in the
related Prospectus Supplement, satisfactory
bids for the purchase of such Receivables are
received), in the manner and on the
respective terms and conditions described
under "Description of the Transfer and
Servicing Agreements -- Termination,"
Certificateholders will receive as a
prepayment an amount in respect of the
Certificates as specified in the related
Prospectus Supplement.
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In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account,
Certificateholders may receive a partial
prepayment of principal on or immediately
following the end of the Funding Period in an
amount and manner specified in the related
Prospectus Supplement. In the event of such
partial prepayment, the Certificateholders
may be entitled to receive a prepayment
premium from the Trust, in the amount and to
the extent provided in the related Prospectus
Supplement.
THE TRUST PROPERTY............ The property of each Trust will include a pool
of motor vehicle retail installment sale
contracts secured by new or used automobiles
or light trucks (the "Receivables"),
including rights to receive certain payments
made with respect to such Receivables,
security interests in the vehicles financed
thereby (the "Financed Vehicles"), certain
accounts and the proceeds thereof and any
proceeds from claims on certain related
insurance policies. On the Closing Date
specified in the related Prospectus
Supplement with respect to a Trust (the
"Closing Date"), the Seller will sell or
transfer Receivables (the "Initial
Receivables") having an aggregate principal
balance specified in the related Prospectus
Supplement as of the date specified therein
(the "Initial Cutoff Date") to such Trust
pursuant to either a Sale and Servicing
Agreement among the Seller, the Servicer and
the Trust (as amended and supplemented from
time to time, a "Sale and Servicing
Agreement") or, if the Trust is to be treated
as a grantor trust for federal income tax
purposes, the related Pooling and Servicing
Agreement among the Seller, the Servicer and
the Trustee. The property of each Trust will
also include amounts on deposit in certain
trust accounts, including the related
Collection Account, any Pre-Funding Account,
any Yield Supplement Account (as defined in
the related Prospectus Supplement), any
Reserve Account and any other account
identified in the applicable Prospectus
Supplement.
To the extent provided in the related
Prospectus Supplement, the Seller will be
obligated (subject only to the availability
thereof) to sell, and the related Trust will
be obligated to purchase (subject to the
satisfaction of certain conditions described
in the applicable Sale and Servicing
Agreement or Pooling and Servicing
Agreement), additional Receivables (the
"Subsequent Receivables") from time to time
(as frequently as daily) during the Funding
Period specified in the related Prospectus
Supplement having an aggregate principal
balance approximately equal to the amount on
deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on the Closing Date.
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The Receivables arise or will arise from loans
originated by motor vehicle dealers (the
"Dealers") and purchased by Ford Credit
pursuant to agreements with the Dealers for
subsequent sale to the Seller. The
Receivables for any given Receivables Pool
will be purchased by the Seller from Ford
Credit pursuant to a Purchase Agreement
between the Seller and Ford Credit (as
amended and supplemented from time to time, a
"Purchase Agreement") and will be selected
from the contracts owned by Ford Credit based
on the criteria specified in the Sale and
Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and described
herein and in the related Prospectus
Supplement. The purchase price for the
Receivables purchased by the Trust from the
Seller and by the Seller from Ford Credit may
be more or less than the aggregate principal
balance thereof.
CREDIT AND CASH FLOW
ENHANCEMENT................... If and to the extent specified in the related
Prospectus Supplement, credit enhancement
with respect to a Trust or any class or
classes of Securities may include any one or
more of the following: subordination of one
or more other classes of Securities, a
Reserve Account, overcollateralization,
letters of credit, credit or liquidity
facilities, surety bonds, guaranteed
investment contracts, guaranteed rate
agreements, swaps or other interest rate
protection agreements, repurchase
obligations, yield supplement agreements,
other agreements with respect to third party
payments or other support, cash deposits or
other arrangements. Any form of credit
enhancement may have certain limitations and
exclusions from coverage thereunder, which
will be described in the related Prospectus
Supplement.
RESERVE ACCOUNT............... If so specified in the related Prospectus
Supplement, a Reserve Account will be created
for the related Trust with an initial deposit
by the Seller of cash or certain investments
having a value equal to the amount specified
in the related Prospectus Supplement. To the
extent specified in the related Prospectus
Supplement, funds in the Reserve Account will
thereafter be supplemented by the deposit of
amounts remaining on any Distribution Date
after making all other distributions required
on such date and any amounts deposited from
time to time from the Pre-Funding Account in
connection with a purchase of Subsequent
Receivables. Amounts in the Reserve Account
will be available to cover shortfalls in
amounts due to the holders of those classes
of Securities specified in the related
Prospectus Supplement in the manner and under
the circumstances specified therein. The
related Prospectus Supplement will also
specify to whom and the manner and
circumstances under which amounts on deposit
in the
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Reserve Account (after giving effect to all
other required distributions to be made by
the applicable Trust) in excess of the
Specified Reserve Balance (as defined in the
related Prospectus Supplement) will be
distributed.
PRE-FUNDING ACCOUNT........... If so specified in the related Prospectus
Supplement, the property of each Trust may
include monies on deposit in a Pre-Funding
Account, which monies will be used to
purchase Subsequent Receivables from the
Seller from time to time during the Funding
Period specified in the related Prospectus
Supplement. The amount that may be initially
deposited into a Pre-Funding Account may be
up to 100% of the net proceeds from the sale
of the Securities issued by a Trust and the
length of the Funding Period may be up to one
year. The amount that may be initially
deposited into a Pre-Funding Account, and the
length of a Funding Period, will be specified
in the related Prospectus Supplement.
TRANSFER AND SERVICING
AGREEMENTS.................... With respect to each Trust, the Seller will
sell the related Receivables to such Trust
pursuant to a Sale and Servicing Agreement or
a Pooling and Servicing Agreement. The rights
and benefits of any Trust under a Sale and
Servicing Agreement will be assigned to the
Indenture Trustee as collateral for the Notes
of the related series. The Servicer will
agree with such Trust to be responsible for
servicing, managing, maintaining custody of
and making collections on the Receivables.
Ford Credit will undertake certain
administrative duties under an Administration
Agreement with respect to any Trust that has
issued Notes.
To the extent provided in the related
Prospectus Supplement, the Servicer will
advance scheduled payments under each
Precomputed Receivable which shall not have
been timely made (a "Precomputed Advance"),
to the extent that the Servicer, in its sole
discretion, expects to recoup the Precomputed
Advance from subsequent payments on or with
respect to such Receivable. With respect to
Simple Interest Receivables, to the extent
provided in the related Prospectus
Supplement, the Servicer shall advance any
interest shortfall (a "Simple Interest
Advance" and, together with a Precomputed
Advance, an "Advance"). The Servicer shall be
entitled to reimbursement of Advances from
subsequent payments on or with respect to the
Receivables to the extent described herein
and in the related Prospectus Supplement.
The Seller will be obligated to repurchase any
Receivable if the interest of the applicable
Trust in such Receivable is materially
adversely affected by a breach of any
representation or warranty made by the Seller
with respect to the
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Receivable, if the breach has not been cured
following the discovery by or notice to the
Seller of the breach.
The Servicer will be obligated to purchase or
make Advances with respect to any Receivable
if, among other things, it extends the date
for final payment by the Obligor of such
Receivable beyond the applicable Final
Scheduled Maturity Date (as defined in the
related Prospectus Supplement, the "Final
Scheduled Maturity Date"), changes the annual
percentage rate ("APR") or the total amount
or number of scheduled payments of such
Receivable or fails to maintain a perfected
security interest in the related Financed
Vehicle.
To the extent provided in the related
Prospectus Supplement, the Servicer will be
entitled to receive a fee for servicing the
Receivables of each Trust equal to a
specified percentage of the aggregate
principal balance of the related Receivables
Pool, as set forth in the related Prospectus
Supplement, plus certain late fees,
prepayment charges and other administrative
fees or similar charges, plus reinvestment
proceeds on any payments received in respect
of the Receivables. See "Description of the
Transfer and Servicing Agreements --
Servicing Compensation and Expenses" herein
and "Description of the Transfer and
Servicing Agreements -- Servicing
Compensation and Expenses" or "Description of
the Certificates -- Servicing Compensation
and Expenses" in the related Prospectus
Supplement.
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES; REPURCHASE
OBLIGATIONS................... In connection with the sale of Receivables to a
Trust, security interests in the Financed
Vehicles securing such Receivables will be
assigned by the Seller to such Trust. Due to
the administrative burden and expense, the
certificates of title to the Financed
Vehicles will not be amended to reflect the
assignment to such Trust. In the absence of
such an amendment, such Trust may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states. The Seller will be obligated to
repurchase any Receivable sold to a Trust as
to which a first perfected security interest
in the name of the Seller in the Financed
Vehicle securing such Receivable shall not
exist as of the date such Receivable is
purchased by such Trust, if such breach shall
materially adversely affect the interest of
such Trust in such Receivable and if such
failure or breach shall not have been cured
by the last day of the second (or, if the
Seller elects, the first) month following the
discovery by or notice to the Seller of such
breach. If such Trust does not have a
perfected security interest in a Financed
Vehicle, its ability to realize on such
Financed Vehicle in the
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event of a default may be adversely affected.
To the extent the security interest is
perfected, such Trust will have a prior claim
over subsequent purchasers of such Financed
Vehicles and holders of subsequently
perfected security interests. However, as
against subsequent purchasers who were to
obtain physical possession of the Receivables
without knowledge of their assignment to the
Trust or holders of liens for repairs of
Financed Vehicles or for taxes unpaid by an
Obligor under a Receivable, or because of
fraud or negligence, such Trust could lose
the priority of its security interest or its
security interest in Financed Vehicles.
Neither the Seller nor the Servicer will have
any obligation to repurchase a Receivable as
to which any of the aforementioned
occurrences result in a Trust's losing the
priority of its security interest or its
security interest in such Financed Vehicle
after the Closing Date with respect to an
Initial Receivable or after the applicable
Subsequent Transfer Date with respect to a
Subsequent Receivable.
Federal and state consumer protection laws
impose requirements upon creditors in
connection with extensions of credit and
collections of retail installment loans, and
certain of these laws make an assignee of
such a loan liable to the obligor thereon for
any violation by the lender. The Seller will
be obligated to repurchase any Receivable
which fails to comply with such requirements.
TAX STATUS.................... Unless the Prospectus Supplement specifies that
the related Trust will be treated as a
grantor trust, upon the issuance of the
related series of Securities (a) Special Tax
Counsel to such Trust expects to deliver an
opinion to the effect that, for federal
income tax purposes: (i) any Notes of such
series will be characterized as debt and (ii)
such Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation and (b)
Michigan Tax Counsel to such Trust expects to
deliver an opinion to the effect that the
same characterizations would apply for
Michigan income and Single Business Tax
purposes as for federal income tax purposes.
In respect of any such series, each
Noteholder, if any, by the acceptance of a
Note of such series, will be deemed to agree
to treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate of such series, will be deemed to
agree to treat such Trust as a partnership in
which such Certificateholder is a partner for
federal income and Michigan income and Single
Business Tax purposes.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor
trust, upon the issuance of the related
series of Certificates (a) Special Tax
Counsel to such Trust expects to deliver an
opinion to the effect that
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such Trust will be treated as a grantor trust
for federal income tax purposes and will not
be subject to federal income tax and (b)
Michigan Tax Counsel to such Trust expects to
deliver an opinion to the effect that the
same treatment would apply for Michigan
income and Single Business Tax purposes as
for federal income tax purposes.
See "Certain Federal Income Tax Consequences"
herein and in the related Prospectus
Supplement and "Certain State Tax
Consequences" in the related Prospectus
Supplement. "Special Tax Counsel" and
"Michigan Tax Counsel" will each be
identified by name in the related Prospectus
Supplement.
ERISA CONSIDERATIONS.......... A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as
amended (the "Code"), should carefully review
with its legal advisors whether the purchase
or holding of Notes or Certificates of any
series could give rise to a transaction
prohibited or not otherwise permissible under
ERISA or Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
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RISK FACTORS
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Servicer will service and administer the Receivables held by each
Trust and, as custodian on behalf of such Trust, will maintain possession of the
retail installment sale contracts and any other documents relating to such
Receivables. To assure uniform quality in servicing both the Receivables and the
Servicer's own portfolio of receivables, as well as to facilitate servicing and
save administrative costs, the installment sale contracts and other documents
relating thereto will not be physically segregated from other similar documents
that are in the Servicer's possession or otherwise stamped or marked to reflect
the transfer to a given Trust so long as Ford Credit is servicing the related
Receivables. However, Uniform Commercial Code financing statements reflecting
the sale and assignment of such Receivables by Ford Credit to the Seller and by
the Seller to such Trust will be filed, and the Servicer's accounting records
and computer systems will be marked to reflect such sale and assignment. Because
such Receivables will remain in the Servicer's possession and will not be
stamped or otherwise marked to reflect the assignment to such Trust, if a
subsequent purchaser were to obtain physical possession of such Receivables
without knowledge of the assignment, the Trust's interest in the Receivables
could be defeated.
In most states, assignments such as those under the Purchase Agreement and
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, relating to each Trust, together with a perfected security interest
in the chattel paper are an effective conveyance of a security interest in the
vehicles subject to the chattel paper without amendment of any lien noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. In the absence of fraud or forgery by the
vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of Ford Credit's lien on the certificates of title will
be sufficient to protect such Trust against the rights of subsequent purchasers
of a Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which Ford Credit
failed to obtain a perfected security interest, its security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles and
holders of perfected security interests. Such a failure would constitute a
breach of Ford Credit's warranties under the related Purchase Agreement and of
the Seller's warranties under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, and would create an obligation
of Ford Credit under such Purchase Agreement and of the Seller under such Sale
and Servicing Agreement or Pooling and Servicing Agreement to purchase the
related Receivable unless the breach is cured. See "Description of the Transfer
and Servicing Agreements -- Sale and Assignment of Receivables." By not
identifying the Trust as the secured party on the certificate of title, the
Trust's interest in the chattel paper may not have the benefit of the security
interest in the Financed Vehicle in all states or such security interest could
be defeated through fraud or negligence. The Seller will assign its rights under
each Purchase Agreement to the related Trust. See "Certain Legal Aspects of the
Receivables -- Security Interests in Vehicles."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
herein and in the related Prospectus Supplement that are intended to ensure that
the voluntary or involuntary application for relief by Ford Credit under the
United States Bankruptcy Code or similar applicable state laws ("Insolvency
Laws") will not result in consolidation of the assets and liabilities of either
of the Seller or Ford Credit Auto Receivables Two, Inc., the general partner of
the Seller (the "General Partner"), with those of Ford Credit. These steps
include the creation of the Seller as a separate, limited-purpose limited
partnership pursuant to a limited partnership agreement containing certain
limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law without the consent of the General Partner). The
General Partner's Certificate of Incorporation
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contains similar limitations, including a restriction on the General Partner's
ability to commence a voluntary case or proceeding with respect to itself or the
Seller under any Insolvency Law without the unanimous affirmative vote of all of
the General Partner's directors. However, there can be no assurance that the
activities of the Seller or the General Partner would not result in a court
concluding that the assets and liabilities of such entity should be consolidated
with those of Ford Credit in a proceeding under any Insolvency Law. See "The
Seller and the General Partner."
It is intended by Ford Credit and the Seller that each transfer of
Receivables by Ford Credit to the Seller under a Purchase Agreement constitute a
"true sale" of such Receivables to the Seller. If the transfer constitutes such
a "true sale," the Receivables and the proceeds thereof would not be part of
Ford Credit's bankruptcy estate under Section 541 of the United States
Bankruptcy Code should Ford Credit become the subject of a bankruptcy case
subsequent to the transfer of the Receivables to the Seller.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied 114 S. Ct. 554 (1993), the United States Court of Appeals for the
Tenth Circuit suggested that even where a transfer of accounts from a seller to
a buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
Ford Credit or the Seller were to become subject to a bankruptcy proceeding and
a court were to follow the Octagon court's reasoning, Securityholders might
experience delays in payment or possibly losses on their investment in the
Securities. Counsel to the Seller has advised the Seller that the reasoning of
the Octagon case appears to be inconsistent with other precedent. In addition,
the Permanent Editorial Board of the UCC has issued an official commentary (PEB
Commentary No. 14) which characterizes the Octagon court's interpretation of
Article 9 of the UCC as erroneous. Such commentary states that nothing in
Article 9 is intended to prevent the transfer of ownership of accounts or
chattel paper. However, such commentary is not legally binding on any court. See
"The Seller and the General Partner."
DEFICIENCIES FROM SALE UPON INSOLVENCY OR DISSOLUTION OF SELLER OR GENERAL
PARTNER
With respect to each Trust that is not a grantor trust, if an Insolvency
Event or a dissolution occurs with respect to the Seller or the General Partner
while the Notes of the related series are outstanding, if so specified in the
related Prospectus Supplement the Indenture Trustee or Trustee for such Trust
will be required to promptly sell, dispose of or otherwise liquidate the related
Receivables in a commercially reasonable manner on commercially reasonable
terms, unless the related Trustee shall have received written instructions from
(i) the Noteholders (other than the Seller) of each class of Notes of such
series representing not less than a majority of the aggregate unpaid principal
amount of such class of Notes and the right to receive interest thereon, (ii)
the Certificateholders (other than the Seller) of Certificates of such series
representing not less than a majority of the aggregate Certificate Balance of
all such Certificates and the right to receive interest thereon, (iii) not less
than a majority of the holders (other than the Seller) of certain interests, if
any, in the Reserve Account with respect to such Trust, (iv) not less than a
majority of the holders (other than the Seller) of Final Payment Securities, if
any, of such series and the right to receive interest thereon and (v) any other
person specified in the related Prospectus Supplement, to the effect that each
such party disapproves of the liquidation of such Receivables and termination of
such Trust and in connection therewith, the related Trustee (x) appoints an
entity acceptable to Ford Credit to acquire an interest in such Trust and to act
as a substitute "general partner" for federal income tax purposes and (y)
obtains an opinion of counsel as to certain tax matters. The proceeds from any
such sale, disposition or liquidation of Receivables will be treated as
collections on the Receivables and deposited in the Collection Account of such
Trust. If the proceeds from the liquidation of the Receivables and any amounts
on deposit in the Reserve Account, the Note Payment Account, if any, and the
Certificate Distribution Account with respect to any such Trust and any amounts
available from any credit enhancement are not sufficient to pay any Notes and
the Certificates of the related series in full, the amount of principal returned
to any Noteholders or the
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Certificateholders will be reduced and such Noteholders and Certificateholders
will incur a loss. See "Description of the Transfer and Servicing Agreements --
Insolvency Event or Dissolution."
TRUST'S RELATIONSHIP TO THE SELLER, THE GENERAL PARTNER, FORD CREDIT, FORD AND
THEIR AFFILIATES
None of the Seller, the General Partner, Ford Credit or Ford Motor Company
("Ford") or their affiliates is generally obligated to make any payments in
respect of any Notes, the Certificates or the Receivables of a given Trust.
However, in connection with the sale of Receivables by the Seller to a
given Trust, the Seller will make representations and warranties with respect to
the characteristics of such Receivables and, in certain circumstances, the
Seller may be required to repurchase Receivables with respect to which such
representations and warranties have been breached. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables." In
addition, under certain circumstances, the Servicer may be required to purchase
Receivables. See "Description of the Transfer and Servicing Agreements --
Servicing Procedures." Moreover, if Ford Credit were to cease acting as
Servicer, delays in processing payments on the Receivables and information in
respect thereof could occur and result in delays in payments to the
Securityholders.
The related Prospectus Supplement may set forth certain additional
information regarding the Seller, the General Partner, Ford Credit and Ford. In
addition, Ford Credit and Ford are subject to the information requirements of
the Exchange Act and in accordance therewith file reports and other information
with the Commission. For further information regarding Ford Credit and Ford,
reference is made to such reports and other information, which are available as
described under "Available Information."
SUBORDINATION; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on one or more classes of Certificates of a series may
be subordinated in priority of payment to interest and principal due on the
Notes, if any, of such series or one or more other classes of Certificates of
such series. Moreover, each Trust will not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and, to the extent provided in the related Prospectus Supplement, a Pre-Funding
Account, a Yield Supplement Account, a Reserve Account and any other credit or
cash flow enhancement. The Notes of any series will represent obligations solely
of, and the Certificates of any series will represent interests solely in, the
related Trust and neither the Notes nor the Certificates of any series will be
insured or guaranteed by the Seller, the Servicer, the applicable Trustee, any
Indenture Trustee or any other person or entity. Consequently, holders of the
Securities of any series must rely for repayment upon payments on the related
Receivables and, if and to the extent available, amounts on deposit in the
Pre-Funding Account (if any), the Yield Supplement Account (if any), the Reserve
Account (if any) and any other credit or cash flow enhancement, all as specified
in the related Prospectus Supplement. Amounts to be deposited in any such
Reserve Account with respect to any Trust will be limited in amount, and the
amount required to be on deposit in such Reserve Account will be reduced as the
Pool Balance is reduced. In addition, funds in any such Reserve Account will be
available on each Distribution Date to cover shortfalls in distributions of
interest and principal on the related Securities. If any such Reserve Account is
depleted, the related Trust will depend solely on current payments on its
Receivables to make payments on the related Securities.
If so directed by the holders of the requisite percentage of outstanding
Notes of a series, following an acceleration of the Notes upon an Event of
Default the applicable Indenture Trustee may sell the related Receivables in
certain limited circumstances as specified in the related Indenture. See
"Description of the Notes -- The Indenture -- Events of Default; Rights upon
Event of Default." However, there is no assurance that the market value of such
Receivables will at any time be equal to or greater than the aggregate principal
amount of such outstanding Notes.
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Therefore, upon an Event of Default with respect to the Notes of any series,
there can be no assurance that sufficient funds will be available to repay the
related Noteholders in full. In addition, the amount of principal required to be
paid to Noteholders of such series under the related Indenture will generally be
limited to amounts available to be deposited in the applicable Note Payment
Account. Therefore, the failure to pay principal on a class of Notes generally
will not result in the occurrence of an Event of Default until the final
scheduled Distribution Date for such class of Notes.
MATURITY AND PREPAYMENT CONSIDERATIONS
All the Receivables are prepayable at any time. (For this purpose the term
"prepayments" includes prepayments in full, partial prepayments (including those
related to rebates of extended warranty contract costs and insurance premiums)
and liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and disability insurance policies and certain other
Receivables repurchased for administrative reasons.) The rate of prepayments on
the Receivables may be influenced by a variety of economic, social and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a Receivable without the consent of the Seller.
The rate of prepayment on the Receivables may also be influenced by the
structure of the loan. In addition, under certain circumstances, the Seller will
be obligated to repurchase Receivables pursuant to a Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of
representations and warranties and, under certain circumstances, the Servicer
will be obligated to purchase Receivables pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of certain
covenants. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Receivables." Consistent with its normal servicing practices and
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with Obligors to extend or modify the terms of the related Receivables.
Some of such arrangements (including any extension beyond the Final Scheduled
Maturity Date set forth in the related Prospectus Supplement) will cause the
Servicer to be obligated to repurchase such Receivables, as described above. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables held by a given Trust will be borne entirely by the Securityholders
of the related series of Securities. See also "Description of the Transfer and
Servicing Agreements -- Termination" regarding the Servicer's option to purchase
the Receivables of a given Receivables Pool and "-- Insolvency Event or
Dissolution" regarding the sale of the Receivables owned by a Trust that is not
a grantor trust if an Insolvency Event or a dissolution with respect to the
Seller or the General Partner occurs.
RISK OF COMMINGLING
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables received from Obligors and all proceeds of the related
Receivables collected during each Collection Period into the related Collection
Account not later than the second business day after receipt. However, so long
as Ford Credit is the servicer and provided that (i) there exists no Event of
Servicing Termination and (ii) each other condition to making monthly deposits
as may be required by the related Sale and Servicing Agreement or Pooling and
Servicing Agreement is satisfied, the Servicer may retain such amounts until the
business day preceding the applicable Distribution Date. The Servicer or the
Seller, as the case may be, will remit the aggregate Purchase Amount of any
Receivables to be purchased from a Trust to the related Collection Account on or
before the business day preceding the applicable Distribution Date. Pending
deposit into the Collection Account, collections may be employed by the Servicer
at its own risk and for its own benefit and will not be segregated from its own
funds. If the Servicer were unable to remit such funds, the applicable
Securityholders might incur a loss. To the extent set forth in the related
Prospectus Supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Receivables and payment of the aggregate Purchase Amount with respect to
Receivables purchased by the Servicer.
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EVENT OF SERVICING TERMINATION
With respect to a series of Securities that includes Notes, upon the
occurrence of an Event of Servicing Termination, the Indenture Trustee or the
Noteholders with respect to such series, as described under "Description of the
Transfer and Servicing Agreements -- Rights Upon Event of Servicing
Termination," may remove the Servicer without the consent of the Trustee or any
of the Certificateholders with respect to such series. The Trustee or the
Certificateholders with respect to such series will not have the ability to
remove the Servicer if an Event of Servicing Termination occurs. In addition,
the Noteholders of such series have the ability, with certain specified
exceptions, to waive Events of Servicing Termination, including Events of
Servicing Termination that could materially adversely affect the
Certificateholders of such series. See "Description of the Transfer and
Servicing Agreements -- Waiver of Past Events of Servicing Termination."
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, each class of
Securities of a given series will be initially represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other nominee
for The Depository Trust Company ("DTC") set forth in the related Prospectus
Supplement (Cede, or such other nominee, "DTC's Nominee"), and will not be
registered in the names of the holders of the Securities of such series or their
nominees. Because of this, unless and until Definitive Securities for such
series are issued, holders of such Securities will not be recognized by the
Trustee or any Indenture Trustee as "Certificateholders," "Noteholders" or
"Securityholders," as the case may be (as such terms are used herein or in the
related Pooling and Servicing Agreement or the related Indenture and Trust
Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will be able to exercise the rights of
Securityholders only indirectly through DTC and its participating organizations.
See "Certain Information Regarding the Securities -- Book-Entry Registration"
and "-- Definitive Securities."
THE TRUSTS
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. The property of each Trust will include a
pool (a "Receivables Pool") of motor vehicle retail installment sale contracts
(and, with respect to Final Payment Receivables (as defined below), if any, the
right to certain payments on retail installment sale contracts) between dealers
(the "Dealers") and purchasers (the "Obligors") of new and used automobiles or
light trucks and all payments due thereunder on or after the applicable Cutoff
Date (as such term is defined in the related Prospectus Supplement, a "Cutoff
Date") in the case of Precomputed Receivables and all payments received
thereunder on or after the applicable Cutoff Date in the case of Simple Interest
Receivables. The Receivables of each Receivables Pool were or will be originated
by the Dealers in accordance with Ford Credit's requirements and purchased by
Ford Credit pursuant to agreements with Dealers ("Dealer Agreements") for
subsequent sale to the Seller. Pursuant to the Dealer Agreements, the Dealers
are obligated to repurchase from Ford Credit Receivables which do not meet
certain representations made by the Dealers, as well as those covered by
recourse plans ("Dealer Recourse"). The Receivables of each Receivables Pool
will continue to be serviced by the Servicer and evidence indirect financing
made available by the Seller to the Obligors.
On the applicable Closing Date, after the issuance of the Certificates and
any Notes of a given series, the Seller will sell the Initial Receivables of the
applicable Receivables Pool to the Trust to the extent, if any, specified in the
related Prospectus Supplement. To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be conveyed to the Trust as
frequently as daily during the Funding Period. Any Subsequent Receivables so
conveyed will also be assets of the applicable Trust, subject to the prior
rights of the related Indenture Trustee and the
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Noteholders, if any, therein. The property of each Trust will also include (i)
security interests in the Financed Vehicles and any accessions thereto; (ii) the
rights to proceeds from claims on certain physical damage, credit life, credit
disability or other insurance policies, if any, covering the Financed Vehicles
or the Obligors; (iii) any Dealer Recourse; (iv) the Seller's rights to certain
documents and instruments relating to the Receivables; (v) such amounts as from
time to time may be held in one or more accounts maintained pursuant to the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
described herein and in the related Prospectus Supplement; (vi) certain rights
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable; (vii) certain rights under the related Purchase
Agreement and yield supplement agreement, if any; (viii) certain payments and
proceeds with respect to the Receivables held by the Servicer; (ix) certain
rebates of premiums and other amounts relating to certain insurance policies and
other items financed under the Receivables; and (x) any and all proceeds of the
foregoing; provided that, with respect to any series of Notes, the relevant
rights and benefits with respect to such property will be assigned by the Seller
and the applicable Trustee to the related Indenture Trustee for the benefit of
the related Noteholders. Any Yield Supplement Account will be maintained with
the related Indenture Trustee or applicable Trustee, as the case may be, for the
benefit of the related Securityholders. If so specified in the related
Prospectus Supplement, a Yield Supplement Account may not be part of the
property of the related Trust. To the extent specified in the related Prospectus
Supplement, a Pre-Funding Account, a Reserve Account or other form of credit
enhancement may be a part of the property of any given Trust or may be held by
the Trustee or an Indenture Trustee for the benefit of holders of the related
Securities. Additionally, pursuant to contracts between the Servicer and the
Dealers, the Dealers have an obligation after origination to repurchase
Receivables as to which Dealers have made certain misrepresentations.
The Servicer will continue to service the Receivables held by each Trust
and will receive fees for such services. See "Description of the Transfer and
Servicing Agreements -- Servicing Compensation and Expenses" herein and in the
related Prospectus Supplement. To facilitate servicing and to minimize
administrative burden and expense the Servicer will retain physical possession
of the Receivables held by each Trust and documents relating thereto as
custodian for each such Trust. Due to the administrative burden and expense, the
certificates of title to the Financed Vehicles will not be amended to reflect
the assignment of the security interest in the Financed Vehicles to each Trust.
In the absence of such amendment, any Trust may not have a perfected security
interest in the Financed Vehicles in all states. See "Certain Legal Aspects of
the Receivables -- Security Interests in Vehicles." Neither the Trustee nor any
Indenture Trustee will be responsible for the legality, validity, or
enforceability of any security interest in any Financed Vehicle. See "Certain
Legal Aspects of the Receivables" and "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables."
If the protection provided to any Noteholders of a given series by the
subordination of the related Certificates and by the Reserve Account, if any, or
other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, would
have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states, may affect the Servicer's ability to repossess and sell
the collateral securing the Receivables, and thus may reduce the proceeds to be
distributed to the holders of the Securities of such series. See "Description of
the Transfer and Servicing Agreements -- Distributions," "-- Credit and Cash
Flow Enhancement" and "Certain Legal Aspects of the Receivables."
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement and the Sale and Servicing
Agreement or the related Pooling and Servicing Agreement, as applicable. A
Trustee may resign at any time, in which event the Servicer, or its successor,
will be obligated to appoint a successor trustee. The Administrator in respect
of a Trust that is not a grantor trust and the Servicer in respect of a Trust
that is a grantor trust may also remove the Trustee if the Trustee ceases to be
eligible to continue as Trustee under the related Trust Agreement or Pooling and
Servicing Agreement, as applicable, or if the Trustee becomes insolvent. In such
circumstances, the Administrator or the Servicer, as the case may be, will be
obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool have been or will be purchased by
Ford Credit in the ordinary course of business in accordance with Ford Credit's
underwriting standards, which emphasize the Obligor's ability to pay and
creditworthiness, as well as the asset value of the Financed Vehicle. Ford
Credit generally does not finance more than 100% of the purchase price of a
vehicle plus related amounts financed in connection therewith, if any (such as
taxes, insurance, etc.), which amount generally is less than or equal to the
manufacturer's suggested retail price ("MSRP") of a new vehicle or published
prices for used vehicles. New vehicles generally can be purchased at a discount
from MSRP.
The Receivables to be held by each Trust will be selected from the Seller's
portfolio for inclusion in a Receivables Pool by several criteria, including
that each Receivable (i) is secured by a new or used vehicle, (ii) was
originated in the United States, (iii) provides for level monthly payments
(except for the last payment, which may be minimally different from the level
payments or which, in the case of Final Payment Receivables, may be a larger
final scheduled payment) that fully amortize the amount financed over its
original term to maturity, (iv) is a Precomputed Receivable or a Simple Interest
Receivable (either of which may be a Final Payment Receivable) and (v) satisfies
the other criteria, if any, set forth in the related Prospectus Supplement. No
selection procedures believed by the Seller to be adverse to the Noteholders or
the Certificateholders of any series were or will be used in selecting the
related Receivables. All terms of the retail installment sale contracts
constituting such Receivables which are material to investors are described
herein and in the related Prospectus Supplement.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the APR of
the loan multiplied by the unpaid principal balance of the loan, and an amount
of principal equal to the remainder of the monthly installment. A Rule of 78's
Receivable provides for the payment by the obligor of a specified total amount
of payments, payable in equal monthly installments on each due date, which total
represents the principal amount financed and add-on interest in an amount
calculated on the stated APR for the term of the receivable. The rate at which
such amount of add-on interest is earned and, correspondingly, the amount of
each fixed monthly installment allocated to reduction of the outstanding
principal are calculated in accordance with the "Rule of 78's."
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"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of fixed
level payment monthly installments. However, unlike the monthly installment
under an Actuarial Receivable, each monthly installment consists of an amount of
interest which is calculated on the basis of the outstanding principal balance
of the receivable multiplied by the stated APR and further multiplied by the
period elapsed (as a fraction of a calendar year) since the preceding payment of
interest was made. As payments are received under a Simple Interest Receivable,
the amount received is applied first to interest accrued to the date of payment
and the balance is applied to reduce the unpaid principal balance. Accordingly,
if an obligor pays a fixed monthly installment before its scheduled due date,
the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. Conversely, if an
obligor pays a fixed monthly installment after its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be greater than it would have been had the payment been
made as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In either case, the obligor pays
a fixed monthly installment until the final scheduled payment date, at which
time the amount of the final installment is increased or decreased as necessary
to repay the then outstanding principal balance.
"Final Payment Receivables" are monthly payment receivables secured by new
or used automobiles or light trucks with a final scheduled payment which is
greater than the scheduled monthly payments. A Final Payment Receivable provides
for amortization of the loan over a series of fixed level payment monthly
installments like an Actuarial Receivable or a Simple Interest Receivable, but
also requires a final scheduled payment due after payment of such monthly
installments which may be satisfied by (i) payment in full in cash of such
amount, (ii) transfer of the vehicle to Ford Credit provided certain conditions
are satisfied or (iii) refinancing the final scheduled payment in accordance
with certain conditions. With respect to Final Payment Receivables, if so
provided in the related Prospectus Supplement, only the principal and interest
payments due prior to the final scheduled payment and not the final scheduled
payment will be included in such Trust; the final scheduled payment will be
retained by the Seller. However, in the case of a Trust that is not a grantor
trust, the Seller will have the option to transfer the final scheduled payments
with respect to the related Final Payment Receivables retained by the Seller to
such Trust and to cause such Trust to issue certificates representing interests
in such final scheduled payments or indebtedness secured by such final scheduled
payments.
If so specified in the related Prospectus Supplement, some of the
Receivables to be included in a Receivables Pool may provide for recourse to the
Dealer which originated the Receivable. Dealers are generally obligated under
these recourse plans for payment of the unpaid principal balance of a defaulted
contract, unless Ford Credit fails to repossess the vehicle and deliver it to
the Dealer within 90 days after default. The Dealer's obligation generally
terminates after the first 24 monthly payments are made under the related
contract.
In the event of the prepayment in full (voluntarily or by acceleration) of
a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If an Actuarial Receivable is prepaid in full, with minor variations based upon
state law, the Actuarial Receivable requires that the rebate be calculated on
the basis of a constant interest rate. If a Simple Interest Receivable is
prepaid, rather than receive a rebate, the obligor is required to pay interest
only to the date of prepayment. The amount of a rebate under a Rule of 78's
Receivable generally will be less than the amount of a rebate on an Actuarial
Receivable and generally will be less than the remaining scheduled payments of
interest that would have been due under a Simple Interest Receivable for which
all payments were made on schedule.
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Each Trust will account for the Rule of 78's Receivables as if such
Receivables were Actuarial Receivables. Amounts received upon prepayment in full
of a Rule of 78's Receivable in excess of the then outstanding principal balance
of such Receivable and accrued interest thereon (calculated pursuant to the
actuarial method) will not be paid to the Noteholders or passed through to the
Certificateholders of the applicable series but will be paid to the Servicer as
additional servicing compensation.
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition, the distribution by APR and by the states of origination, the
portion of such Receivables Pool consisting of Precomputed Receivables and of
Simple Interest Receivables, the portion of such Receivables Pool secured by new
vehicles and by used vehicles and the portion of such Receivables Pool
consisting of Receivables that provide for recourse to the related Dealer.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning Ford Credit's experience with respect to its
portfolio of U.S. retail installment sale contracts for new and used automobiles
and light trucks (including previously sold contracts which Ford Credit
continues to service, but not including retail installment sale contracts
purchased by Ford Credit under certain special financing programs) will be set
forth in each Prospectus Supplement. There can be no assurance that the
delinquency, repossession and net loss experience on any Receivables Pool will
be comparable to prior experience or to such information.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Notes, if any, and the Certificates of any
series will generally be influenced by the rate at which the principal balances
of the related Receivables are paid, which payment may be in the form of
scheduled amortization or prepayments. (For this purpose, the term "prepayments"
includes prepayments in full, partial prepayments (including those related to
rebates of extended warranty contract costs and insurance premiums),
liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and disability insurance policies and certain other
Receivables repurchased by the Seller or the Servicer for administrative
reasons.) All of the Receivables are prepayable at any time without penalty to
the Obligor. The rate of prepayment of automotive receivables is influenced by a
variety of economic, social and other factors, including the fact that an
Obligor generally may not sell or transfer the Financed Vehicle securing a
Receivable without the consent of the Seller. The rate of prepayment on the
Receivables may also be influenced by the structure of the loan. In addition,
under certain circumstances, the Seller will be obligated to repurchase
Receivables from a given Trust pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of
representations and warranties and the Servicer will be obligated to purchase
Receivables from such Trust pursuant to such Sale and Servicing Agreement or
Pooling and Servicing Agreement as a result of breaches of certain covenants.
Consistent with its normal servicing practices and procedures, the Servicer may,
in its discretion and on a case-by-case basis, arrange with Obligors to extend
or modify the terms of the related Receivables. Some of such arrangements
(including any extension beyond the Final Scheduled Maturity Date set forth in
the related Prospectus Supplement) will cause the Servicer to be obligated to
repurchase such Receivables, as described above. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables" and "--
Servicing Procedures." See also "Description of the Transfer and Servicing
Agreements -- Termination" regarding the Servicer's option to purchase the
Receivables from a given Trust and "-- Insolvency Event or Dissolution"
regarding the sale of the Receivables owned by a Trust that is not a grantor
trust if an Insolvency Event or a dissolution with respect to the Seller or the
General Partner occurs.
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In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes, if any, or the
Certificates of a given series on each Distribution Date, as applicable, since
such amount will depend, in part, on the amount of principal collected on the
related Receivables Pool during the applicable Collection Period. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne entirely by the Noteholders, if any, and the
Certificateholders of a given series. The related Prospectus Supplement may set
forth certain additional information with respect to the maturity and prepayment
considerations applicable to the particular Receivables Pool and the related
series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal amount of
such class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal amount of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal amount of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be, as a result of scheduled
payments, prepayments and liquidations of the Receivables (and also as a result
of a prepayment arising from application of the Pre-Funding Account, if any).
The Note Pool Factor and the Certificate Pool Factor will not change as a result
of the addition of Subsequent Receivables, if any. A Noteholder's portion of the
aggregate outstanding principal amount of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and (ii) the
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (i) the original denomination of such Certificateholder's Certificate
and (ii) the applicable Certificate Pool Factor.
With respect to each Trust, the Noteholders, if any, and the
Certificateholders will receive reports on or about each Distribution Date
concerning payments received on the Receivables during the Collection Period
immediately preceding such Distribution Date, the Pool Balance (as such term is
defined in the related Prospectus Supplement, the "Pool Balance"), each
Certificate Pool Factor or Note Pool Factor, as applicable, and various other
items of information. In addition, Securityholders of record during any calendar
year will be furnished information for tax reporting purposes not later than the
latest date permitted by law. See "Certain Information Regarding the Securities
- --Reports to Securityholders."
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given series will be
applied by the applicable Trust (i) to the purchase of the Receivables from the
Seller, (ii) to the deposit of the Pre-Funded Amount into the Pre-Funding
Account, if any, and (iii) to make the initial deposit into the Reserve Account,
if any. The Seller will use that portion of such net proceeds paid to it with
respect to any such Trust to purchase the related Receivables from Ford Credit.
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THE SELLER AND THE GENERAL PARTNER
The Seller was organized as a Delaware limited partnership on February 23,
1996. The general partner of the Seller is Ford Credit Auto Receivables Two,
Inc., a Delaware corporation and a wholly owned, limited-purpose subsidiary of
Ford Credit. The limited partnership interests in the Seller are owned by Ford
Credit. The Seller was organized for limited purposes, which include purchasing
receivables from Ford Credit and transferring such receivables to third parties
and any activities incidental to and necessary or convenient for the
accomplishment of such purposes. The principal executive offices of the Seller
are located at The American Road, Dearborn, Michigan 48121. The telephone number
of such offices is (313) 322-3000. The General Partner is located at The
American Road, Dearborn, Michigan 48121.
The Seller has taken steps in structuring the transactions contemplated
herein and in the related Prospectus Supplement that are intended to ensure that
the voluntary or involuntary application for relief by Ford Credit under any
Insolvency Law will not result in consolidation of the assets and liabilities of
either of the Seller or the General Partner with those of Ford Credit. These
steps include the creation of the Seller as a separate, limited-purpose limited
partnership pursuant to a limited partnership agreement containing certain
limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law without the consent of the General Partner). In
addition, the General Partner is a separate, limited-purpose corporation whose
Certificate of Incorporation contains certain limitations (including
restrictions on the nature of the General Partner's business and a restriction
on the General Partner's ability to commence a voluntary case or proceeding with
respect to itself or the Seller under any Insolvency Law without the unanimous
affirmative vote of all of its directors). Such Certificate of Incorporation
includes a provision that, under certain circumstances relating to the credit
ratings of Ford Credit, requires the General Partner to have two directors who
qualify under the Certificate of Incorporation as "Independent Directors."
However, there can be no assurance that the activities of the Seller or the
General Partner would not result in a court concluding that the assets and
liabilities of such entity should be consolidated with those of Ford Credit in a
proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
existence of each of the Seller and the General Partner and to require the
consolidation of the assets and liabilities of either such entity with the
assets and liabilities of Ford Credit in the event of the application of the
federal bankruptcy laws to Ford Credit. Among other things, it is assumed by
counsel that each of the Seller and the General Partner will follow certain
procedures in the conduct of its affairs, including maintaining records and
books of account separate from those of Ford Credit, refraining from commingling
its assets with those of Ford Credit, doing business from an office separate
from that of Ford Credit and refraining from holding itself out as having agreed
to pay, or being liable for, the debts of Ford Credit. Each of the Seller and
the General Partner intends to follow and has represented to such counsel that
it will follow these and other procedures related to maintaining its separate
identity. However, in the event that either the Seller or the General Partner
did not follow these procedures, there can be no assurance that a court would
not conclude that the assets and liabilities of such entity should be
consolidated with those of Ford Credit. If a court were to reach such a
conclusion, or a filing were made under any Insolvency Law by or against the
Seller or the General Partner, or if an attempt were made to litigate any of the
foregoing issues, delays in distributions on the Securities (and possible
reductions in the amount of such distributions which may be substantial) could
occur.
It is intended by Ford Credit and the Seller that each transfer of
Receivables by Ford Credit to the Seller under a Purchase Agreement constitute a
"true sale" of such Receivables to the Seller. If the transfer constitutes such
a "true sale," the Receivables and the proceeds thereof would not be part of
Ford Credit's bankruptcy estate under Section 541 of the United States
Bankruptcy Code should Ford Credit become the subject of a bankruptcy case
subsequent to the transfer of the
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Receivables to the Seller. The Seller has received the advice of counsel to the
effect that, subject to certain facts, assumptions and qualifications, in the
event Ford Credit were to become the subject of a voluntary or involuntary case
under the United States Bankruptcy Code subsequent to the transfer of
Receivables to the Seller, the transfer of such Receivables by Ford Credit to
the Seller pursuant to the related Purchase Agreement would be characterized as
a "true sale" of such Receivables from Ford Credit to the Seller and such
Receivables and the proceeds thereof would not form part of Ford Credit's
bankruptcy estate pursuant to Section 541 of the United States Bankruptcy Code.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied 114 S. Ct. 554 (1993), the United States Court of Appeals for the
Tenth Circuit suggested that even where a transfer of accounts from a seller to
a buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
Ford Credit or the Seller were to become subject to a bankruptcy proceeding and
a court were to follow the Octagon court's reasoning, Securityholders might
experience delays in payment or possibly losses on their investment in the
Securities. As part of the advice of counsel described above, counsel has
advised the Seller that the reasoning of the Octagon case appears to be
inconsistent with other precedent. In addition, the Permanent Editorial Board of
the UCC has issued an official commentary (PEB Commentary No. 14) which
characterizes the Octagon court's interpretation of Article 9 of the UCC as
erroneous. Such commentary states that nothing in Article 9 is intended to
prevent the transfer of ownership of accounts or chattel paper. However, such
commentary is not legally binding on any court.
THE SERVICER
Ford Credit was incorporated in Delaware in 1959 and is a wholly owned
indirect subsidiary of Ford.
Ford Credit and its subsidiaries provide wholesale financing and capital
loans to Ford retail dealerships and associated non-Ford dealerships throughout
the world, most of which are privately owned and financed, and purchase retail
installment sale contracts and retail leases from them. Ford Credit also makes
loans to vehicle leasing companies, the majority of which are affiliated with
such dealerships. In addition, subsidiaries of Ford Credit provide these
financing services in the United States, Europe, Canada and Australia to
non-Ford dealerships. A substantial majority of all new vehicles financed by
Ford Credit are manufactured by Ford and its affiliates. Ford Credit also
provides retail financing for used vehicles built by Ford and other
manufacturers. In addition to vehicle financing, Ford Credit makes loans to
affiliates of Ford and finances certain receivables of Ford and its
subsidiaries. Ford Credit's insurance operations are conducted by the American
Road Insurance Company and its subsidiaries in the United States and Canada and
consist of extended service plan contracts for new and used vehicles
manufactured by affiliated and nonaffiliated companies, primarily originating
from Ford dealers, physical damage insurance covering vehicles and equipment
financed at wholesale by Ford Credit, and the reinsurance of credit life and
credit disability insurance for retail purchasers of vehicles and equipment.
The mailing address of Ford Credit's executive offices is The American
Road, Dearborn, Michigan 48121. The telephone number of such offices is (313)
322-3000.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of Notes
of the related series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Notes and the Indenture.
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Each class of Notes will initially be represented by one or more Notes, in
each case registered in the name of the nominee of DTC (together with any
successor depository selected by the Trust, the "Depository") except as set
forth below. The Notes will be available for purchase in the denominations
specified in the related Prospectus Supplement and in book-entry form only. The
Seller has been informed by DTC that DTC's nominee will be Cede, unless another
nominee is specified in the related Prospectus Supplement. Accordingly, such
nominee is expected to be the holder of record of the Notes of each class.
Unless and until Definitive Notes are issued under the limited circumstances
described herein or in the related Prospectus Supplement, no Noteholder will be
entitled to receive a physical certificate representing a Note. All references
herein and in the related Prospectus Supplement to actions by Noteholders refer
to actions taken by DTC upon instructions from its participating organizations
(the "Participants") and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to Noteholders
refer to distributions, notices, reports and statements to DTC or its nominee,
as the registered holder of the Notes, for distribution to Noteholders in
accordance with DTC's procedures with respect thereto. See "Certain Information
Regarding the Securities -- Book-Entry Registration" and "-- Definitive
Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses, Note
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. Payments of interest on the
Notes of such series may be made prior to payments of principal thereon. The
dates for payments of interest and principal on the Notes of such series may be
different from the Distribution Dates for the Certificates of such series. To
the extent provided in the related Prospectus Supplement, a series may include
one or more classes of Notes designated as money market classes, planned
amortization classes, targeted amortization classes or companion classes, each
as described in the related Prospectus Supplement. To the extent provided in the
related Prospectus Supplement, a series may include one or more classes of Strip
Notes entitled to (i) principal payments with disproportionate, nominal or no
interest payments or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Note Interest Rate,
which may be a fixed, variable or adjustable Note Interest Rate (and which may
be zero for certain classes of Strip Notes), or any combination of the
foregoing. The related Prospectus Supplement will specify the Note Interest Rate
for each class of Notes of a given series or the method for determining such
Note Interest Rate. See also "Certain Information Regarding the Securities --
Fixed Rate Securities" and "-- Floating Rate Securities." One or more classes of
Notes of a series may be redeemable in whole or in part under the circumstances
specified in the related Prospectus Supplement, including at the end of the
Funding Period (if any) or as a result of the Servicer's exercising its option
to purchase the related Receivables Pool. See "Description of the Transfer and
Servicing Agreements -- Termination."
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given series may have fixed principal payment schedules;
Noteholders of such Notes would be entitled to receive as payments of principal
on any given Distribution Date the applicable amounts set forth on such schedule
with respect to such Notes, in the manner and to the extent set forth in the
related Prospectus Supplement.
If so specified in the related Prospectus Supplement, payments to
Noteholders of all classes within a series in respect of interest will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement, in
which case each class of Noteholders will receive its ratable share (based upon
the aggregate amount of
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interest due to such class of Noteholders) of the aggregate amount available to
be distributed in respect of interest on the Notes of such series. See
"Description of the Transfer and Servicing Agreements -- Distributions" and "--
Credit and Cash Flow Enhancement."
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
THE INDENTURE
Modification of Indenture. With respect to each Trust that has issued Notes
pursuant to an Indenture, the Trust and the Indenture Trustee may, without the
consent of the Noteholders of the related series, execute a supplemental
indenture for the purpose of adding to the covenants of the Trust, curing any
ambiguity, correcting or supplementing any provision which may be inconsistent
with any other provision or making any other provision with respect to matters
arising under the related Indenture which will not be inconsistent with other
provisions of the related Indenture.
With respect to a series of Notes, without the consent of the holder of
each such outstanding Note affected thereby, however, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest on
any such Note or reduce the principal amount thereof, the interest rate thereon
or the redemption price with respect thereto or change any place of payment
where, or the coin or currency in which, any such Note or any interest thereon
is payable; (ii) impair the right to institute suit for the enforcement of
certain provisions of the related Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such series, the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Indenture Trustee to sell or liquidate the Receivables if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such series; (vi)
decrease the percentage of the aggregate principal amount of such Notes required
to amend the sections of the related Indenture which specify the applicable
percentage of aggregate principal amount of the Notes of such series necessary
to amend such Indenture or certain other related agreements; or (vii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
related Indenture with respect to any of the collateral for such Notes or,
except as otherwise permitted or contemplated in such Indenture, terminate the
lien of such Indenture on any such collateral or deprive the holder of any such
Note of the security afforded by the lien of such Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that (x) such action will not, (i) as evidenced by an opinion of counsel,
materially adversely affect the interest of any such Noteholder and (ii) as
confirmed by the Rating Agencies (as such term is defined in the related
Prospectus Supplement, the "Rating Agencies") rating the Notes of the related
series, cause the then current rating assigned to any class of such Notes to be
withdrawn or reduced and (y) an opinion of counsel as to certain tax matters is
delivered.
Events of Default; Rights upon Event of Default. With respect to the Notes
of a given series, "Events of Default" under the related Indenture will consist
of: (i) a default for five days or more in
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the payment of any interest on any such Note; (ii) a default in the payment of
the principal of or any installment of the principal of any such Note when the
same becomes due and payable; (iii) a default in the observance or performance
of any material covenant or agreement of the applicable Trust made in the
related Indenture and the continuation of any such default for a period of 60
days after notice thereof is given to such Trust by the applicable Indenture
Trustee or to such Trust and such Indenture Trustee by the holders of at least
25% in principal amount of such Notes then outstanding; (iv) any representation
or warranty made by such Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days after notice thereof is given to such Trust by the applicable
Indenture Trustee or to such Trust and such Indenture Trustee by the holders of
at least 25% in principal amount of such Notes then outstanding; (v) certain
events of bankruptcy, insolvency, receivership or liquidation of the applicable
Trust; or (vi) such other events, if any, set forth in the related Prospectus
Supplement. However, the amount of principal required to be paid to Noteholders
of such series under the related Indenture will generally be limited to amounts
available to be deposited in the applicable Note Payment Account. Therefore, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default until the final scheduled Distribution Date
for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding. Any such rescission could be treated, for
federal income tax purposes, as a constructive exchange of such Notes by the
related Noteholders for deemed new Notes upon which gain or loss would be
recognized.
If the Notes of any series have been declared due and payable following an
Event of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust property,
exercise remedies as a secured party, sell the related Receivables or elect to
have the applicable Trust maintain possession of such Receivables and continue
to apply collections on such Receivables as if there had been no declaration of
acceleration. However, such Indenture Trustee is prohibited from selling the
related Receivables following an Event of Default, other than a default in the
payment of any principal of or a default for five days or more in the payment of
any interest on any Note of such series, unless (i) the holders of all
outstanding Notes of such series consent to such sale, (ii) the proceeds of such
sale are sufficient to pay in full the principal of and the accrued interest on
the outstanding Notes of such series at the date of such sale or (iii) such
Indenture Trustee determines that the proceeds of Receivables would not be
sufficient on an ongoing basis to make all payments on the Notes of such series
as such payments would have become due if such obligations had not been declared
due and payable, and such Indenture Trustee obtains the consent of the holders
of 66 2/3% of the aggregate outstanding amount of the Notes of such series.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to the provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in principal amount of the outstanding Notes of a given series will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the applicable Indenture Trustee, and the holders of
a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
such Indenture that cannot be modified
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without the waiver or consent of all the holders of such outstanding Notes. Any
such waiver could be treated, for federal income tax purposes, as a constructive
exchange of such Notes by the related Noteholders for deemed new Notes upon
which gain or loss would be recognized.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in principal
amount of the outstanding Notes of such series have made written request to such
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered such Indenture Trustee
reasonable indemnity, (iv) such Indenture Trustee has for 60 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to such Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related Notes or for the agreements of such Trust contained in the
applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related series and the performance or observance of every
agreement and covenant of such Trust under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) such Trust has been advised that the rating of the Notes or
the Certificates of such series then in effect would not be reduced or withdrawn
by the Rating Agencies as a result of such merger or consolidation, (v) such
Trust has received an opinion of counsel to the effect that such consolidation
or merger would have no material adverse tax consequence to the Trust or to any
related Noteholder or Certificateholder, (vi) any action as is necessary to
maintain the lien and security interest created by the related Indenture shall
have been taken and (vii) such Trust has received an opinion of counsel and
officer's certificate each stating that such consolidation or merger satisfies
all requirements under the related Indenture.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents with respect to such Trust (collectively, the "Basic
Documents"), sell, transfer, exchange or otherwise dispose of any of the assets
of such Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the related Indenture
to be impaired or permit any person to be released from any covenants or
obligations with respect to such Notes under such Indenture except as may be
expressly permitted thereby or (v) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of such Trust or any part thereof,
or any interest therein or the proceeds thereof, except as may be created by the
terms of the related Indenture.
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No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture, pursuant to any
Advances made to it by the Servicer or otherwise in accordance with the Basic
Documents.
List of Noteholders. With respect to the Notes of any series, three or more
holders of the Notes of such series or one or more holders of such Notes
evidencing not less than 25% of the aggregate outstanding principal amount of
such Notes may, by written request to the related Indenture Trustee, obtain
access to the list of all Noteholders maintained by such Indenture Trustee for
the purpose of communicating with other Noteholders with respect to their rights
under the related Indenture or under such Notes. Such Indenture Trustee may
elect not to afford the requesting Noteholders access to the list of Noteholders
if it agrees to mail the desired communication or proxy, on behalf of and at the
expense of the requesting Noteholders, to all Noteholders of such series.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by such
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by such Indenture Trustee as such and any
action taken by it that materially affects the related Notes and that has not
been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the Issuer will be obligated to appoint a successor
trustee for such series. The Issuer may also remove any such Indenture Trustee
if such Indenture Trustee ceases to be eligible to continue as such under the
related Indenture or if such Indenture Trustee becomes insolvent. In such
circumstances, the Issuer will be obligated to appoint a successor trustee for
the applicable series of Notes. Any resignation or removal of the Indenture
Trustee and appointment of a successor trustee for any series of Notes does not
become effective until acceptance of the appointment by the successor trustee
for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
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Except for the Certificates, if any, of a given series retained by the
Seller, each class of Certificates may initially be represented by one or more
Certificates registered in the name of the Depository, except as set forth
below. Except for the Certificates, if any, of a given series retained by the
Seller, the Certificates will be available for purchase in the denominations
specified in the related Prospectus Supplement and may be available in
book-entry form only. The Seller has been informed by DTC that DTC's nominee
will be Cede, unless another nominee is specified in the related Prospectus
Supplement. Accordingly, such nominee is expected to be the holder of record of
the Certificates of any series issued in book-entry form that are not retained
by the Seller. If the Certificates of a series are issued in book-entry form,
unless and until Definitive Certificates are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Certificateholder (other than the Seller) will be entitled to receive a physical
certificate representing a Certificate. If the Certificates of a series are
issued in book-entry form, all references herein and in the related Prospectus
Supplement to actions by Certificateholders refer to actions taken by DTC upon
instructions from the Participants and all references herein and in the related
Prospectus Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "-- Definitive Securities." Any
Certificates of a given series owned by the Seller or its affiliates will be
entitled to equal and proportionate benefits under the applicable Trust
Agreement, except that such Certificates will be deemed not to be outstanding
for the purpose of determining whether the requisite percentage of
Certificateholders have given any request, demand, authorization, direction,
notice, consent or other action under the Basic Documents (other than the
commencement by the related Trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing Agreements --
Insolvency Event or Dissolution").
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Certificate Rate and amount of or method of determining distributions with
respect to principal and interest of each class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Certificate Rate,
which may be a fixed, variable or adjustable Certificate Rate (and which may be
zero for certain classes of Strip Certificates) or any combination of the
foregoing. The related Prospectus Supplement will specify the Certificate Rate
for each class of Certificates of a given series or the method for determining
such Certificate Rate. See also "Certain Information Regarding the Securities --
Fixed Rate Securities" and "-- Floating Rate Securities." Distributions in
respect of the Certificates of a given series that includes Notes may be
subordinate to payments in respect of the Notes of such series as more fully
described in the related Prospectus Supplement. Distributions in respect of
interest on and principal of any class of Certificates will be made on a pro
rata basis among all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
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LIST OF CERTIFICATEHOLDERS
With respect to the Certificates of any series, three or more holders of
the Certificates of such series or one or more holders of such Certificates
evidencing not less than 25% of the Certificate Balance of such Certificates
may, by written request to the related Trustee, obtain access to the list of all
Certificateholders maintained by such Trustee for the purpose of communicating
with other Certificateholders with respect to their rights under the related
Trust Agreement or Pooling and Servicing Agreement or under such Certificates.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Note Interest Rate or Certificate Rate, as the case may be,
specified in the applicable Prospectus Supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of twelve
30-day months or on such other day count basis as is specified in the applicable
Prospectus Supplement. See "Description of the Notes -- Principal and Interest
on the Notes" and "Description of the Certificates -- Distributions of Principal
and Interest."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) the CD Rate (a
"CD Rate Security"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Security"), (iii) the Federal Funds Rate (a "Federal Funds Rate Security"), (iv)
LIBOR (a "LIBOR Security"), (v) the Treasury Rate (a "Treasury Rate Security")
or (vi) such other Base Rate as is set forth in such Prospectus Supplement. The
"Index Maturity" for any class of Floating Rate Securities is the period of
maturity of the instrument or obligation from which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System. "Composite Quotations" means the
daily statistical release entitled "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
"Interest Reset Date" will be the first day of the applicable Interest Reset
Period, or such other day as may be specified in the related Prospectus
Supplement with respect to a class of Floating Rate Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be
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higher than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be either the
related Trustee or Indenture Trustee with respect to such series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given class. All percentages resulting from any
calculation of the rate of interest on a Floating Rate Security will be rounded,
if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
CD Rate Securities. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
The "CD Rate" for each Interest Reset Period shall be the rate as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement as
published in H.15(519) under the heading "CDs (Secondary Market)." In the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such CD Rate Determination
Date, then the "CD Rate" for such Interest Reset Period will be the rate on such
CD Rate Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "Certificates of Deposit." If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the "CD Rate" for
such Interest Reset Period will be calculated by the Calculation Agent for such
CD Rate Security and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination Date,
of three leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for such CD
Rate Security for negotiable certificates of deposit of major United States
money center banks of the highest credit standing (in the market for negotiable
certificates of deposit) with a remaining maturity closest to the Index Maturity
designated in the related Prospectus Supplement in a denomination of $5,000,000;
provided, however, that if the dealers selected as aforesaid by such Calculation
Agent are not quoting offered rates as mentioned in this sentence, the "CD Rate"
for such Interest Reset Period will be the same as the CD Rate for the
immediately preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset Date.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Commercial Paper Rate and the Spread or Spread Multiplier,
if any, specified in such security and in the applicable Prospectus Supplement.
The "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate Security as
of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "Commercial Paper Rate Determination Date") and shall be the
Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.15(519) under the heading "Commer-
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<PAGE> 94
cial Paper." In the event that such rate is not published prior to 3:00 p.m.,
New York City time, on the Calculation Date (as defined below) pertaining to
such Commercial Paper Rate Determination Date, then the "Commercial Paper Rate"
for such Interest Reset Period shall be the Money Market Yield on such
Commercial Paper Rate Determination Date of the rate for commercial paper of the
specified Index Maturity as published in Composite Quotations under the heading
"Commercial Paper." If by 3:00 p.m., New York City time, on such Calculation
Date such rate is not yet published in either H.15(519) or Composite Quotations,
then the "Commercial Paper Rate" for such Interest Reset Period shall be the
Money Market Yield of the arithmetic mean of the offered rates, as of 11:00
a.m., New York City time, on such Commercial Paper Rate Determination date of
three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for such Commercial Paper Rate Security for commercial
paper of the specified Index Maturity placed for an industrial issuer whose
bonds are rated "AA" or the equivalent by a nationally recognized rating agency;
provided, however, that if the dealers selected as aforesaid by such Calculation
Agent are not quoting offered rates as mentioned in this sentence, the
"Commercial Paper Rate" for such Interest Reset Period will be the same as the
Commercial Paper Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
-----------
360 - (D X
M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
Federal Funds Rate Securities. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for such Interest Reset Period shall be the rate
on such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, then the "Federal Funds Rate" for such
Interest Reset Period shall be the rate on such Federal Funds Rate Determination
Date made publicly available by the Federal Reserve Bank of New York which is
equivalent to the rate which appears in H.15(519) under the heading "Federal
Funds (Effective)"; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
time, on such Calculation Date, the "Federal Funds Rate" for such Interest Reset
Period will be the same as the Federal Funds Rate in effect for the immediately
preceding Interest Reset Period. In the case of a Federal Funds Rate Security
that resets daily, the interest rate on such Security for the period from and
including a Monday to but excluding the succeeding Monday will be reset by the
Calculation Agent for such Security on such second Monday (or, if not a business
day, on the next succeeding
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business day) to a rate equal to the average of the Federal Funds Rates in
effect with respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding business day.
LIBOR Securities. Each LIBOR Security will bear interest for each Interest
Reset Period at the interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, "LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. For purposes of calculating LIBOR, "London Banking Day"
means any business day on which dealings in deposits in United States
dollars are transacted in the London interbank market and "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks). If at least two such offered rates appear on the
Reuters Screen LIBO Page, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of such offered rates as determined by the Calculation
Agent for such LIBOR Security.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Security will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, "LIBOR" for such Interest Reset Period will
be the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Security at
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks, for the period of
the specified Index Maturity, commencing on such Interest Reset Date, and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by such
Calculation Agent are not quoting rates as mentioned in this sentence,
"LIBOR" for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
Treasury Rate Securities. Each Treasury Rate Security will bear interest
for each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
The "Treasury Rate" for each Interest Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading
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<PAGE> 96
"U.S. Government Securities -- Treasury bills -- auction average (investment)"
or, in the event that such rate is not published prior to 3:00 p.m., New York
City time, on the Calculation Date (as defined below) pertaining to such
Treasury Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity are
not published or reported as provided above by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the "Treasury Rate" for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Security and
shall be the yield to maturity (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of three
leading primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting bid rates as
mentioned in this sentence, then the "Treasury Rate" for such Interest Reset
Period will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
Security, then such Interest Reset Date shall instead be the business day
immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
BOOK-ENTRY REGISTRATION
The Prospectus Supplement related to a given series will specify whether
the holders of the Notes or Certificates of such series may hold their
respective Securities through DTC (in the United States) or Cedel Bank, societe
anonyme ("Cedel") or Euroclear (as defined below) (in Europe) if they are
participants of such systems, or indirectly through organizations that are
participants in such systems ("Book-Entry Notes" or "Book-Entry Certificates,"
respectively, and collectively referred to herein as "Book-Entry Securities").
The Seller has been informed by DTC that DTC's nominee will be Cede, unless
another nominee is specified in the related Prospectus Supplement. Accordingly,
such nominee ("DTC's Nominee") is expected to be the holder of record of the
Securities of any series held through DTC. DTC's Nominee will hold the global
Securities. Cedel and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries (collectively, the "Depositaries") which in turn
will hold such positions in customers' securities accounts in the Depositaries'
names on the books of DTC.
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<PAGE> 97
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 ("Participants") and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers (who may include any of the underwriters
of a series of Securities), 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 Participant, either
directly or indirectly (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received by
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders who are not Participants or Indirect Participants but
who desire to purchase, sell or otherwise transfer ownership of, or other
interest in, Securities may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the Indenture Trustee or the applicable Trustee, as
the case may be (the "Applicable Trustee"), through the Participants who in turn
will receive them from DTC. Under a book-entry format, Securityholders may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Applicable Trustee to DTC's Nominee. DTC will forward such
payments to its Participants which thereafter will forward them to Indirect
Participants or Securityholders. To the extent the related Prospectus Supplement
provides that Book-Entry Securities will be issued, the only "Noteholder" or
"Certificateholder," as applicable, will be DTC's Nominee. Securityholders will
not be recognized by the Applicable Trustee as "Noteholders" or
"Certificateholders," as such terms are used in the Indenture or Trust
Agreement, as applicable, and Securityholders will be permitted to exercise the
rights of Securityholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose
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<PAGE> 98
behalf it acts with respect to the Securities and is required to receive and
transmit distributions of principal and interest on the Securities. Participants
and Indirect Participants with which Securityholders have accounts with respect
to their respective Securities similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Securityholders. Accordingly, although Securityholders will not possess their
respective Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC will advise the related Administrator in respect of each Trust that is
not a grantor trust and the Seller in respect of each Trust that is a grantor
trust that it will take any action permitted to be taken by a Securityholder
under the related Indenture or Trust Agreement or Pooling and Servicing
Agreement, as applicable, only at the direction of one or more Participants to
whose accounts with DTC such Securities are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any of the underwriters of any series of
Securities. Indirect access to Cedel is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System ("Euroclear" or the "Euroclear System") was created in
1968 to hold securities for its participants ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and the risk from transfers of
securities and cash that are not simultaneous.
The Euroclear System has subsequently been extended to clear and settle
transactions between Euroclear Participants and counterparties both in Cedel and
in many domestic securities markets. Transactions may be settled in any of 32
currencies. In addition to safekeeping (custody) and securities clearance and
settlement, the Euroclear System includes securities lending and borrowing and
money transfer services. The Euroclear System is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation that establishes policy on behalf of Euroclear
Participants. The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
All operations are conducted by the Euroclear Operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
Operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the
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Euroclear System and applicable Belgian law (collectively, the "Terms and
Conditions"). The Terms and Conditions govern all transfers of securities and
cash, both within the Euroclear System, and receipts and withdrawals of
securities and cash. All securities in the Euroclear System are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include any of the underwriters of any series of Securities. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly. The Euroclear Operator acts under the Terms and Conditions only
on behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Unless and until Definitive Securities are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Securityholder will be entitled to receive a physical certificate representing a
Book-Entry Security. All references herein and in the related Prospectus
Supplement to actions by Securityholders shall refer to actions taken by DTC
upon instructions from its Participants, and all references herein and in the
related Prospectus Supplement to distributions, notices, reports and statements
to Securityholders shall refer to distributions, notices, reports and statements
to DTC or its nominee as the registered holder of the Book-Entry Securities, as
the case may be, for distribution to Book-Entry Securityholders in accordance
with DTC's procedures with respect thereto.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the related Administrator in respect of each Trust that is not a
grantor trust and the Seller in respect of each Trust that is a grantor trust
would seek an alternative depository (if available) or cause the issuance of
Definitive Securities to Securityholders or their nominees in the manner
described under "-- Definitive Securities" below.
Except as required by law, none of the Administrator, if any, the
applicable Trustee or the applicable Indenture Trustee, if any, will have any
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Securities of any series held by DTC's
Nominee, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DEFINITIVE SECURITIES
With respect to any series of Notes and any series of Certificates issued
in book-entry form, such Notes or Certificates will be issued in fully
registered, certificated form ("Definitive Notes" and "Definitive Certificates,"
respectively, and collectively referred to herein as "Definitive Securities") to
Noteholders or Certificateholders or their respective nominees, rather than to
DTC or its nominee, only if (i) the related Administrator in respect of a Trust
that is not a grantor trust or the Seller in respect of a Trust that is a
grantor trust determines that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Administrator or the Seller, as the case may be, is unable to locate a
qualified successor and so notifies the Applicable Trustee in writing, (ii) the
Administrator or the Seller, as the case may be, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default or an Event of Servicing Termination with respect to such
Securities, holders representing at least a majority of the outstanding
principal amount of the Notes or the Certificates, as the case may be, of such
series advise the Applicable Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) with
respect to such Notes or Certificates is no longer in the best interest of the
holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive
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certificates representing the corresponding Securities and receipt of
instructions for re-registration, the Applicable Trustee will reissue such
Securities as Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Applicable Trustee. The final payment on any such Definitive
Security, however, will be made only upon presentation and surrender of such
Definitive Security at the office or agency specified in the notice of final
distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or prior
to each Distribution Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on such
Distribution Date. With respect to each series of Securities, on or prior to
each Distribution Date, the Servicer will prepare and provide to the related
Trustee a statement to be delivered to the related Certificateholders on such
Distribution Date. With respect to each series of Securities, each such
statement to be delivered to Noteholders will include (to the extent applicable)
the following information (and any other information so specified in the related
Prospectus Supplement) as to the Notes of such series with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Certificateholders will
include (to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the
Certificates of such series with respect to such Distribution Date or the period
since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or
with respect to each class of Securities of such series;
(iii) the amount of the distribution allocable to draws from the
Reserve Account (if any), the Yield Supplement Deposit Amount (if any) (as
defined in the related Prospectus Supplement) or payments in respect of any
other credit or cash flow enhancement arrangement;
(iv) the Pool Balance as of the close of business on the last day
of the preceding Collection Period;
(v) the aggregate outstanding principal amount and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period or Collection Periods, as the case
may be;
(vii) the amount of the aggregate Realized Losses (as defined in the
related Prospectus Supplement), if any, for such Collection Period;
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(viii) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each as defined in the related Prospectus
Supplement), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that
were repurchased in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date,
after giving effect to changes therein on such date;
(xi) the balance of the Yield Supplement Account (if any) on such
date, after giving effect to changes therein on such date;
(xii) the amount of Advances on such date;
(xiii) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xiv) for the first such date that is on or immediately following
the end of the Funding Period (if any), the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities of such series; and
(xv) the amount of any cumulative shortfall between payments due in
respect of any credit or cash flow enhancement arrangement and payments
received in respect of such credit or cash flow enhancement arrangement,
and the change in any such shortfall from the preceding statement.
Each amount set forth pursuant to subclauses (i), (ii), (vi) and (viii)
with respect to the Notes or the Certificates of any series will be expressed as
a dollar amount per $1,000 of the initial principal amount of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for federal income tax reporting
purposes after the end of each calendar year during the term of each Trust, the
Applicable Trustee will mail to each person who at any time during such calendar
year has been a Securityholder with respect to such Trust and received any
payment thereon a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Seller and the Servicer will agree to service such
Receivables, each Trust Agreement (in the case of a grantor trust, the Pooling
and Servicing Agreement) pursuant to which a Trust will be created and
Certificates will be issued and each Administration Agreement pursuant to which
Ford Credit will undertake certain administrative duties with respect to a Trust
that issues Notes (collectively, the "Transfer and Servicing Agreements"). Forms
of the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
Prior to the time of issuance of the Securities of a given Trust, pursuant
to a related Purchase Agreement (the "Purchase Agreement"), Ford Credit will
sell and assign to the Seller, without recourse, its entire interest in the
Initial Receivables, if any, of the related Receivables Pool,
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including its security interests in the related Financed Vehicles. At the time
of issuance of the Securities of such Trust, the Seller will sell and assign to
the applicable Trustee, without recourse, the Seller's entire interest in the
Initial Receivables, including its security interests in the related Financed
Vehicles. Each such Receivable will be identified in a schedule to the related
Sale and Servicing Agreement or Pooling and Servicing Agreement. The applicable
Trustee will not independently verify the existence and qualification of any
Receivables. The Trustee will, concurrently with such sale and assignment,
execute, authenticate, and deliver the related Notes and/or Certificates to the
Seller in exchange for the Receivables. The net proceeds received by the Seller
from the sale of the Certificates and the Notes of a given series will be
applied to the purchase of the related Receivables from Ford Credit, to the
deposit of the Pre-Funded Amount into the Pre-Funding Account, if any, and to
make the initial deposit into the Reserve Account, if any. The related
Prospectus Supplement for a given Trust will specify whether, and the terms,
conditions and manner under which, Subsequent Receivables will be sold by the
Seller to the applicable Trust from time to time during any Funding Period on
each date specified as a transfer date in the related Prospectus Supplement
(each, a "Subsequent Transfer Date").
The purchase price for the Receivables purchased by the Trust from the
Seller and by the Seller from Ford Credit may be more or less than the aggregate
principal balance thereof. If any Receivables are purchased for a purchase price
less than their respective principal balances, a portion of the collections or
proceeds in respect of principal from such Receivables may be deemed collections
or proceeds in respect of interest on such Receivables for the purposes of
allocating distributions on the Securities.
In each Purchase Agreement, Ford Credit will represent and warrant to the
Seller, and in each Sale and Servicing Agreement or Pooling and Servicing
Agreement the Seller will represent and warrant to the applicable Trust, among
other things, that (i) the information provided with respect to the related
Receivables is correct in all material respects; (ii) the Obligor on each
related Receivable has obtained or agreed to obtain physical damage insurance in
accordance with Ford Credit's normal requirements; (iii) at the date of issuance
of the related Notes and/or Certificates or at the applicable Subsequent
Transfer Date, if any, the related Receivables are free and clear of all
security interests, liens, charges, and encumbrances (such representation and
warranty will be made to the best of its knowledge with respect to mechanic's
liens and the like relating to each Financed Vehicle) and no setoffs, defenses,
or counterclaims against it have been asserted or threatened; (iv) at the date
of issuance of the related Notes and/or Certificates or at the applicable
Subsequent Transfer Date, if any, each of the related Receivables is or will be
secured by a first perfected security interest in the Financed Vehicle in favor
of Ford Credit; and (v) each related Receivable, at the time it was originated,
complied, and at the date of issuance of the related Notes and/or Certificates
or at the applicable Subsequent Transfer Date, if any, complies in all material
respects with applicable federal and state laws, including consumer credit,
truth in lending, equal credit opportunity, and disclosure laws.
As of the last day of the second (or, if the Seller elects, the first)
month following the discovery by or notice to the Seller of a breach of any
representation or warranty of the Seller which materially and adversely affects
the interests of the related Trust in any Receivable, the Seller, unless it
cures the breach, will purchase such Receivable from such Trust, and Ford Credit
will purchase such Receivable from the Seller, at a price equal to the amount
required to be paid by the related Obligor to prepay such Receivable (including
one month's interest thereon, in the month of payment, at the APR), after giving
effect to the receipt of any monies collected (from whatever source) on such
Receivable, if any (such price, the "Purchase Amount"). The purchase obligation
will constitute the sole remedy available to the Certificateholders or the
Trustee and any Noteholders or Indenture Trustee in respect of such Trust for
any such uncured breach.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Servicer will service and administer the Receivables held by each
Trust and, as custodian on behalf of such Trust, will maintain possession as the
Trustee's agent of the retail installment sale contracts
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and any other documents relating to such Receivables. To assure uniform quality
in servicing both the Receivables and the Servicer's own portfolio of
receivables, as well as to facilitate servicing and save administrative costs,
the installment sale contracts and other documents relating thereto will not be
physically segregated from other similar documents that are in the Servicer's
possession or otherwise stamped or marked to reflect the transfer to a given
Trust so long as Ford Credit is servicing the related Receivables. However,
Uniform Commercial Code financing statements reflecting the sale and assignment
of such Receivables by Ford Credit to the Seller and by the Seller to such Trust
will be filed, and the Servicer's accounting records and computer systems will
be marked to reflect such sale and assignment. Because such Receivables will
remain in the Servicer's possession and will not be stamped or otherwise marked
to reflect the assignment to such Trust, if a subsequent purchaser were to
obtain physical possession of such Receivables without knowledge of the
assignment, the Trust's interest in the Receivables could be defeated. See
"Certain Legal Aspects of the Receivables -- Security Interests in Vehicles."
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, Reserve
Account or other credit enhancement for payment to such Noteholders will be
deposited and from which all distributions to such Noteholders will be made (the
"Note Payment Account"). The Servicer will establish and maintain with the
related Trustee an account, in the name of such Trustee on behalf of such
Certificateholders, into which amounts released from the Collection Account and
any Pre-Funding Account, Yield Supplement Account, Reserve Account or other
credit or cash flow enhancement for distribution to such Certificateholders will
be deposited and from which all distributions to such Certificateholders will be
made (the "Certificate Distribution Account"). With respect to each Trust that
does not issue Notes, the Servicer will also establish and maintain the
Collection Account and any other Trust Account in the name of the related
Trustee on behalf of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each Trust that issues Notes an additional account (the "Payahead
Account"), in the name of the related Indenture Trustee, into which, to the
extent required by the Sale and Servicing Agreement, early payments by or on
behalf of Obligors on Precomputed Receivables which do not constitute scheduled
payments, full prepayments, nor certain partial prepayments that result in a
reduction of the Obligor's periodic payment below the scheduled payment as of
the applicable Cutoff Date ("Payaheads") will be deposited until such time as
the payment falls due. Until such time as payments are transferred from the
Payahead Account to the Collection Account, they will not constitute collected
interest or collected principal and will not be available for distribution to
the applicable Noteholders or Certificateholders. The Payahead Account will
initially be maintained with the applicable Indenture Trustee. With respect to
each Trust that does not issue Notes, the Servicer will also establish and
maintain with the related Trustee the Payahead Account in the name of such
Trustee. So long as Ford Credit is the servicer and provided that (i) there
exists no Event of Servicing Termination and (ii) each other condition to
holding Payaheads as may be required by the applicable Sale and Servicing
Agreement or Pooling and Servicing Agreement is satisfied, Payaheads may be
retained by the Servicer until the applicable Distribution Date.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account, Yield Supplement Account or Reserve Account, will be
described in the related Prospectus Supplement.
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For any series of Securities, funds in the Collection Account, the Note
Payment Account and any Pre-Funding Account, Yield Supplement Account, Reserve
Account and other accounts identified as such in the related Prospectus
Supplement (collectively, the "Trust Accounts") will be invested as provided in
the related Sale and Servicing Agreement or Pooling and Servicing Agreement in
Permitted Investments. "Permitted Investments" means (i) direct obligations of,
and obligations fully guaranteed as to timely payment by, the United States of
America or its agencies; (ii) demand deposits, time deposits, certificates of
deposit or bankers' acceptances of certain depository institutions or trust
companies having the highest rating from the applicable Rating Agency; (iii)
commercial paper having, at the time of the Trust's investment, a rating in the
highest rating category from the applicable Rating Agency; (iv) investments in
money market funds having the highest rating from the applicable Rating Agency;
(v) repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or its
agencies, in either case entered into with a depository institution or trust
company described in clause (ii) above; and (vi) any other investment (which may
include motor vehicle retail installment sale contracts) acceptable to the
Rating Agencies rating the Securities of the related Trust as being consistent
with the rating of such Securities. Permitted Investments are generally limited
to obligations or securities that mature on or before the date of the next
distribution for such series. However, to the extent permitted by the Rating
Agencies, funds in any Reserve Account may be invested in securities that will
not mature prior to the date of the next distribution with respect to such
Certificates or Notes and will not be sold to meet any shortfalls. Thus, the
amount of cash in any Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from any Reserve
Account to cover shortfalls in collections on the related Receivables (as
provided in the related Prospectus Supplement) exceeds the amount of cash in the
Reserve Account, a temporary shortfall in the amounts distributed to the related
Noteholders or Certificateholders could result, which could, in turn, increase
the average life of the Notes or the Certificates of such series. Investment
earnings on funds deposited in the Trust Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), shall be deposited in the
applicable Collection Account or distributed as provided in the related
Prospectus Supplement.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i) which has either (A) a
long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by each Trust and will continue such collection
procedures as it follows with respect to its own automotive retail installment
sale contracts, in a manner consistent with the related Sale and Servicing
Agreement or Pooling and Servicing Agreement. Consistent with its normal
procedures, the Servicer may, in its discretion, arrange with the Obligor on a
Receivable to defer or modify the payment schedule. Some of such arrangements
may cause the Servicer to purchase the Receivable while others may result in the
Servicer making Advances with respect to
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the Receivable. If the Servicer determines that eventual payment in full of a
Receivable is unlikely, the Servicer will follow its normal practices and
procedures to realize upon the Receivable, including the repossession and
disposition of the Financed Vehicle securing the Receivable at a public or
private sale, or the taking of any other action permitted by applicable law.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables received from Obligors and all proceeds of the related
Receivables collected during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period") into the related Collection
Account not later than the second business day after receipt. However, so long
as Ford Credit is the servicer and provided that (i) there exists no Event of
Servicing Termination and (ii) each other condition to making monthly deposits
as may be required by the related Sale and Servicing Agreement or Pooling and
Servicing Agreement is satisfied, the Servicer may retain such amounts until the
business day preceding the applicable Distribution Date. The Servicer or the
Seller, as the case may be, will remit the aggregate Purchase Amount of any
Receivables to be purchased from a Trust to the related Collection Account on or
prior to the business day preceding the applicable Distribution Date. Pending
deposit into the Collection Account, collections may be employed by the Servicer
at its own risk and for its own benefit and will not be segregated from its own
funds. To the extent set forth in the related Prospectus Supplement, the
Servicer may, in order to satisfy the requirements described above, obtain a
letter of credit or other security for the benefit of the related Trust to
secure timely remittances of collections on the related Receivables and payment
of the aggregate Purchase Amount with respect to Receivables purchased by the
Servicer.
Collections on a Receivable made during a Collection Period which are not
late fees, prepayment charges, or certain other similar fees or charges shall be
applied first to any outstanding Advances made by the Servicer, with respect to
such Receivable and then to the scheduled payment. To the extent that such
collections on a Precomputed Receivable during a Collection Period exceed the
outstanding Precomputed Advances and the scheduled payment on such Precomputed
Receivable, the collections shall be applied to prepay the Precomputed
Receivable in full. If the collections are insufficient to prepay the
Precomputed Receivable in full, they generally shall be treated as Payaheads
until such later Collection Period as such Payaheads may be transferred to the
Collection Account and applied either to the scheduled payment or to prepay the
Precomputed Receivable in full.
ADVANCES
If so provided in the related Prospectus Supplement, to the extent the
collections on a Precomputed Receivable for a Collection Period are less than
the scheduled payment, the amount of Payaheads made on such Precomputed
Receivable not previously applied (the "Payahead Balance"), if any, with respect
to such Precomputed Receivable shall be applied by the Servicer to the extent of
the shortfall. To, the extent of any remaining shortfall, the Servicer will make
a Precomputed Advance of the deficiency. The Servicer will be obligated to make
a Precomputed Advance in respect of a Precomputed Receivable only to the extent
that the Servicer, in its sole discretion, expects to recoup the Precomputed
Advance from the Obligor, the Purchase Amount, Liquidation Proceeds or
collections from other Receivables in the related Receivables Pool. The Servicer
will deposit Precomputed Advances in the related Collection Account on or prior
to the business day preceding the applicable Distribution Date. The Servicer
will be entitled to recoup its Precomputed Advances from subsequent payments by
or on behalf of the Obligor, collections of Liquidation Proceeds and payment of
the Purchase Amount; or, upon the determination that reimbursement from the
preceding sources is unlikely, will be entitled to recoup its Precomputed
Advances from collections from other Receivables in the related Receivables
Pool.
If so provided in the related Prospectus Supplement, on or before each
applicable Distribution Date, the Servicer shall deposit into the related
Collection Account as a Simple Interest Advance an
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amount equal to the amount of interest that would have been due on the related
Simple Interest Receivables at their respective APRs for the related Collection
Period (assuming that such Simple Interest Receivables are paid on their
respective due dates) minus the amount of interest actually received on such
Simple Interest Receivables during the related Collection Period. If such
calculation results in a negative number, an amount equal to such amount shall
be paid to the Servicer in reimbursement of outstanding Simple Interest
Advances. In addition, in the event that a Simple Interest Receivable becomes a
Liquidated Receivable (as such term is defined in the related Prospectus
Supplement), the amount of accrued and unpaid interest thereon (but not
including interest for the then current Collection Period) shall be withdrawn
from the Collection Account and paid to the Servicer in reimbursement of
outstanding Simple Interest Advances. No advances of principal will be made with
respect to Simple Interest Receivables. As used herein, "Advances" means both
Precomputed Advances and Simple Interest Advances.
In the event that an Obligor shall prepay a Receivable in full, if the
related contract did not require such Obligor to pay a full month's interest for
the month of prepayment, at the APR, generally the Servicer will advance the
amount of such interest. The Servicer will not be entitled to recoup any such
advance.
SERVICING COMPENSATION AND EXPENSES
The Servicer will be entitled to receive a servicing fee (the "Servicing
Fee") for each Collection Period equal to a specified percentage (the "Servicing
Fee Rate") of the Pool Balance as of the first day of such Collection Period.
The Servicer also will be entitled to receive a supplemental servicing fee (the
"Supplemental Servicing Fee") for each Collection Period equal to any late,
prepayment, and other administrative fees and expenses collected during such
Collection Period. If so specified in the related Prospectus Supplement, the
Supplemental Servicing Fee will include Investment Earnings on funds deposited
in the Trust Accounts and other accounts with respect to a Trust. The Servicer
will be paid the Servicing Fee and the Supplemental Servicing Fee for each
Collection Period on the applicable Distribution Date.
The Servicing Fee and the Supplemental Servicing Fee (collectively, the
"Servicer Fee") are intended to compensate the Servicer for performing the
functions of a third party servicer of the Receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, sending
payment coupons to Obligors, reporting federal income tax information to
Obligors, paying costs of collections, and policing the collateral. The Servicer
Fee will also compensate the Servicer for administering the particular
Receivables Pool, including making Advances, accounting for collections,
furnishing monthly and annual statements to the related Trustee and Indenture
Trustee with respect to distributions, and generating federal income tax
information for the Trust. The Servicer Fee also will reimburse the Servicer for
certain taxes, the fees of the related Trustee and Indenture Trustee, accounting
fees, outside auditor fees, data processing costs, and other costs incurred in
connection with administering the applicable Receivables.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each class
of such Securities entitled thereto will be made by the Applicable Trustee to
the Noteholders and the Certificateholders of such series. The timing,
calculation, allocation, order, source, priorities of and requirements for all
payments to each class of Noteholders and all distributions to each class of
Certificateholders of such series will be set forth in the related Prospectus
Supplement.
With respect to each Trust, on each Distribution Date, collections on the
related Receivables will be transferred from the Collection Account to the Note
Payment Account, if any, and the Certificate
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Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus Supplement.
Credit enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a given series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such series
may be subordinate to payments in respect of Notes, if any, of such series or
other classes of Certificates of such series.
Allocation of Collections on Receivables. Distributions of principal on the
Securities of a series may be based on the amount of principal collected or due,
or the amount of Realized Losses incurred, in a Collection Period. On the
Business Day immediately preceding each Distribution Date (a "Determination
Date"), the Indenture Trustee, if any, or, otherwise, the Trustee shall
determine the amount in the Collection Account available for distribution on the
related Distribution Date. Such amount shall be allocated as described under "--
Collections" above and to the interest and principal portion of scheduled
payments on the Receivables in accordance with the Servicer's customary
servicing procedures. Payments to Securityholders shall be made on each
Distribution Date in accordance with such allocations, together with the
statement described under "Certain Information Regarding the Securities --
Reports to Securityholders."
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities, Reserve Accounts, overcollateralization, letters of credit,
credit or liquidity facilities, surety bonds, guaranteed investment contracts,
guaranteed rate agreements, swaps or other interest rate protection agreements,
repurchase obligations, yield supplement agreements, other agreements with
respect to third party payments or other support, cash deposits or such other
arrangements as may be described in the related Prospectus Supplement or any
combination of two or more of the foregoing. If specified in the applicable
Prospectus Supplement, credit or cash flow enhancement for a class of Securities
may cover one or more other classes of Securities of the same series, and credit
or cash flow enhancement for a series of Securities may cover one or more other
series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or series of Securities may not provide protection against all risks of loss and
may not guarantee repayment of the entire principal amount and interest thereon.
If losses occur which exceed the amount covered by any credit enhancement or
which are not covered by any credit enhancement, Securityholders of any class or
series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
The Seller may replace the credit enhancement for any class of Securities
with another form of credit enhancement without the consent of Securityholders,
provided the applicable Rating Agencies confirm in writing that substitution
will not result in the reduction or withdrawal of the rating of such class of
Securities or any other class of Securities of the related series.
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Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller will establish for a series or class of Securities an
account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. If so provided in the related Prospectus Supplement, the
Reserve Account will be funded by an initial deposit by the Seller on the
Closing Date in the amount set forth in the related Prospectus Supplement and,
if the related series has a Funding Period, will also be funded on each
Subsequent Transfer Date to the extent described in the related Prospectus
Supplement. As further described in the related Prospectus Supplement, the
amount on deposit in the Reserve Account will be increased on each Distribution
Date thereafter up to the Specified Reserve Balance (as defined in the related
Prospectus Supplement) by the deposit therein of the amount of collections on
the related Receivables remaining on each such Distribution Date after the
payment of all other required payments and distributions on such date. The
related Prospectus Supplement will describe the circumstances and manner under
which distributions may be made out of the Reserve Account, either to holders of
the Securities covered thereby or to the Seller.
The Seller may at any time, without consent of the Securityholders, sell,
transfer, convey or assign in any manner its rights to and interests in
distributions from the Reserve Account provided that (i) the Rating Agencies
confirm in writing that such action will not result in a reduction or withdrawal
of the rating of any class of Securities, (ii) the Seller provides to the
applicable Trustee and any Indenture Trustee an opinion of counsel from
independent counsel that such action will not cause the related Trust to be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes and (iii) such transferee or
assignee agrees in writing to take positions for federal income tax purposes
consistent with the federal income tax positions agreed to be taken by the
Seller.
NET DEPOSITS
As an administrative convenience and for so long as certain conditions are
satisfied (see "-- Collections" above), the Servicer will be permitted to make
the deposit of collections, aggregate Advances and Purchase Amounts for any
Trust for or with respect to the related Collection Period, net of distributions
to the Servicer as reimbursement of Advances or payment of the Servicer Fee with
respect to such Collection Period. Similarly, the Servicer may cause to be made
a single, net transfer from the Collection Account to the related Payahead
Account, if any, or vice versa. The Servicer, however, will account to the
Trustee, any Indenture Trustee, the Noteholders, if any, and the
Certificateholders with respect to each Trust as if all deposits, distributions,
and transfers were made individually.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee, if any, and the
applicable Trustee as of the close of business on the last day of the preceding
Collection Period a statement setting forth substantially the same information
as is required to be provided in the periodic reports provided to
Securityholders of such series described under "Certain Information Regarding
the Securities -- Reports to Securityholders."
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent certified public accountants will furnish to
the related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance by the Servicer during the preceding twelve months
(or, in the case of the first such certificate, from the applicable Closing
Date) with certain standards relating to the servicing of the applicable
Receivables, the Servicer's accounting records and computer files with respect
thereto and certain other matters.
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Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and Indenture Trustee or Trustee,
as applicable, substantially simultaneously with the delivery of such
accountants' statement referred to above, of a certificate signed by an officer
of the Servicer stating that the Servicer has fulfilled its obligations under
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (or, in the case of the first
such certificate, from the Closing Date) or, if there has been a default in the
fulfillment of any such obligation, describing each such default. The Servicer
has agreed to give each Indenture Trustee and each Trustee notice of certain
Events of Servicing Termination under the related Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that Ford Credit may not resign from its obligations and duties as
Servicer thereunder, except upon determination that Ford Credit's performance of
such duties is no longer permissible under applicable law. No such resignation
will become effective until the related Indenture Trustee or Trustee, as
applicable, or a successor servicer has assumed Ford Credit's servicing
obligations and duties under such Sale and Servicing Agreement or Pooling and
Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Sale and Servicing Agreement
or Pooling and Servicing Agreement or for errors in judgment; except 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 the Servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder. In addition,
each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer is under no obligation to appear in, prosecute or
defend any legal action that is not incidental to the Servicer's servicing
responsibilities under such Sale and Servicing Agreement or Pooling and
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability. The Servicer may, however, undertake any reasonable action that it
may deem necessary or desirable in respect of a particular Sale and Servicing
Agreement or Pooling and Servicing Agreement, the rights and duties of the
parties thereto, and the interests of the related Securityholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs, and liabilities of the Servicer,
and the Servicer will not be entitled to be reimbursed therefor.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the business of
the Servicer 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
Ford, 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
such Sale and Servicing Agreement or Pooling and Servicing Agreement. For as
long as Ford Credit is the Servicer, it may at any time subcontract
substantially all of its duties as servicer under a particular Sale and
Servicing Agreement or Pooling and Servicing Agreement to any corporation more
than 50% of the voting stock of which is owned, directly or indirectly, by Ford
and the Servicer may at any time perform certain specific duties as servicer
through other subcontractors.
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EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" under each Sale and Servicing Agreement
and Pooling and Servicing Agreement will consist of (i) any failure by the
Servicer or the Seller, as the case may be, to deliver to the Applicable Trustee
for distribution to the Securityholders of the related series or for deposit in
any of the Trust Accounts or the Certificate Distribution Account any required
payment, which failure continues unremedied for three business days after
written notice from the Applicable Trustee is received by the Servicer or the
Seller, as the case may be, or after discovery by an officer of the Servicer or
the Seller, as the case may be; (ii) any failure by the Servicer or the Seller,
as the case may be, duly to observe or perform in any material respect any other
covenant or agreement in such Sale and Servicing Agreement or Pooling and
Servicing Agreement, which failure materially and adversely affects the rights
of the Noteholders or the Certificateholders of the related series and which
continues unremedied for 90 days after the giving of written notice of such
failure (A) to the Servicer or the Seller, as the case may be, by the Applicable
Trustee or (B) to the Servicer or the Seller, as the case may be, and to the
Applicable Trustee by holders of Notes or Certificates of such series, as
applicable, evidencing not less than 25% in principal amount of such outstanding
Notes or of such Certificate Balance; (iii) the occurrence of an Insolvency
Event with respect to the Servicer or the Seller; and (iv) such other events, if
any, set forth in the related Prospectus Supplement. "Insolvency Event" means,
with respect to any entity, any of the following events or actions: certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings with respect to such entity and certain
actions by such entity indicating its insolvency, reorganization pursuant to
bankruptcy proceedings or inability to pay its obligations.
RIGHTS UPON EVENT OF SERVICING TERMINATION
In the case of any Trust that has issued Notes, as long as an Event of
Servicing Termination under a Sale and Servicing Agreement remains unremedied,
the related Indenture Trustee or holders of Notes of the related series
evidencing not less than a majority of the principal amount of such Notes then
outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement, whereupon such Indenture Trustee or a
successor servicer appointed by such Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Sale and
Servicing Agreement and will be entitled to similar compensation arrangements.
In the case of any Trust that has not issued Notes, as long as an Event of
Servicing Termination under the related Sale and Servicing Agreement or Pooling
and Servicing Agreement remains unremedied, the related Trustee or holders of
Certificates of the related series evidencing not less than a majority of the
Certificate Balance of such Certificates then outstanding may terminate all the
rights and obligations of the Servicer under such Sale and Servicing Agreement
or Pooling and Servicing Agreement, whereupon such Trustee or a successor
servicer appointed by such Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Sale and Servicing Agreement
or Pooling and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Event of Servicing Termination other than
such appointment has occurred, such trustee or official may have the power to
prevent such Indenture Trustee, such Noteholders, such Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $100,000,000 and whose regular business
includes the servicing of motor vehicle receivables. Such Indenture Trustee or
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation to the Servicer under such
Sale and Servicing Agreement or Pooling and Servicing Agreement.
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WAIVER OF PAST EVENTS OF SERVICING TERMINATION
With respect to each Trust that has issued Notes, the holders of Notes
evidencing not less than a majority of the principal amount of the then
outstanding Notes of the related series (or the holders of the Certificates of
such series evidencing not less than a majority of the outstanding Certificate
Balance, in the case of any Event of Servicing Termination which does not
adversely affect the related Indenture Trustee or such Noteholders) may, on
behalf of all such Noteholders and Certificateholders, waive any Event of
Servicing Termination under the related Sale and Servicing Agreement and its
consequences, except an Event of Servicing Termination consisting of a failure
to make any required deposits to or payments from any of the Trust Accounts or
to the Certificate Distribution Account in accordance with such Sale and
Servicing Agreement. With respect to each Trust that has not issued Notes,
holders of Certificates of such series evidencing not less than a majority of
the Certificate Balance of such Certificates then outstanding may, on behalf of
all such Certificateholders, waive any Event of Servicing Termination under the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, except
an Event of Servicing Termination consisting of a failure to make any required
deposits to or payments from the Certificate Distribution Account or the related
Trust Accounts in accordance with such Sale and Servicing Agreement or Pooling
and Servicing Agreement. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder and
provided that an opinion of counsel as to certain tax matters is delivered if
required. The Transfer and Servicing Agreements may also be amended by the
Seller, the Servicer, the related Trustee and any related Indenture Trustee with
the consent of the holders of Notes evidencing not less than a majority in
principal amount of the then outstanding Notes, if any, of the related series
and the holders of the Certificates of such series evidencing not less than a
majority of the Certificate Balance of such Certificates then outstanding, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements or of modifying
in any manner the rights of such Noteholders or Certificateholders; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related Receivables or distributions that are required to be made for the
benefit of such Noteholders or Certificateholders or change any Note Interest
Rate or Certificate Rate or the amount required to be on deposit in the Reserve
Account, if any, or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series; and provided that an opinion of counsel as
to certain tax matters is delivered if required.
INSOLVENCY EVENT OR DISSOLUTION
With respect to a Trust that is not a grantor trust, if an Insolvency Event
or a dissolution occurs with respect to the Seller or the General Partner, the
related Receivables of such Trust will be liquidated and the Trust will be
terminated 90 days after the date of such Insolvency Event or dissolution,
unless, before the end of such 90-day period, the related Trustee shall have
received written instructions from (i) the Noteholders (other than the Seller)
of each class of Notes of such series representing not less than a majority of
the aggregate unpaid principal amount of such class of Notes and the right to
receive interest thereon, (ii) the Certificateholders (other than the Seller)
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of Certificates of such series representing not less than a majority of the
aggregate Certificate Balance of all such Certificates and the right to receive
interest thereon, (iii) not less than a majority of the holders (other than the
Seller) of certain interests, if any, in the Reserve Account with respect to
such Trust, (iv) not less than a majority of the holders (other than the Seller)
of certificates representing interests in, or indebtedness secured by, final
scheduled payments with respect to the Final Payment Receivables, if any,
initially retained by the Seller and subsequently added to such Trust (such
certificates or indebtedness being referred to herein as "Final Payment
Securities") and the right to receive interest thereon and (v) any other person
specified in the related Prospectus Supplement, to the effect that each such
party disapproves of the liquidation of such Receivables and termination of such
Trust and in connection therewith, the related Trustee (x) appoints an entity
acceptable to Ford Credit to acquire an interest in such Trust and to act as a
substitute "general partner" for federal income tax purposes and (y) obtains an
opinion of counsel that such Trust will thereafter not be classified as an
association taxable as a corporation for federal income tax and applicable state
tax purposes. Promptly after the occurrence of an Insolvency Event or a
dissolution with respect to the Seller or the General Partner, notice thereof is
required to be given to such Noteholders, Certificateholders, holders of
interests in the Reserve Account, holders of Final Payment Securities and any
such other person; provided that any failure to give such required notice will
not prevent or delay termination of such Trust. Upon termination of any Trust,
the related Trustee shall, or shall direct the related Indenture Trustee to,
promptly sell the assets of such Trust (other than the Trust Accounts and the
Certificate Distribution Account) in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from any such sale, disposition or
liquidation of the Receivables of such Trust will be treated as collections on
such Receivables and deposited in the related Collection Account. With respect
to any Trust, if the proceeds from the liquidation of the related Receivables
and any amounts on deposit in the Reserve Account (if any), the Payahead Account
(if any), the Note Payment Account (if any) and the Certificate Distribution
Account are not sufficient to pay the Notes, if any, and the Certificates of the
related series in full, the amount of principal returned to Noteholders and
Certificateholders thereof will be reduced and some or all of such Noteholders
and Certificateholders will incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Seller, the Servicer or their affiliates) of such Trust and the
delivery to such Trustee by each such Certificateholder (including the Seller,
the Servicer or their affiliates) of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such series will succeed to all the rights of the Noteholders of such series,
under the related Sale and Servicing Agreement, except as otherwise provided
therein.
SELLER LIABILITY
Under each Trust Agreement, the Seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to such Trust) arising out of or based
on the arrangement created by such Trust Agreement as though such arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which the Seller was a general partner.
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TERMINATION
With respect to each Trust, the obligations of the Servicer, the Seller,
the related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables, (ii)
the payment to Noteholders, if any, and Certificateholders of the related series
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iii) the occurrence of either event described below.
In order to avoid excessive administrative expense, the Servicer will be
permitted at its option to purchase from each Trust, as of the end of any
applicable Collection Period, if the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 10% or less of the Initial Pool Balance
(as defined in the related Prospectus Supplement, the "Initial Pool Balance"),
all remaining related Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of the end of such Collection Period.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date as of which the Pool Balance is equal to or less than the
percentage of the Initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If the Applicable Trustee receives satisfactory bids as
described in such Prospectus Supplement, then the Receivables remaining in such
Trust will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
Ford Credit, in its capacity as administrator (the "Administrator"), will
enter into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues Notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the extent
provided in such Administration Agreement, to provide the notices and to perform
other administrative obligations required by the related Indenture. With respect
to any such Trust, as compensation for the performance of the Administrator's
obligations under the applicable Administration Agreement and as reimbursement
for its expenses related thereto, the Administrator will be entitled to a
periodic administration fee (the "Administration Fee"), which fee will be paid
by the Seller.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN VEHICLES
In all states in which the Receivables have been originated, retail
installment sale contracts such as the Receivables evidence the credit sale of
automobiles and light trucks by dealers to obligors; the contracts also
constitute personal property security agreements and include grants of security
interests in the vehicles under the Uniform Commercial Code (the "UCC").
Perfection of security interests in the vehicles is generally governed by the
motor vehicle registration laws of the state in which the vehicle is located. In
most states in which the Receivables have been originated, a security interest
in a vehicle is perfected by notation of the secured party's lien on the
vehicle's certificate of title. Each Receivable prohibits the sale or transfer
of the Financed Vehicle without Ford Credit's consent.
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With respect to each Trust, pursuant to the related Purchase Agreement,
Ford Credit will assign its security interests in the Financed Vehicles securing
the related Receivables to the Seller and, pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, the Seller will assign
its security interests in the Financed Vehicles securing such Receivables to the
Trust. However, because of the administrative burden and expense, the Servicer,
the Seller and the Trust will not amend any certificate of title to identify the
Trust as the new secured party on the certificates of title relating to the
Financed Vehicles. Also, the Servicer will continue to hold any certificates of
title relating to the Financed Vehicles in its possession as custodian for the
Trust pursuant to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement. See "Description of the Transfer and Servicing Agreements
- -- Sale and Assignment of Receivables."
In most states, assignments such as those under the Purchase Agreement and
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, relating to each Trust, together with a perfected security interest
in the chattel paper are an effective conveyance of a security interest in the
vehicles subject to the chattel paper without amendment of any lien noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. In the absence of fraud or forgery by the
vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of Ford Credit's lien on the certificates of title will
be sufficient to protect such Trust against the rights of subsequent purchasers
of a Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which Ford Credit
failed to obtain a perfected security interest, its security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles and
holders of perfected security interests. Such a failure would constitute a
breach of Ford Credit's warranties under the related Purchase Agreement and of
the Seller's warranties under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, and would create an obligation
of Ford Credit under such Purchase Agreement and of the Seller under such Sale
and Servicing Agreement or Pooling and Servicing Agreement to purchase the
related Receivable unless the breach is cured. See "Description of the Transfer
and Servicing Agreements -- Sale and Assignment of Receivables." By not
identifying the Trust as the secured party on the certificate of title, the
Trust's interest in the chattel paper may not have the benefit of the security
interest in the Financed Vehicle in all states or such security interest could
be defeated through fraud or negligence. The Seller will assign its rights under
each Purchase Agreement to the related Trust.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle;
accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle, or, in the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing receivables, Ford Credit
takes steps to effect re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly, when an obligor sells
a vehicle, Ford Credit 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 receivable before
release of the lien. Under each Sale and Servicing Agreement or Pooling and
Servicing Agreement, the Servicer will be obligated to take appropriate steps,
at the Servicer's expense, to maintain perfection of security interests in the
Financed Vehicles.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Financed Vehicle. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the
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lien of a secured party. Federal law and the laws of certain states permit the
confiscation of motor vehicles under certain circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in the confiscated motor vehicle. With respect to each Trust, Ford
Credit will represent to the Seller and the Seller will represent to the Trust
that each security interest in a Financed Vehicle is or will be prior to all
other present liens (other than tax liens and liens that arise by operation of
law) upon and security interests in such Financed Vehicle. However, liens for
repairs or taxes, or the confiscation of a Financed Vehicle, could arise or
occur at any time during the term of a Receivable. No notice will be given to
the applicable Trustee or Certificateholders and any Indenture Trustee or
Noteholders, if any, in the event such a lien arises or confiscation occurs.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is the method employed by Ford Credit in the
majority of instances in which a default occurs and is accomplished simply by
retaking possession of the financed vehicle. In cases where the obligor objects
or raises a defense to repossession, or if otherwise required by applicable
state law, a court order must be obtained from the appropriate state court, and
the vehicle must then be repossessed in accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which the
obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding, and preparing the collateral for disposition
and arranging for this sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance. Repossessed vehicles are generally resold by Ford Credit through
automobile auctions which are attended principally by dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the obligor on the receivable. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments.
However, the deficiency judgment would be a personal judgment against the
obligor for the shortfall, and a defaulting obligor can be expected to have very
little capital or sources of income available following repossession. Therefore,
in many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of any lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former obligor.
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CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales acts, retail installment sales acts, and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. The requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other state statutes, or the common law in certain
states, has the effect of subjecting a seller (and certain related lenders and
their assignees) in a consumer credit transaction and any assignee of the seller
to all claims and defenses which the obligor in the transaction could assert
against the seller of the goods. Liability under the FTC Rule is limited to the
amounts paid by the obligor under the contract, and the holder of the contract
may also be unable to collect any balance remaining due thereunder from the
obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts paid by the Obligor on the Receivable.
Under most state motor vehicle dealer licensing laws, sellers of motor vehicles
are required to be licensed to sell motor vehicles at retail sale. Furthermore,
Federal Odometer Regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of new and used vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed or if an Odometer Disclosure
Statement was not provided to the purchaser of the related financed vehicle, the
obligor may be able to assert a defense against the seller of the vehicle. If an
Obligor were successful in asserting any such claim or defense, such claim or
defense would constitute a breach of Ford Credit's and the Seller's
representations and warranties under the related Purchase Agreement and the
related Sale and Servicing Agreement or Pooling and Servicing Agreement,
respectively, and would create an obligation of Ford Credit and the Seller to
repurchase the Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of the Receivables."
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
Ford Credit and the Seller will warrant under each Purchase Agreement and
the applicable Sale and Servicing Agreement or Pooling and Servicing Agreement,
respectively, that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against a Trust for
violation of any law and such claim materially and adversely affects such
Trust's interest in a Receivable, such violation would constitute a breach of
warranty under the related
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Purchase Agreement and the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and would create an obligation of Ford Credit and the Seller
to repurchase the Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
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
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The Receivables prohibit the sale or transfer of the vehicle securing a
Receivable without Ford Credit's consent and, except those originated in Ohio
and Wisconsin, permit Ford Credit to accelerate the maturity of the Receivable
upon a sale or transfer without its consent. The Servicer does not intend to
consent to any sale or transfer and intends to require prepayment of the
Receivable. The Servicer may enter into a transfer of equity agreement with the
secondary purchaser for the purpose of effecting the transfer of the Financed
Vehicle.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a series. The summary does not purport to deal with federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of Noteholders or Certificateholders that are insurance companies,
regulated investment companies or dealers in securities. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt instruments and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. Prospective investors
are urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase, ownership
and disposition of the Notes and the Certificates of any series.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of special federal tax counsel to each Trust specified in the
related Prospectus Supplement ("Special Tax Counsel"), regarding certain federal
income tax matters discussed below. An opinion of Special Tax Counsel, however,
is not binding on the IRS or the courts. No ruling on any of the issues
discussed below will be sought from the IRS. For purposes of the following
summary, references to the Trust, the Notes, the Certificates and related terms,
parties and documents shall be deemed to refer, unless otherwise specified
herein, to each Trust and the Notes, Certificates and related terms, parties and
documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust is intended to be treated as a partnership under
the Code or whether the Trust will be treated as a grantor trust. The Prospectus
Supplement for each series of Certificates will specify whether the Trust is
intended to be treated as a partnership or the Trust will be treated as a
grantor trust.
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SCOPE OF THE TAX OPINIONS
It is expected that Special Tax Counsel will, upon issuance of a series of
Notes and/or Certificates, deliver its opinion that the applicable Trust will
not be classified as an association (or publicly traded partnership) taxable as
a corporation for federal income tax purposes. Further, with respect to each
series of Notes, Special Tax Counsel expects to advise the Trust that the Notes
will be classified as debt for federal income tax purposes.
In addition, Special Tax Counsel will render its opinion that it has
prepared or reviewed the statements herein and in the related Prospectus
Supplement under the heading "Summary -- Tax Status" as they relate to federal
income tax matters and under the heading "Certain Federal Income Tax
Consequences," and is of the opinion that such statements are correct in all
material respects. Such statements are intended as an explanatory discussion of
the possible effects of the classification of the Trust as a partnership or a
grantor trust, as the case may be, for federal income tax purposes on investors
generally and of related tax matters affecting investors generally, but do not
purport to furnish information in the level of detail or with the attention to
the investor's specific tax circumstances that would be provided by an
investor's own tax adviser. Accordingly, each investor is advised to consult its
own tax advisers with regard to the tax consequences to it of investing in the
Notes and/or Certificates.
ERISA CONSIDERATIONS
ERISA and Section 4975 of the Code impose certain restrictions on (a)
employee benefit plans (as defined in Section 3(3) of ERISA), (b) plans
described in Section 4975(e)(1) of the Code, including individual retirement
accounts or Keogh plans, (c) any entities whose underlying assets include plan
assets by reason of a plan's investment in such entities (each of (a), (b) and
(c), a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties in Interest" under ERISA and "Disqualified Persons" under the
Code). 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 (for example, through the purchase of an
annuity contract), and the insurance company might be treated as a Party in
Interest with respect to a Plan by virtue of such investment. ERISA also imposes
certain duties on persons who are fiduciaries of Plans subject to ERISA and
prohibits certain transactions between a Plan and Parties in Interest or
Disqualified Persons with respect to such Plans. Violation of these rules may
result in the imposition of an excise tax or penalty.
A fiduciary of any Plan should carefully review with its legal and other
advisors whether the purchase or holding of any Securities of a series could
give rise to a transaction prohibited or otherwise impermissible under ERISA or
the Code, and should refer to "ERISA Considerations" in the related Prospectus
Supplement regarding any restrictions on the purchase and/or holding of the
Securities offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the prohibited transaction provisions of ERISA and
Section 4975 of the Code. Accordingly, assets of such plans may, subject to the
provisions of any other applicable federal and state law, be invested in
Securities of any series without regard to the factors described herein and
under "ERISA Considerations" in the related Prospectus Supplement. It should be
noted, however, that any such plan that is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Plan investing in Securities issued by the Trust. Under
a regulation (the "Plan Assets Regulation") issued by the
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United States Department of Labor ("DOL"), 29 C.F.R. Section 2510.3-101, the
assets of the Trust would be treated as plan assets of a Plan for purposes of
ERISA and the Code if the Plan acquires an "Equity Interest" in the Trust and
none of the exceptions contained in the Plan Assets Regulation is applicable. An
Equity Interest is defined under the Plan Assets Regulation as an interest other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. The Certificates will most likely
be deemed Equity Interests for purposes of ERISA. It should be noted, however,
as discussed below, that the purchase of Notes by a Plan may also give rise to
potential prohibited transactions, and all prospective investors should review
the discussion herein with their legal advisors.
CERTIFICATES ISSUED BY TRUSTS THAT ISSUE ONLY CERTIFICATES
The ERISA considerations that apply with respect to Securities issued by a
Trust differ depending on whether the Trust issuing the Securities (i) issues
both Notes and Certificates or (ii) issues only Certificates. The discussion in
this section "-- Certificates Issued by Trusts That Issue Only Certificates"
applies only with respect to Certificates issued by a Trust that issues only
Certificates.
Senior Certificates. The following discussion applies only to
nonsubordinated Certificates (referred to herein as "Senior Certificates")
issued by a Trust that does not issue Notes.
If so specified in the related Prospectus Supplement, the DOL will have
issued an individual exemption to one or more of the underwriters of the Senior
Certificates (the "Underwriters' Exemption"). The Underwriters' 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 Underwriters' Exemption. In addition, the
Underwriters' Exemption provides that the assets of such pass-through trusts may
include (i) yield supplement agreements or similar yield maintenance
arrangements (provided such arrangements do not involve swap agreements or other
notional principal contracts) and (ii) certain pre-funding account arrangements.
The receivables covered by the Underwriters' Exemption include motor vehicle
retail installment sale contracts such as the Receivables. The Underwriters'
Exemption will apply to the acquisition, holding and resale of the Senior
Certificates by a Plan from the applicable underwriters, provided that specified
conditions (certain of which are described below) are met. The Seller believes
that the Underwriters' Exemption will apply to the acquisition and holding of
the Senior Certificates by a Plan and that all conditions of the Underwriters'
Exemption other than those within the control of the investors have been or will
be met.
The Underwriters' Exemption sets forth six general conditions that must be
satisfied for a transaction involving the acquisition of the Senior Certificates
by a Plan to be eligible for the exemptive relief thereunder:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior 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 Senior Certificates acquired
by a Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust;
(3) The Senior 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 from any one of four Rating Agencies;
(4) The Trustee is not an affiliate of any other member of the "Restricted
Group," which consists of the applicable underwriters, the Seller, the Servicer,
the applicable Trustee and any
57
<PAGE> 120
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 Senior Certificates, and any
affiliate of such parties;
(5) The sum of all payments made to and retained by the applicable
underwriters in connection with the distribution or placement of the Senior
Certificates represents not more than reasonable compensation for underwriting
or placing the Senior Certificates. The sum of all payments made to and retained
by the Seller 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 Senior Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission under
the Securities Act.
Because the rights and interests evidenced by the Senior Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other Certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Senior Certificates that
they be rated in the highest rating category by at least two Rating Agencies. A
fiduciary of a Plan contemplating purchasing a Senior Certificate (other than
pursuant to the original issuance of the Senior Certificates) must make its own
determination that at the time of such acquisition, the Senior Certificates
continue to satisfy the third general condition set forth above. The Seller and
the Servicer expect that the fourth general condition set forth above will be
satisfied with respect to the Senior Certificates. A fiduciary of a Plan
contemplating purchasing a Senior Certificate must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to the Senior Certificates.
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 evidencing interests in such other investment pools
must have been rated in one of the three highest generic rating categories
of one of the Rating Agencies for at least one year prior to the Plan's
acquisition of Senior 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 Senior Certificates.
If the general conditions of the Underwriters' Exemption are satisfied, the
Underwriters' Exemption should 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 Section 4975(c)(1)(A) through
(D) of the Code, in connection with the direct or indirect purchase, exchange,
transfer or holding of the Senior 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 Senior 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 Senior Certificates, an Excluded Plan is a Plan sponsored by any member
of the Restricted Group.
If certain other specific conditions of the Underwriters' Exemption are
also satisfied, the Underwriters' Exemption should provide relief from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Section 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 Senior Certificates in the initial issuance of
Senior Certificates between the Seller or applicable underwriters and a Plan
other than an Excluded Plan when the person who has
58
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discretionary authority or renders investment advice with respect to the
investment of Plan assets in the Senior 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 Seller expects such specific conditions to be
satisfied with respect to the issuance of the Senior Certificates.
The Underwriters' 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 Senior Certificates issued by the Trust. The related Pooling and
Servicing Agreement is a pooling and servicing agreement as defined in the
Underwriters' Exemption. All transactions relating to the servicing, management
and operations of the Trust will be carried out in accordance with the related
Pooling and Servicing Agreement. See "Description of the Transfer and Servicing
Agreements" herein and in the related Prospectus Supplement.
Any Plan fiduciary considering whether to purchase a Senior Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the Underwriters' Exemption and other relevant issues.
Subordinated Certificates. The following discussion applies only to
subordinated Certificates (referred to herein as "Subordinated Certificates")
issued by a Trust that does not issue Notes.
Because the Subordinated Certificates are subordinated to the Senior
Certificates in certain respects, the Underwriters' Exemption will not apply to
the purchase of Subordinated Certificates by or on behalf of a Plan. However,
other exemptions may be applicable, such as Prohibited Transaction Class
Exemption ("PTCE") 90-1, which exempts certain transactions involving insurance
company pooled separate accounts; PTCE 95-60, which exempts certain transactions
involving insurance company general accounts; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; PTCE 96-23, which
exempts certain transactions effected on behalf of a Plan by an "in house" asset
manager; or PTCE 84-14, which exempts certain transactions effected on behalf of
a Plan by a "qualified professional asset manager." It should be noted, however,
that even if the conditions specified in one or more of these exemptions are
met, the scope of relief provided by these exemptions may not necessarily cover
all acts that might be construed as prohibited transactions.
Any Plan fiduciary considering whether to purchase a Subordinated
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of one or more of such exemptions to such purchase. Prior to
making an investment in the Subordinated Certificates, a Plan investor must
determine whether, and each fiduciary causing the Subordinated Certificates to
be purchased by, on behalf of or using the assets of a Plan shall be deemed to
have represented that either (i) no part of the funds to be used to purchase the
Subordinated Certificates constitutes assets allocable to any trust that
contains the assets of any Plan or (ii) such purchase is covered by one or more
of the exemptions described above.
SECURITIES ISSUED BY TRUSTS THAT ISSUE BOTH NOTES AND CERTIFICATES
The discussion in this section "-- Securities Issued by Trusts That Issue
Both Notes and Certificates" applies only to Securities issued by a Trust that
issues both Notes and Certificates.
The Notes. Unless otherwise provided in the related Prospectus Supplement,
the Seller believes that the Notes of any series should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Notes of a series are treated
as an Equity Interest for such purposes, the acquisition or holding of such
Notes by or on behalf of a Plan could be considered to give rise to a prohibited
transaction if the applicable Trust, Trustee, Indenture Trustee, any holder of
the Certificates of such series or any of their respective affiliates, is or
becomes a Party in Interest or a Disqualified Person with respect to
59
<PAGE> 122
such Plan. In such case, certain exemptions from the prohibited transaction
rules could be applicable depending on the type and circumstances of the Plan
fiduciary making the decision to acquire a Note. Included among these exemptions
are PTCE 90-1, which exempts certain transactions involving insurance company
pooled separate accounts; PTCE 95-60, which exempts certain transactions
involving insurance company general accounts; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; PTCE 96-23, which
exempts certain transactions effected on behalf of a Plan by an "in house" asset
manager; and PTCE 84-14, which exempts certain transactions effected on behalf
of a Plan by a "qualified professional asset manager." It should be noted,
however, that even if the conditions specified in one or more of these
exemptions are met, the scope of relief provided by these exemptions may not
necessarily cover all acts that might be construed as prohibited transactions.
The Certificates. Because the Certificates issued by a Trust that also
issues Notes will most likely be treated as Equity Interests under the Plan
Assets Regulation, such Certificates may not be acquired by (i) an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to Title I of
ERISA, (ii) a plan described in Section 4975(e)(1) of the Code that is subject
to Section 4975 of the Code, (iii) a governmental plan, as defined in Section
3(32) of ERISA, subject to any federal, state or local law which is, to a
material extent, similar to the provisions of Section 406 of ERISA or Section
4975 of the Code, (iv) an entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (within the meaning of the Plan
Assets Regulation), or (v) a person investing "plan assets" of any such plan
(including without limitation, for purposes of this clause (v), as applicable,
an insurance company general account, but excluding any entity registered under
the Investment Company Act of 1940, as amended) (each, a "Plan Investor").
In addition, investors other than Plan Investors should be aware that a
prohibited transaction could be deemed to occur if any holder of the
Certificates or any of their respective affiliates, is or becomes a Party in
Interest or a Disqualified Person with respect to any Plan that purchases and
holds the related Notes without being covered by one or more of the exemptions
described above in "The Notes."
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
The Small Business Job Protection Act of 1996 added new Section 401(c) of
ERISA relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. Pursuant to Section 401(c), the
Department of Labor is required to issue final regulations (the "General Account
Regulations") not later than December 31, 1997 with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code. Section 401(c) also provides that, except in the case of avoidance of
the General Account Regulations and actions brought by the Secretary of Labor
relating to certain breaches of fiduciary duties that also constitute breaches
of state or federal criminal law, until the date that is 18 months after the
General Account Regulations become final, no liability under the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Code may result on the basis of a claim that the assets of the general
account of an insurance company constitute the assets of any Plan. The plan
asset status of insurance company separate accounts is unaffected by new Section
401(c) of ERISA, and separate account assets continue to be treated as the plan
assets of any Plan invested in a separate account. Plan investors considering
the purchase of Securities on behalf of an insurance company general account
should consult their legal advisors regarding the effect of the General Account
Regulations on such purchase.
GENERAL INVESTMENT CONSIDERATIONS
Prospective investors who are Plan Investors should consult with their
legal advisors concerning the impact of ERISA and the Code and the potential
consequences of making an investment in
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any Securities of a series with respect to such investors' specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment; the composition of the Plan's portfolio with respect to
diversification by type of asset; the Plan's funding objectives; the tax effects
of the investment; and whether under the general fiduciary standards of
investment procedure and diversification an investment in any Securities of a
series is appropriate for the Plan, taking into account the overall investment
policy of the Plan and the composition of the Plan's investment portfolio.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given series and an underwriting agreement
with respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates or (ii)
specify that the related Notes and Certificates, as the case may be, are to be
resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, such public offering prices and such concessions
may be changed.
The Seller and Ford Credit will indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act, or contribute
to payments the several underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Permitted Investments acquired from such underwriters or from the Seller.
Pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to such
Underwriting Agreement will be conditioned on the closing of the sale of all
other such classes of Securities of that series.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller and the Servicer by J.D. Bringard,
Esq., Vice President -- General Counsel of the Servicer. Certain Michigan state
tax and other matters will be passed upon for each Trust by J.D. Bringard, Esq.,
Vice President -- General Counsel of the Servicer. Mr. Bringard is a full-time
employee of Ford Credit and owns and holds options to purchase shares of Common
Stock of Ford.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Actuarial Receivables....................................... 18
Administration Agreement.................................... 51
Administration Fee.......................................... 51
Administrator............................................... 51
Advance..................................................... 8, 44
Applicable Trustee.......................................... 35
APR......................................................... 9
Base Rate................................................... 30
Basic Documents............................................. 27
Book-Entry Certificates..................................... 34
Book-Entry Notes............................................ 34
Book-Entry Securities....................................... 34
Calculation Agent........................................... 31
Calculation Date............................................ 31, 32, 33, 34
CD Rate..................................................... 31
CD Rate Determination Date.................................. 31
CD Rate Security............................................ 30
Cede........................................................ 16
Cedel....................................................... 34
Cedel Participants.......................................... 36
Certificate Balance......................................... 5
Certificate Distribution Account............................ 41
Certificateholders.......................................... 16, 35
Certificate Owner........................................... 5
Certificate Pool Factor..................................... 21
Certificate Rate............................................ 5
Certificates................................................ 1
Closing Date................................................ 6
Code........................................................ 11, 55
Collection Account.......................................... 41
Collection Period........................................... 43
Commercial Paper Rate....................................... 31
Commercial Paper Rate Determination Date.................... 31
Commercial Paper Rate Security.............................. 30
Commission.................................................. 2
Composite Quotations........................................ 30
Cutoff Date................................................. 16
Dealer Agreements........................................... 16
Dealer Recourse............................................. 16
Dealers..................................................... 7, 16
Definitive Certificates..................................... 37
Definitive Notes............................................ 37
Definitive Securities....................................... 37
Depositaries................................................ 34
Depository.................................................. 24
Determination Date.......................................... 45
Disqualified Persons........................................ 56
</TABLE>
62
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distribution Date........................................... 29
DOL......................................................... 57
DTC......................................................... 16
DTC's Nominee............................................... 16, 34
Eligible Deposit Account.................................... 42
Eligible Institution........................................ 42
Equity Interest............................................. 57
ERISA....................................................... 11
Euroclear................................................... 36
Euroclear Operator.......................................... 36
Euroclear Participants...................................... 36
Euroclear System............................................ 36
Events of Default........................................... 25
Events of Servicing Termination............................. 48
Exchange Act................................................ 2
Excluded Plan............................................... 58
Federal Funds Rate.......................................... 32
Federal Funds Rate Determination Date....................... 32
Federal Funds Rate Security................................. 30
Final Payment Receivables................................... 19
Final Payment Securities.................................... 50
Final Scheduled Maturity Date............................... 9
Financed Vehicles........................................... 6
Fixed Rate Securities....................................... 30
Floating Rate Securities.................................... 30
Ford........................................................ 14
Ford Credit................................................. 3
FTC Rule.................................................... 54
Funding Period.............................................. 4
General Account Regulations................................. 60
General Partner............................................. 12
H.15(519)................................................... 30
Indenture................................................... 3
Indenture Trustee........................................... 1
Index Maturity.............................................. 30
Indirect Participants....................................... 35
Initial Cutoff Date......................................... 6
Initial Pool Balance........................................ 51
Initial Receivables......................................... 6
Insolvency Event............................................ 48
Insolvency Laws............................................. 12
Interest Reset Date......................................... 30
Interest Reset Period....................................... 30
Investment Earnings......................................... 42
IRS......................................................... 55
Issuer...................................................... 3
LIBOR....................................................... 33
LIBOR Determination Date.................................... 33
LIBOR Security.............................................. 30
London Banking Day.......................................... 33
Michigan Tax Counsel........................................ 11
Money Market Yield.......................................... 32
</TABLE>
63
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MSRP........................................................ 18
Noteholders................................................. 16, 35
Note Interest Rate.......................................... 3
Note Owner.................................................. 3
Note Payment Account........................................ 41
Note Pool Factor............................................ 21
Notes....................................................... 1
Obligors.................................................... 16
Participants................................................ 24, 35
Parties in Interest......................................... 56
Payahead Account............................................ 41
Payahead Balance............................................ 43
Payaheads................................................... 41
Permitted Investments....................................... 42
Plan........................................................ 56
Plan Assets Regulation...................................... 56
Plan Investor............................................... 60
Pool Balance................................................ 21
Pooling and Servicing Agreement............................. 3
Precomputed Advance......................................... 8
Precomputed Receivables..................................... 18
Pre-Funded Amount........................................... 6
Pre-Funding Account......................................... 1, 4
Prospectus Supplement....................................... 1
PTCE........................................................ 59
Purchase Agreement.......................................... 7, 39
Purchase Amount............................................. 40
Rating Agencies............................................. 25
Receivables................................................. 1, 6
Receivables Pool............................................ 16
Registration Statement...................................... 2
Reserve Account............................................. 46
Restricted Group............................................ 57
Reuters Screen LIBO Page.................................... 33
Rule of 78's Receivables.................................... 18
Rules....................................................... 35
Sale and Servicing Agreement................................ 6
Securities.................................................. 1
Securities Act.............................................. 2
Securityholders............................................. 16
Seller...................................................... 1, 3
Senior Certificates......................................... 57
Servicer.................................................... 1, 3
Servicer Fee................................................ 44
Servicing Fee............................................... 44
Servicing Fee Rate.......................................... 44
Simple Interest Advance..................................... 8
Simple Interest Receivables................................. 19
Special Tax Counsel......................................... 11, 55
Spread...................................................... 30
Spread Multiplier........................................... 30
Strip Certificates.......................................... 5
</TABLE>
64
<PAGE> 127
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Strip Notes................................................. 4
Subordinated Certificates................................... 59
Subsequent Receivables...................................... 1, 6
Subsequent Transfer Date.................................... 40
Supplemental Servicing Fee.................................. 44
Terms and Conditions........................................ 37
Transfer and Servicing Agreements........................... 39
Treasury bills.............................................. 33
Treasury Rate............................................... 33
Treasury Rate Determination Date............................ 34
Treasury Rate Security...................................... 30
Trust....................................................... 1, 3
Trust Accounts.............................................. 42
Trust Agreement............................................. 3
Trustee..................................................... 1
UCC......................................................... 51
Underwriters' Exemption..................................... 57
Underwriting Agreements..................................... 61
</TABLE>
65
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=========================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY
THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE SELLER, THE TRUST OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THE
PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR THE SERVICER OR ANY AFFILIATE
THEREOF OR THE RECEIVABLES SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO 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 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Securityholders..................... S-3
Summary........................................ S-5
Risk Factors................................... S-19
The Trust...................................... S-22
The Receivables Pool........................... S-22
Pool Factors................................... S-30
Maturity and Prepayment Considerations......... S-30
Description of the Notes....................... S-31
Description of the Certificates................ S-33
Description of the Transfer and Servicing
Agreements................................... S-35
Certain Federal Income Tax Consequences........ S-42
Certain State Tax Consequences................. S-51
Legal Investment............................... S-52
ERISA Considerations........................... S-52
Underwriting................................... S-53
Legal Opinions................................. S-55
Index of Terms................................. S-56
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures..................... I-1
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Summary........................................ 3
Risk Factors................................... 12
The Trusts..................................... 16
The Receivables Pools.......................... 18
Maturity and Prepayment Considerations......... 20
Pool Factors and Trading Information........... 21
Use of Proceeds................................ 21
The Seller and the General Partner............. 22
The Servicer................................... 23
Description of the Notes....................... 23
Description of the Certificates................ 28
Certain Information Regarding the Securities... 30
Description of the Transfer and Servicing
Agreements................................... 39
Certain Legal Aspects of the Receivables....... 51
Certain Federal Income Tax Consequences........ 55
ERISA Considerations........................... 56
Plan of Distribution........................... 61
Legal Opinions................................. 61
Index of Terms................................. 62
</TABLE>
UNTIL JANUARY 22, 1998 (NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=========================================================
=========================================================
$1,700,006,978.96
FORD CREDIT
AUTO OWNER TRUST
1997-B
$490,000,000.00
CLASS A-1
5.748% ASSET BACKED NOTES
$388,000,000.00
CLASS A-2
5.95% ASSET BACKED NOTES
$514,000,000.00
CLASS A-3
6.05% ASSET BACKED NOTES
$189,004,978.96
CLASS A-4
6.15% ASSET BACKED NOTES
$93,501,000.00
CLASS B
6.40% ASSET BACKED NOTES
$25,501,000.00
6.65% ASSET BACKED CERTIFICATES
FORD CREDIT AUTO
RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
FORD FINANCIAL SERVICES, INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SALOMON BROTHERS INC
=========================================================
