<PAGE> 1
Pursuant to Rule 424(b)(2)
Registration No. 333-40421
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED JULY 16, 1998
$2,300,000,000
FORD CREDIT AUTO OWNER TRUST 1998-C
$300,000,000 CLASS A-1 5.608% ASSET BACKED NOTES
$300,000,000 CLASS A-2 5.670% ASSET BACKED NOTES
$650,000,000 CLASS A-3 5.73% ASSET BACKED NOTES
$712,000,000 CLASS A-4 5.81% ASSET BACKED NOTES
$200,000,000 CLASS A-5 5.86% ASSET BACKED NOTES
$92,000,000 CLASS B 6.06% ASSET BACKED NOTES
$46,000,000 CLASS C 6.30% ASSET BACKED CERTIFICATES
[FORD LOGO]
FORD CREDIT AUTO RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
------------------
Ford Credit Auto Owner Trust 1998-C (the "Trust") will be governed by an
Amended and Restated Trust Agreement, to be dated as of July 1, 1998, between
Ford Credit Auto Receivables Two L.P. (the "Seller") and PNC Bank, Delaware, as
Owner
(continued on following page)
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE S-20 HEREIN AND ON PAGE 13 OF THE
ACCOMPANYING PROSPECTUS.
------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CLASS C 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 100.0000000% 0.100% 99.9000000%
- -------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Note 100.0000000% 0.100% 99.9000000%
- -------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Note 99.9972982% 0.175% 99.8222982%
- -------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Note 99.9815031% 0.210% 99.7715031%
- -------------------------------------------------------------------------------------------------------------------------
Per Class B Note 99.9942760% 0.350% 99.6442760%
- -------------------------------------------------------------------------------------------------------------------------
Per Class C Certificate 99.9710374% 0.350% 99.6210374%
- -------------------------------------------------------------------------------------------------------------------------
Total $2,099,832,151.50 $3,715,700.00 $2,096,116,451.50
=========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from July 29, 1998.
(2) Before deducting expenses payable by the Seller estimated to be
$1,000,000.
------------------
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
and the Class A-2 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-5 Notes, and the Class C 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 and the Class B 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 C Certificates will be ready
for delivery in fully registered, certificated form in New York, New York, in
each case on or about July 29, 1998 against payment therefor in immediately
available funds.
Salomon Brothers Inc and Ford Financial Services, Inc. will be the
underwriters of the Class A-1 Notes and the Class A-2 Notes. Salomon Brothers
Inc and J.P. Morgan Securities Inc. will be the co-managers of a syndicate of
underwriters that will underwrite the Class A-3 Notes and the Class A-4 Notes.
The Class A-5 Notes will be purchased by Ford Motor Credit Company from the
Seller. Salomon Brothers Inc and J.P. Morgan Securities Inc. will be the
underwriters of the Class B Notes and the Class C Certificates.
------------------
SALOMON SMITH BARNEY J.P. MORGAN & CO.
CHASE SECURITIES INC.
FORD FINANCIAL SERVICES, INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
------------------
July 20, 1998
<PAGE> 2
(CONTINUED FROM PREVIOUS PAGE)
Trustee. The Trust will issue $300,000,000 aggregate initial principal amount of
Class A-1 5.608% Asset Backed Notes (the "Class A-1 Notes"), $300,000,000
aggregate initial principal amount of Class A-2 5.670% Asset Backed Notes (the
"Class A-2 Notes"), $650,000,000 aggregate initial principal amount of Class A-3
5.73% Asset Backed Notes (the "Class A-3 Notes"), $712,000,000 aggregate initial
principal amount of Class A-4 5.81% Asset Backed Notes (the "Class A-4 Notes"),
$200,000,000 aggregate initial principal amount of Class A-5 5.86% Asset Backed
Notes (the "Class A-5 Notes" and, together with the Class A-1 Notes, the Class
A-2 Notes, the Class A-3 Notes and the Class A-4 Notes, the "Class A Notes") and
$92,000,000 aggregate initial principal amount of Class B 6.06% 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 July 1, 1998, between the Trust and
The Chase Manhattan Bank, as Indenture Trustee. The Trust will also issue
$46,000,000 aggregate initial principal balance of Class C 6.30% Asset Backed
Certificates (the "Class C Certificates") and $46,000,000 aggregate initial
principal balance of Class D 7.70% Asset Backed Certificates (the "Class D
Certificates" and, together with the Class C Certificates, the "Certificates"
and, together with the Notes, the "Securities"). The Class D Certificates are
not being offered hereby. 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 August 15, 1998. 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, (iv) on the Class A-5 Notes until the Class
A-4 Notes have been paid in full or (v) on the Class B Notes until the Class A-5
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.
Following the occurrence of an Event of Default relating to default in the
payment of principal or default for five days or more in the payment of interest
on any Note 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"), no distributions of principal or interest on the Class B Notes will
be made until payment in full of principal and interest on the Class A Notes.
Following the occurrence of any other Event of Default which has resulted in an
acceleration of the Notes, interest on the Class A Notes and the Class B Notes
must be paid in full on each Distribution Date prior to the distribution of
principal on the Class A Notes.
The Certificates will represent fractional undivided interests in the
Trust. Interest on the Class C Certificates, to the extent of the Certificate
Rate specified above, and interest on the Class D Certificates, to the extent of
the Certificate Rate specified herein, 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. No distributions of principal will be made on the Class
D Certificates until the Certificate Balance of the Class C Certificates has
been reduced to
S-2
<PAGE> 3
zero. 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, no
distributions of principal and interest on the Certificates will be made until
payment in full of principal and interest on the Notes.
The Class A-1 Notes will be payable in full on the January 1999
Distribution Date, the Class A-2 Notes will be payable in full on the June 1999
Distribution Date, the Class A-3 Notes will be payable in full on the November
2000 Distribution Date, the Class A-4 Notes will be payable in full on the March
2002 Distribution Date, the Class A-5 Notes will be payable in full on the
October 2002 Distribution Date and the Class B Notes will be payable in full on
the February 2003 Distribution Date. The final scheduled Distribution Date with
respect to the Class C Certificates will be the April 2003 Distribution Date.
However, payment in full of a class of Notes or of the Class C Certificates
could occur earlier or later than such dates as described herein. In addition,
the Class A-5 Notes and the Class B Notes will be subject to redemption in
whole, but not in part, and the Class C 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 OFFERED NOTES AND THE CLASS C 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 CLASS C 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
CLASS C CERTIFICATES, INCLUDING PURCHASES OF THE NOTES OR THE CLASS C
CERTIFICATES TO STABILIZE THE MARKET PRICE THEREOF, PURCHASES OF THE NOTES OR
THE CLASS C CERTIFICATES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES
OR THE CLASS C CERTIFICATES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. SEE "UNDERWRITING" HEREIN.
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 Notes unless and until such Notes are issued as Definitive 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 Class C 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
<PAGE> 4
(This page intentionally left blank)
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 1998-C (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 July 1, 1998, 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 July 1, 1998 (as amended and
supplemented from time to time, the
"Indenture"), between the Issuer and the
Indenture Trustee, as follows: (1) Class A-1
5.608% Asset Backed Notes (the "Class A-1
Notes") in the aggregate initial principal
amount of $300,000,000; (2) Class A-2 5.670%
Asset Backed Notes (the "Class A-2 Notes") in
the aggregate initial principal amount of
$300,000,000; (3) Class A-3 5.73% Asset
Backed Notes (the "Class A-3 Notes") in the
aggregate initial principal amount of
$650,000,000; (4) Class A-4 5.81% Asset
Backed Notes (the "Class A-4 Notes") in the
aggregate initial principal amount of
$712,000,000; (5) Class A-5 5.86% Asset
Backed Notes (the "Class A-5 Notes") in the
aggregate principal amount of $200,000,000;
and (6) Class B 6.06% Asset Backed Notes (the
"Class B Notes") in the aggregate initial
principal amount of $92,000,000. The Class
A-1 Notes, the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes and the Class A-5
Notes are referred to herein collectively as
the "Class A Notes."
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.
S-5
<PAGE> 6
The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
The Notes will be available for purchase in
book entry form only in minimum denominations
of $1,000 and integral multiples thereof. 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. See "Certain Information Regarding
the Securities -- Definitive Securities" in
the Prospectus.
THE CLASS C CERTIFICATES...... The Trust will issue Asset Backed Certificates
(the "Certificates" and, together with the
Notes, the "Securities") pursuant to the
Trust Agreement as follows: (1) Class C 6.30%
Asset Backed Certificates (the "Class C
Certificates") with an aggregate initial
Certificate Balance of $46,000,000; and (2)
Class D 7.70% Asset Backed Certificates (the
"Class D Certificates") with an aggregate
initial Certificate Balance of $46,000,000.
The Certificates will represent fractional
undivided interests in the Trust. The Class D
Certificates are not being offered hereby.
The Class C Certificates will be available for
purchase in minimum denominations of $20,000
and integral multiples of $1,000 in excess
thereof. The Class C Certificates will be
issued in fully registered, certificated form
("Definitive Certificates") to Class C
Certificateholders or their nominees. See
"Certain Information Regarding the Securities
-- Definitive Securities" in the Prospectus.
Purchasers of Class C 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 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 C
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.
The rights of the holders of the Class D
Certificates (the "Class D
Certificateholders") to receive distributions
with respect to the Class D Certificates will
be subordinated to the rights of the holders
of the Class C Certificates (the "Class C
Certificateholders") to receive distributions
with respect to the Class C Certificates to
the extent described herein.
THE TRUST PROPERTY............ The property of the Trust will include (i) the
Receivables; (ii) with respect to Precomputed
Receivables, all monies
S-6
<PAGE> 7
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 July 29, 1998 (the "Closing Date"), the
Trust will acquire Receivables (the
"Receivables") having an aggregate principal
balance of $2,300,021,862.20 as of July 1,
1998 (the "Cutoff Date") from the Seller
pursuant to a Sale and Servicing Agreement to
be dated as of July 1, 1998 (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 11.10%, the weighted average
remaining term of the Receivables was
approximately 48.6 months and the weighted
average original term of the Receivables was
approximately 56.3 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 December 31, 2003 (the "Final Scheduled
Maturity Date").
The "Pool Balance" at any time will represent
the aggregate principal balance of the
Receivables at the end of the
S-7
<PAGE> 8
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
August 15, 1998. 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 Notes (other than the Class B
Notes) is the day immediately preceding such
Distribution Date or, if such Notes are
issued as Definitive Notes, the last day of
the preceding month, and with respect to 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 5.608% per annum (the "Class A-1
Rate"), the Class A-2 Notes will bear
interest at the rate of 5.670% per annum (the
"Class A-2 Rate"), the Class A-3 Notes will
bear interest at the rate of 5.73% per annum
(the "Class A-3 Rate"), the Class A-4 Notes
will bear interest at the rate of 5.81% per
annum (the "Class A-4 Rate"), the Class A-5
Notes will bear interest at the rate of 5.86%
per annum (the "Class A-5 Rate") and the
Class B Notes will bear interest at the rate
of 6.06% 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 and
the Class A-2 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 and the Class A-2 Notes, from
and including the Closing Date (in the case
of the first Distribution Date) or from and
including the fifteenth
S-8
<PAGE> 9
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 and the Class
A-2 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 and the Class A-2 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,
if any, 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, no distributions of
principal and interest on the Class B Notes
will be made until 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
any. 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"), the holders of the Class
A-4 Notes (the "Class A-4 Noteholders") and
the holders of the Class A-5 Notes (the
"Class A-5 Noteholders") 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
Principal Distribution
S-9
<PAGE> 10
Amount for such Distribution Date generally
to the extent of funds available therefor
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 respective components of the Principal
Distribution Amount, consisting of the First
Priority Principal Distribution Amount, the
Second Priority Principal Distribution Amount
and the Regular Principal Distribution
Amount, will be paid on each Distribution
Date to the extent that funds are available
therefor following payment in full of all
amounts ranking senior to such component in
accordance with the priorities described in
"Description of the Transfer and Servicing
Agreements -- Distributions" herein.
The "Principal Distribution Amount" with
respect to any Distribution Date will equal
the sum of the First Priority Principal
Distribution Amount, the Second Priority
Principal Distribution Amount and the Regular
Principal Distribution Amount.
The "First Priority Principal Distribution
Amount" with respect to any Distribution Date
will generally equal the excess, if any, of
(a) 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 the
Class A Notes on such preceding Distribution
Date) over (b) the Pool Balance at the end of
the Collection Period preceding the current
Distribution Date.
The "Second Priority Principal Distribution
Amount" with respect to any Distribution Date
will generally equal the difference between
(i) the excess, if any, of (a) the aggregate
outstanding principal amount of the Notes as
of the preceding Distribution Date (after
giving effect to any principal payments made
on the Notes on such preceding Distribution
Date) over (b) the Pool Balance at the end of
the Collection Period preceding the current
Distribution Date, minus (ii) the First
Priority Principal Distribution Amount, if
any, with respect to the current Distribution
Date.
The "Regular Principal Distribution Amount"
with respect to any Distribution Date will
generally equal the difference between (i)
the greater of (1) the aggregate outstanding
principal amount of the Class A-1 Notes and
the Class A-2 Notes as of the preceding
Distribution Date (after giving effect to any
principal payments made on the Class A-1
Notes and the Class A-2 Notes on such
preceding Distribution Date) and (2) the
excess, if any, of (a) the sum of the
aggregate outstanding principal amount of all
the Notes and the aggregate Certificate
Balance of all the Certificates as of the
preceding Distribution Date (after giving
effect to any principal payments made on the
Securities on such
S-10
<PAGE> 11
preceding Distribution Date) over (b) the
difference between (x) the Pool Balance at
the end of the Collection Period preceding
the current Distribution Date minus (y) the
Specified Overcollateralization Amount with
respect to the current 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 the
current 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
greatest of (i) $11,500,109, (ii) 1.00% of
the Pool Balance at the end of the Collection
Period preceding such Distribution Date or
(iii) the aggregate principal balance of the
Receivables that are delinquent 91 days or
more and are not Liquidated Receivables at
the end of the Collection Period preceding
such Distribution Date; provided, however,
that the Specified Credit Enhancement Amount
with respect to any Distribution Date shall
not exceed the sum of the aggregate
outstanding principal amount of all the Notes
and the aggregate Certificate Balance of all
the Certificates as of the preceding
Distribution Date (after giving effect to any
principal payments made on the Securities on
such preceding Distribution Date).
The "Specified Reserve Balance" means
$11,500,109; provided, however, that the
Specified Reserve Balance with respect to any
Distribution Date shall not exceed the sum of
the aggregate outstanding principal amount of
all the Notes and the aggregate Certificate
Balance of all the Certificates as of the
preceding Distribution Date (after giving
effect to any principal payments made on the
Securities on such preceding Distribution
Date).
A "Collection Period" means, with respect to
the first Distribution Date, the calendar
month ending on July 31, 1998, 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 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
S-11
<PAGE> 12
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 January 1999
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 June 1999 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 November 2000 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 March 2002 Distribution Date
(the "Class A-4 Final Scheduled Distribution
Date"), the outstanding principal amount of
the Class A-5 Notes, to the extent not
previously paid, will be payable on the
October 2002 Distribution Date (the "Class
A-5 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 February 2003
Distribution Date (the "Class B Final
Scheduled Distribution Date").
E. OPTIONAL REDEMPTION........ The Class A-5 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.
F. 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; Rights upon Event of
Default" and "Description of the Transfer and
Servicing Agreements -- Rights Upon Event
S-12
<PAGE> 13
of Servicing Termination" and "-- Waiver of
Past Events of Servicing Termination" herein.
TERMS OF THE CLASS C
CERTIFICATES............... The principal terms of the Class C 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, the "Record Date" with
respect to the Certificates is the last day
of the month preceding the Distribution Date.
B. CERTIFICATE RATES.......... Interest will be distributed on the Class C
Certificates at the rate of 6.30% per annum
(the "Class C Rate") and interest will be
distributed on the Class D Certificates at
the rate of 7.70% per annum (the "Class D
Rate"). The rates at which interest will be
distributed on the various classes of
Certificates are referred to herein
collectively as the "Certificate Rates."
C. INTEREST................... On each Distribution Date, the Owner Trustee
will distribute pro rata to
Certificateholders of each class of
Certificates accrued interest at the
applicable Certificate Rates on the
outstanding Certificate Balance of each class
of Certificates 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, if any, (iv)
the interest due on the Class B Notes, (v)
the Second Priority Principal Distribution
Amount, if any, and (vi) in the case of the
Class D Certificates, the interest due on the
Class C Certificates, 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,
no distributions of principal and interest on
the Certificates will be made until payment
in full of principal and interest on the
Notes.
S-13
<PAGE> 14
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 Principal
Distribution Amount for such Distribution
Date generally to the extent of funds
available therefor 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 respective components
of the Principal Distribution Amount,
consisting of the First Priority Principal
Distribution Amount, the Second Priority
Principal Distribution Amount and the Regular
Principal Distribution Amount, will be paid
on each Distribution Date to the extent that
funds are available therefor following
payment in full of all amounts ranking senior
to such component in accordance with the
priorities described in "Description of the
Transfer and Servicing Agreements --
Distributions" herein.
Distributions of principal on the Certificates
will be made on each Distribution Date in the
amounts and subject to the priorities
described in "Description of the Certificates
-- Distributions of Principal Payments"
herein.
The outstanding Certificate Balance, if any, of
the Class C Certificates will be payable in
full on the April 2003 Distribution Date (the
"Class C Final Scheduled Distribution Date")
and the outstanding Certificate Balance, if
any, of the Class D Certificates will be
payable in full on the January 2004
Distribution Date (the "Class D 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 each class of the Certificates
equal to the Certificate Balance thereof
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 $11,500,109 (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
S-14
<PAGE> 15
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, if
any, the interest due on the Class B Notes,
the Second Priority Principal Distribution
Amount, if any, the interest due on the Class
C Certificates and the interest due on the
Class D 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 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 either class
of 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 such class of
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 such class of Certificates in full.
Such funds will be deposited in the
Collection Account and used to pay such class
of Notes or such class of 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
S-15
<PAGE> 16
Class A Notes, the First Priority Principal
Distribution Amount, if any, the interest due
on the Class B Notes, the Second Priority
Principal Distribution Amount, if any, the
interest due on the Class C Certificates and
the interest due on the Class D 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 the Class A Noteholders,
(iii) the First Priority Principal
Distribution Amount, if any, 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, if any, into the
Principal Distribution Account,
(vi) the interest due on the Class C
Certificates into the Certificate
Interest Distribution Account,
(vii) the interest due on the Class D
Certificates into the Certificate
Interest Distribution Account,
(viii) the amount, if any, required to be
deposited into the Reserve Account to
the Reserve Account,
(ix) the Regular Principal Distribution
Amount into the Principal Distribution
Account, and
(x) the remaining balance, if any, to the
Seller;
provided, however, that on each Distribution
Date (x) following the occurrence of an
Event of Default relating to default in the
payment of principal or default for five
days or more in the payment of interest on
any Note 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, principal and interest on the
S-16
<PAGE> 17
Class A Notes must be paid in full prior to
the distribution of any amounts on the Class
B Notes, (y) following the occurrence of any
other Event of Default which has resulted in
an acceleration of the Notes, interest on the
Class A Notes and the Class B Notes must be
paid in full prior to the distribution of
principal on the Class A Notes, and (z) in
the case of an event described in clause (x)
or (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, (iv) on the Class A-5 Notes until the
Class A-4 Notes have been paid in full or (v)
on the Class B Notes until the Class A-5
Notes have been paid in full. No
distributions of principal on the
Certificates will be made until all the Notes
have been paid in full. In addition, no
distributions of principal will be made on
the Class D Certificates until the
Certificate Balance of the Class C
Certificates has been reduced to zero. As the
rate of payment of principal of each class of
Notes and each class of 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 either class of 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 each class of 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 either class of
Certificates in full on or prior to the
respective Final Scheduled Distribution
Dates, final payment of such class
S-17
<PAGE> 18
of Notes and the final distribution in
respect of such class of 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...... Noteholders may elect to hold their 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
Hurley D. Smith, Esq., Secretary and
Corporate 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 each class of
Certificates at the applicable Certificate
Rate even though the Trust may not have
sufficient cash to make current cash
distributions of such amount. The Class C
Certificates may not be purchased by persons
who are not U.S. Persons. See "Certain
Federal Income Tax Consequences" herein and
in the Prospectus and "Certain State Tax
Consequences" herein for additional
information concerning the application of
federal income and Michigan tax laws,
respectively, to the Trust and the
Securities.
S-18
<PAGE> 19
ERISA CONSIDERATIONS.......... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the 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
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 C 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 C
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 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 and the Class A-2 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 OFFERED
NOTES......................... It is a condition to the issuance of the Notes
and of the Certificates that the Class A-1
Notes and the Class A-2 Notes be rated in the
highest short-term rating category, that the
Class A-3 Notes, the Class A-4 Notes and the
Class A-5 Notes be rated in the highest
long-term 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 CLASS C
CERTIFICATES............... It is a condition to the issuance of the Notes
and of the Certificates that the Class C
Certificates 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.
CUSIP NUMBERS................. Class A-1 Notes: 34527RBG7
Class A-2 Notes: 34527RBH5
Class A-3 Notes: 34527RBJ1
Class A-4 Notes: 34527RBK8
Class A-5 Notes: 34527RBL6
Class B Notes: 34527RBM4
Class C Certificates: 34527RBN2
S-19
<PAGE> 20
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Notes and the Class C
Certificates (collectively, the "Offered Securities"). Each Underwriter
currently intends to make a market in the Offered 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 of the Offered Securities with
liquidity of investment or that it will continue for the life of the Offered
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, the Class
A-5 Notes and the Class B Notes treated as a separate class of Notes for this
purpose, (ii) the Certificateholders (other than the Seller) of each class of
Certificates representing not less than a majority of the aggregate Certificate
Balance of such class of Certificates 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 A Noteholders, 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 the Class C Certificates
in full, the amount of principal returned to Class C Certificateholders will be
reduced, and the Class C Certificateholders will incur a loss on their
investment. See "Description of the Transfer and Servicing Agreements --
Insolvency Event or Dissolution" in the Prospectus.
S-20
<PAGE> 21
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, if any. 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 Class C
Certificates will be subordinated in priority of payment to interest on the
Notes and payment of the First Priority Principal Distribution Amount, if any,
and the Second Priority Principal Distribution Amount, if any. In addition, the
Class C 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. Following the occurrence of an Event of
Default relating to default in the payment of principal or default for five days
or more in the payment of interest on any Note 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, no distributions of principal
or interest on the Class B Notes will be made until payment in full of principal
and interest on the Class A Notes. Following the occurrence of any other Event
of Default which has resulted in an acceleration of the Notes, interest on the
Class A Notes and the Class B Notes must be paid on each Distribution Date prior
to the distribution of principal on the Class A Notes on such Distribution Date.
Following the occurrence of any Event of Default, principal of and interest on
the Notes must be paid in full prior to the distribution of any amounts to
Certificateholders.
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
aggregate Certificate Balance of the Certificates plus accrued interest. Because
neither interest nor principal is distributed to Class B Noteholders upon sale
of the Receivables following an Event of Default relating to a default in the
payment of principal or default for five days or more in the payment of interest
on any Note 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 addition, in
the case of an Event of Default not involving a default in the payment of
principal of or interest on any Note or not involving the occurrence of an
Insolvency Event or dissolution with respect to the Issuer, the Indenture
Trustee is prohibited from selling the Receivables unless either the holders of
all outstanding Certificates consent to such sale or the proceeds of such sale
are sufficient to pay in full the principal of and accrued interest on all of
the outstanding Notes and Certificates on the date of such sale and, in either
case, certain other conditions are satisfied. As a result, in the case of such a
non-payment and non-insolvency Event of Default, unless
S-21
<PAGE> 22
the proceeds of such a sale are sufficient to pay in full all principal of and
accrued interest on the Securities, the interests of holders of the Class A
Notes, the Class B Notes, the Class C Certificates and the Class D Certificates
may conflict and any Certificateholder could prevent such a sale by withholding
its consent. See "Description of the Notes -- The Indenture -- Events of
Default; Rights Upon Event of Default" herein and 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 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, (iv) on the Class
A-5 Notes until the Class A-4 Notes have been paid in full or (v) on the Class B
Notes until the Class A-5 Notes have been paid in full. No distributions of
principal on the Certificates will be made until all the Notes have been paid in
full. In addition, no distributions of principal will be made on the Class D
Certificates until the Certificate Balance of the Class C Certificates has been
reduced to zero. As the rate of payment of principal of each class of Notes and
each class of 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 either class of
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 each class of Certificates will
occur on or prior to the respective Final Scheduled Distribution Dates. However,
if sufficient
S-22
<PAGE> 23
funds are not available to pay any class of Notes or either class of
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 such class of Certificates could occur later than such dates. See
"Maturity and Prepayment Considerations" herein and in the Prospectus.
RATINGS OF THE OFFERED SECURITIES
It is a condition to the issuance of the Notes and of the Certificates that
the Class A-1 Notes and the Class A-2 Notes be rated in the highest short-term
rating category, that the Class A-3 Notes, the Class A-4 Notes and the Class A-5
Notes be rated in the highest long-term rating category, that the Class B Notes
be rated at least in the "A" category or its equivalent, and that the Class C
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 Offered Securities,
inasmuch as such rating does not comment as to market price or suitability for a
particular investor. The ratings of the Offered Securities address the
likelihood of the payment of principal and interest on the Offered 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.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where Obligors reside may affect the
delinquency, credit loss and repossession experience of the Trust with respect
to the Receivables. As of the Cutoff Date, Ford Credit's records indicate that
the billing addresses of Obligors with respect to 10.58%, 9.73%, 8.18%, 6.47%,
5.03% and 5.01% by principal balance of the Receivables were in Texas, Florida,
California, Michigan, Georgia and Illinois, respectively. Accordingly, adverse
economic conditions or other factors affecting such states in particular could
adversely affect the delinquency, credit loss or repossession experience of the
Trust. No other state, by billing addresses of Obligors, constituted more than
5% of the aggregate principal balance of the Receivables as of the Cutoff Date.
THE TRUST
GENERAL
The Issuer, Ford Credit Auto Owner Trust 1998-C, 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 Class A-5 Notes will be sold to Ford Credit and may be sold to
third party investors after the Closing Date. A portion of the Class D
Certificates will be sold to third party investors that are expected to be
unaffiliated with the Seller, the Servicer or their affiliates or the Trust. The
remaining portion of the Class D Certificates will initially be retained by the
Seller and may be sold to third party investors after the Closing Date. 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
S-23
<PAGE> 24
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............................................. $ 300,000,000
Class A-2 Notes............................................. 300,000,000
Class A-3 Notes............................................. 650,000,000
Class A-4 Notes............................................. 712,000,000
Class A-5 Notes............................................. 200,000,000
Class B Notes............................................... 92,000,000
Class C Certificates........................................ 46,000,000
Class D Certificates........................................ 46,000,000
--------------
Total....................................................... $2,346,000,000
==============
</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 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 April 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.
With respect to the expected prepayment experience of the Receivables Pool,
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.
S-24
<PAGE> 25
COMPOSITION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $2,300,021,862.20
Number of Receivables....................................... 169,256
Average Principal Balance................................... $13,589.01
(Range)................................................... $258.34 to $49,885.48
Average Original Amount Financed............................ $15,827.31
(Range)................................................... $700.00 to $71,404.80
Weighted Average APR........................................ 11.10%
(Range)................................................... 7.75% to 20.00%
Weighted Average Original Term.............................. 56.3 months
(Range)................................................... 6 months to 60 months
Weighted Average Remaining Term............................. 48.6 months
(Range)................................................... 1 month to 60 months
Scheduled Weighted Average Life(1).......................... 2.21 years
</TABLE>
- -------------------------
(1) From the Cutoff Date, assuming (i) payments on all Receivables are due on
the first day of the month, (ii) all payments on the Receivables are paid
when due, commencing one month from the Cutoff Date, and (iii) no
prepayments on the Receivables are made after the Cutoff Date.
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1) BALANCE
-------- -------------------
<S> <C>
Alabama(2).................. 0.00%
Alaska...................... 0.18
Arizona..................... 1.39
Arkansas.................... 1.57
California.................. 8.18
Colorado.................... 1.21
Connecticut................. 1.80
Delaware.................... 0.15
District of Columbia........ 0.14
Florida..................... 9.73
Georgia..................... 5.03
Hawaii...................... 0.20
Idaho....................... 0.11
Illinois.................... 5.01
Indiana..................... 1.80
Iowa........................ 0.51
Kansas...................... 1.36
Kentucky.................... 1.00
Louisiana................... 2.42
Maine....................... 0.41
Maryland.................... 2.66
Massachusetts............... 2.53
Michigan.................... 6.47
Minnesota................... 0.76
Mississippi................. 1.10
Missouri.................... 3.45
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1) BALANCE
-------- -------------------
<S> <C>
Montana..................... 0.16%
Nebraska.................... 0.19
Nevada...................... 0.57
New Hampshire............... 0.74
New Jersey.................. 3.10
New Mexico.................. 0.69
New York.................... 3.68
North Carolina.............. 3.72
North Dakota................ 0.12
Ohio........................ 3.12
Oklahoma.................... 1.22
Oregon...................... 2.02
Pennsylvania(2)............. 0.00
Rhode Island................ 0.20
South Carolina.............. 1.82
South Dakota................ 0.13
Tennessee................... 2.74
Texas....................... 10.58
Utah........................ 0.23
Vermont..................... 0.47
Virginia.................... 2.23
Washington.................. 1.21
West Virginia............... 0.50
Wisconsin................... 1.22
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-25
<PAGE> 26
DISTRIBUTION BY APR OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE RECEIVABLES BALANCE BALANCE(1)
--------- ----------- --------- -------------
<S> <C> <C> <C>
7.75% -- 8.00%.................................. 7,446 $ 115,844,598.89 5.04%
8.01 -- 8.50.................................... 15,092 209,686,329.70 9.12
8.51 -- 9.00.................................... 28,672 418,051,648.15 18.18
9.01 -- 9.50.................................... 11,305 156,445,633.88 6.80
9.51 -- 10.00................................... 23,448 336,907,806.60 14.65
10.01 -- 10.50.................................. 7,010 96,565,974.61 4.20
10.51 -- 11.00.................................. 11,240 155,634,605.15 6.77
11.01 -- 11.50.................................. 4,542 61,265,986.03 2.66
11.51 -- 12.00.................................. 9,676 134,600,105.94 5.85
12.01 -- 12.50.................................. 4,448 57,862,136.46 2.52
12.51 -- 13.00.................................. 7,038 90,702,499.61 3.94
13.01 -- 13.50.................................. 3,229 41,483,597.28 1.80
13.51 -- 14.00.................................. 5,467 67,029,414.44 2.91
14.01 -- 14.50.................................. 2,706 33,997,431.43 1.48
14.51 -- 15.00.................................. 4,491 53,164,203.16 2.31
15.01 -- 15.50.................................. 1,990 24,157,218.18 1.05
15.51 -- 16.00.................................. 3,182 36,508,247.28 1.59
16.01 -- 16.50.................................. 1,681 19,641,929.30 0.85
16.51 -- 17.00.................................. 3,026 35,522,836.25 1.54
17.01 -- 17.50.................................. 2,129 25,677,970.63 1.12
17.51 -- 18.00.................................. 4,785 58,951,521.62 2.56
18.01 -- 18.50.................................. 1,111 12,492,904.53 0.54
18.51 -- 19.00.................................. 2,296 24,647,184.16 1.07
19.01 -- 19.50.................................. 992 10,064,953.52 0.44
19.51 -- 20.00.................................. 2,254 23,115,125.40 1.00
------- ----------------- ------
Totals..................................... 169,256 $2,300,021,862.20 100.00%
======= ================= ======
</TABLE>
- -------------------------
(1) May not add to 100.00% due to rounding.
Approximately 69.8% of the aggregate principal balance of the Receivables,
constituting 62.2% 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 15.0% of the Receivables
constitute Precomputed Receivables and 85.0% 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 0.3% 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-26
<PAGE> 27
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 each class
of 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 either class of 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 and (v) the Servicer does not exercise its option to purchase the
Receivables. The pools have an assumed cutoff date of July 1, 1998. The ABS
Table indicates the projected weighted average life of each class of Notes and
the Class C Certificates and sets forth the percent of the initial principal
amount of each class of Notes and the percent of the initial Certificate Balance
of the Class C Certificates 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................................... $ 5,498,179.53 11.609% 23 18
2................................... 12,004,245.76 11.705% 23 21
3................................... 5,201,374.68 11.064% 24 11
4................................... 53,154,908.42 11.387% 36 34
5................................... 25,758,822.95 11.007% 36 30
6................................... 42,384,739.59 10.423% 36 20
7................................... 145,478,748.19 11.533% 47 46
8................................... 67,417,288.48 11.293% 47 42
9................................... 142,112,839.16 10.540% 48 31
10.................................. 789,538,017.27 11.367% 60 58
11.................................. 351,102,110.21 11.220% 60 55
12.................................. 660,370,587.96 10.746% 60 43
-----------------
$2,300,021,862.20
=================
</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 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
S-27
<PAGE> 28
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 Class C 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
8/15/98................... 78.00 73.69 68.90 65.72 100.00 100.00 100.00 100.00
9/15/98................... 57.83 49.39 40.00 33.77 100.00 100.00 100.00 100.00
10/15/98.................. 37.70 25.31 11.52 2.39 100.00 100.00 100.00 100.00
11/15/98.................. 17.67 1.51 0.00 0.00 100.00 100.00 83.52 71.62
12/15/98.................. 0.00 0.00 0.00 0.00 97.69 77.94 55.97 41.44
1/15/99................... 0.00 0.00 0.00 0.00 77.80 54.64 28.90 11.86
2/15/99................... 0.00 0.00 0.00 0.00 57.99 31.60 2.29 0.00
3/15/99................... 0.00 0.00 0.00 0.00 38.22 8.81 0.00 0.00
4/15/99................... 0.00 0.00 0.00 0.00 18.55 0.00 0.00 0.00
5/15/99................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6/15/99................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7/15/99................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8/15/99................... 0.00 0.00 0.00 0.00 0.00 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
7/15/02................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8/15/02................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9/15/02................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10/15/02.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
11/15/02.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
12/15/02.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9/15/03................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10/15/03.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life
(years)(1)............... 0.20 0.17 0.14 0.13 0.62 0.52 0.44 0.40
<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
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................... 100.00 100.00 100.00 100.00
2/15/99................... 100.00 100.00 100.00 92.70
3/15/99................... 100.00 100.00 90.68 80.68
4/15/99................... 100.00 96.51 79.88 68.90
5/15/99................... 100.00 87.30 69.27 57.37
6/15/99................... 95.61 78.18 58.85 46.10
7/15/99................... 87.76 69.23 48.69 35.13
8/15/99................... 79.93 60.38 38.71 24.43
9/15/99................... 72.11 51.62 28.94 13.98
10/15/99.................. 64.30 42.97 19.36 3.76
11/15/99.................. 56.51 34.42 9.98 0.00
12/15/99.................. 48.74 25.97 0.73 0.00
1/15/00................... 40.98 17.63 0.00 0.00
2/15/00................... 33.28 9.43 0.00 0.00
3/15/00................... 25.60 1.28 0.00 0.00
4/15/00................... 18.24 0.00 0.00 0.00
5/15/00................... 10.99 0.00 0.00 0.00
6/15/00................... 3.71 0.00 0.00 0.00
7/15/00................... 0.00 0.00 0.00 0.00
8/15/00................... 0.00 0.00 0.00 0.00
9/15/00................... 0.00 0.00 0.00 0.00
10/15/00.................. 0.00 0.00 0.00 0.00
11/15/00.................. 0.00 0.00 0.00 0.00
12/15/00.................. 0.00 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
7/15/02................... 0.00 0.00 0.00 0.00
8/15/02................... 0.00 0.00 0.00 0.00
9/15/02................... 0.00 0.00 0.00 0.00
10/15/02.................. 0.00 0.00 0.00 0.00
11/15/02.................. 0.00 0.00 0.00 0.00
12/15/02.................. 0.00 0.00 0.00 0.00
1/15/03................... 0.00 0.00 0.00 0.00
2/15/03................... 0.00 0.00 0.00 0.00
3/15/03................... 0.00 0.00 0.00 0.00
4/15/03................... 0.00 0.00 0.00 0.00
5/15/03................... 0.00 0.00 0.00 0.00
6/15/03................... 0.00 0.00 0.00 0.00
7/15/03................... 0.00 0.00 0.00 0.00
8/15/03................... 0.00 0.00 0.00 0.00
9/15/03................... 0.00 0.00 0.00 0.00
10/15/03.................. 0.00 0.00 0.00 0.00
Weighted Average Life
(years)(1)............... 1.41 1.19 1.00 0.90
</TABLE>
- -------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment on a Note by the number of years from the
date of the issuance of the Note to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the related initial
principal amount of the Note.
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
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-4 NOTES CLASS A-5 NOTES CLASS B NOTES
--------------------------------- --------------------------------- ---------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.8% 0.5% 1.0% 1.5% 1.8% 0.5% 1.0%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
8/15/98................ 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
10/15/98............... 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
12/15/98............... 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
2/15/99................ 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
4/15/99................ 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
6/15/99................ 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
8/15/99................ 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
10/15/99............... 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 94.29 100.00 100.00 100.00 100.00 100.00 100.00
12/15/99............... 100.00 100.00 100.00 85.40 100.00 100.00 100.00 100.00 100.00 100.00
1/15/00................ 100.00 100.00 92.40 76.77 100.00 100.00 100.00 100.00 100.00 100.00
2/15/00................ 100.00 100.00 84.37 68.43 100.00 100.00 100.00 100.00 100.00 100.00
3/15/00................ 100.00 100.00 76.52 60.35 100.00 100.00 100.00 100.00 100.00 100.00
4/15/00................ 100.00 94.06 69.07 52.68 100.00 100.00 100.00 100.00 100.00 100.00
5/15/00................ 100.00 87.12 61.87 45.32 100.00 100.00 100.00 100.00 100.00 100.00
6/15/00................ 100.00 80.27 54.86 38.22 100.00 100.00 100.00 100.00 100.00 100.00
7/15/00................ 96.74 73.53 48.05 31.37 100.00 100.00 100.00 100.00 100.00 100.00
8/15/00................ 90.10 66.88 41.43 24.79 100.00 100.00 100.00 100.00 100.00 100.00
9/15/00................ 83.48 60.34 35.01 18.47 100.00 100.00 100.00 100.00 100.00 100.00
10/15/00............... 76.87 53.91 28.79 12.42 100.00 100.00 100.00 100.00 100.00 100.00
11/15/00............... 70.28 47.58 22.79 6.64 100.00 100.00 100.00 100.00 100.00 100.00
12/15/00............... 63.72 41.36 16.99 1.14 100.00 100.00 100.00 100.00 100.00 100.00
1/15/01................ 57.17 35.25 11.40 0.00 100.00 100.00 100.00 85.49 100.00 100.00
2/15/01................ 50.75 29.34 6.09 0.00 100.00 100.00 100.00 68.11 100.00 100.00
3/15/01................ 44.97 24.00 1.26 0.00 100.00 100.00 100.00 52.19 100.00 100.00
4/15/01................ 39.20 18.75 0.00 0.00 100.00 100.00 87.99 37.15 100.00 100.00
5/15/01................ 33.45 13.61 0.00 0.00 100.00 100.00 72.16 23.02 100.00 100.00
6/15/01................ 27.93 8.73 0.00 0.00 100.00 100.00 57.45 10.12 100.00 100.00
7/15/01................ 22.42 3.95 0.00 0.00 100.00 100.00 43.42 0.00 100.00 100.00
8/15/01................ 16.94 0.00 0.00 0.00 100.00 97.43 30.09 0.00 100.00 100.00
9/15/01................ 11.47 0.00 0.00 0.00 100.00 81.15 17.45 0.00 100.00 100.00
10/15/01............... 6.03 0.00 0.00 0.00 100.00 65.25 5.52 0.00 100.00 100.00
11/15/01............... 0.60 0.00 0.00 0.00 100.00 49.71 0.00 0.00 100.00 100.00
12/15/01............... 0.00 0.00 0.00 0.00 82.89 34.57 0.00 0.00 100.00 100.00
1/15/02................ 0.00 0.00 0.00 0.00 63.72 19.81 0.00 0.00 100.00 100.00
2/15/02................ 0.00 0.00 0.00 0.00 45.38 5.98 0.00 0.00 100.00 100.00
3/15/02................ 0.00 0.00 0.00 0.00 34.17 0.00 0.00 0.00 100.00 93.26
4/15/02................ 0.00 0.00 0.00 0.00 23.00 0.00 0.00 0.00 100.00 73.96
5/15/02................ 0.00 0.00 0.00 0.00 11.87 0.00 0.00 0.00 100.00 55.12
6/15/02................ 0.00 0.00 0.00 0.00 2.27 0.00 0.00 0.00 100.00 38.98
7/15/02................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 84.16 23.25
8/15/02................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 63.46 7.92
9/15/02................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 42.85 0.00
10/15/02............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 22.31 0.00
11/15/02............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.86 0.00
12/15/02............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9/15/03................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10/15/03............... 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)............ 2.62 2.33 2.00 1.81 3.60 3.34 2.97 2.69 4.14 3.87
<CAPTION>
CLASS B NOTES
---------------
DISTRIBUTION DATE 1.5% 1.8%
----------------- ---- ----
<S> <C> <C>
Closing Date........... 100.00 100.00
8/15/98................ 100.00 100.00
9/15/98................ 100.00 100.00
10/15/98............... 100.00 100.00
11/15/98............... 100.00 100.00
12/15/98............... 100.00 100.00
1/15/99................ 100.00 100.00
2/15/99................ 100.00 100.00
3/15/99................ 100.00 100.00
4/15/99................ 100.00 100.00
5/15/99................ 100.00 100.00
6/15/99................ 100.00 100.00
7/15/99................ 100.00 100.00
8/15/99................ 100.00 100.00
9/15/99................ 100.00 100.00
10/15/99............... 100.00 100.00
11/15/99............... 100.00 100.00
12/15/99............... 100.00 100.00
1/15/00................ 100.00 100.00
2/15/00................ 100.00 100.00
3/15/00................ 100.00 100.00
4/15/00................ 100.00 100.00
5/15/00................ 100.00 100.00
6/15/00................ 100.00 100.00
7/15/00................ 100.00 100.00
8/15/00................ 100.00 100.00
9/15/00................ 100.00 100.00
10/15/00............... 100.00 100.00
11/15/00............... 100.00 100.00
12/15/00............... 100.00 100.00
1/15/01................ 100.00 100.00
2/15/01................ 100.00 100.00
3/15/01................ 100.00 100.00
4/15/01................ 100.00 100.00
5/15/01................ 100.00 100.00
6/15/01................ 100.00 100.00
7/15/01................ 100.00 95.92
8/15/01................ 100.00 71.82
9/15/01................ 100.00 49.72
10/15/01............... 100.00 30.57
11/15/01............... 87.64 13.89
12/15/01............... 64.87 0.00
1/15/02................ 43.71 0.00
2/15/02................ 24.83 0.00
3/15/02................ 9.85 0.00
4/15/02................ 0.00 0.00
5/15/02................ 0.00 0.00
6/15/02................ 0.00 0.00
7/15/02................ 0.00 0.00
8/15/02................ 0.00 0.00
9/15/02................ 0.00 0.00
10/15/02............... 0.00 0.00
11/15/02............... 0.00 0.00
12/15/02............... 0.00 0.00
1/15/03................ 0.00 0.00
2/15/03................ 0.00 0.00
3/15/03................ 0.00 0.00
4/15/03................ 0.00 0.00
5/15/03................ 0.00 0.00
6/15/03................ 0.00 0.00
7/15/03................ 0.00 0.00
8/15/03................ 0.00 0.00
9/15/03................ 0.00 0.00
10/15/03............... 0.00 0.00
Weighted Average Life
(years)(1)............ 3.49 3.18
</TABLE>
- -------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment on a Note by the number of years from the
date of the issuance of the Note to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the related initial
principal amount of the Note.
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-29
<PAGE> 30
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS C CERTIFICATES
-------------------------------------------
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
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..................................................... 100.00 100.00 100.00 100.00
2/15/99..................................................... 100.00 100.00 100.00 100.00
3/15/99..................................................... 100.00 100.00 100.00 100.00
4/15/99..................................................... 100.00 100.00 100.00 100.00
5/15/99..................................................... 100.00 100.00 100.00 100.00
6/15/99..................................................... 100.00 100.00 100.00 100.00
7/15/99..................................................... 100.00 100.00 100.00 100.00
8/15/99..................................................... 100.00 100.00 100.00 100.00
9/15/99..................................................... 100.00 100.00 100.00 100.00
10/15/99.................................................... 100.00 100.00 100.00 100.00
11/15/99.................................................... 100.00 100.00 100.00 100.00
12/15/99.................................................... 100.00 100.00 100.00 100.00
1/15/00..................................................... 100.00 100.00 100.00 100.00
2/15/00..................................................... 100.00 100.00 100.00 100.00
3/15/00..................................................... 100.00 100.00 100.00 100.00
4/15/00..................................................... 100.00 100.00 100.00 100.00
5/15/00..................................................... 100.00 100.00 100.00 100.00
6/15/00..................................................... 100.00 100.00 100.00 100.00
7/15/00..................................................... 100.00 100.00 100.00 100.00
8/15/00..................................................... 100.00 100.00 100.00 100.00
9/15/00..................................................... 100.00 100.00 100.00 100.00
10/15/00.................................................... 100.00 100.00 100.00 100.00
11/15/00.................................................... 100.00 100.00 100.00 100.00
12/15/00.................................................... 100.00 100.00 100.00 100.00
1/15/01..................................................... 100.00 100.00 100.00 100.00
2/15/01..................................................... 100.00 100.00 100.00 100.00
3/15/01..................................................... 100.00 100.00 100.00 100.00
4/15/01..................................................... 100.00 100.00 100.00 100.00
5/15/01..................................................... 100.00 100.00 100.00 100.00
6/15/01..................................................... 100.00 100.00 100.00 100.00
7/15/01..................................................... 100.00 100.00 100.00 100.00
8/15/01..................................................... 100.00 100.00 100.00 100.00
9/15/01..................................................... 100.00 100.00 100.00 100.00
10/15/01.................................................... 100.00 100.00 100.00 100.00
11/15/01.................................................... 100.00 100.00 100.00 100.00
12/15/01.................................................... 100.00 100.00 100.00 96.57
1/15/02..................................................... 100.00 100.00 100.00 67.53
2/15/02..................................................... 100.00 100.00 100.00 41.32
3/15/02..................................................... 100.00 100.00 100.00 17.20
4/15/02..................................................... 100.00 100.00 91.37 0.00
5/15/02..................................................... 100.00 100.00 64.71 0.00
6/15/02..................................................... 100.00 100.00 42.18 0.00
7/15/02..................................................... 100.00 100.00 21.12 0.00
8/15/02..................................................... 100.00 100.00 1.56 0.00
9/15/02..................................................... 100.00 86.03 0.00 0.00
10/15/02.................................................... 100.00 57.05 0.00 0.00
11/15/02.................................................... 100.00 28.94 0.00 0.00
12/15/02.................................................... 62.99 1.69 0.00 0.00
1/15/03..................................................... 22.44 0.00 0.00 0.00
2/15/03..................................................... 0.00 0.00 0.00 0.00
3/15/03..................................................... 0.00 0.00 0.00 0.00
4/15/03..................................................... 0.00 0.00 0.00 0.00
5/15/03..................................................... 0.00 0.00 0.00 0.00
6/15/03..................................................... 0.00 0.00 0.00 0.00
7/15/03..................................................... 0.00 0.00 0.00 0.00
8/15/03..................................................... 0.00 0.00 0.00 0.00
9/15/03..................................................... 0.00 0.00 0.00 0.00
10/15/03.................................................... 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)............................ 4.45 4.27 3.90 3.56
</TABLE>
- -------------------------
(1) 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-30
<PAGE> 31
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 general
upward trend in losses and delinquencies will not accelerate in the future.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Number of Contracts Outstanding
During the Period...................... 3,689,914 3,570,305 3,591,153 3,612,265 3,438,699 3,430,145 3,398,797
Average Daily Delinquencies as a Percent
of Average Contracts Outstanding
31-60 Days(2).......................... 2.84% 2.94% 2.85% 2.54% 2.21% 2.03% 2.02%
61-90 Days(2).......................... 0.34% 0.33% 0.32% 0.26% 0.17% 0.15% 0.15%
Over 90 Days(3)........................ 0.12% 0.11% 0.11% 0.08% 0.04% 0.03% 0.03%
</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>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Portfolio Outstanding During the Period
(Millions)
Gross............................................. $44,298 $39,953 $41,186 $40,269 $35,699 $33,703 $31,205
Net............................................... $37,681 $33,546 $34,715 $33,647 $30,015 $28,526 $26,152
Percent of Average Gross Portfolio Outstanding
During the Period without Recourse to Dealers... 99.6% 99.5% 99.5% 99.4% 99.1% 98.6% 97.7%
Repossessions as a Percent of Average Number of
Contracts Outstanding........................... 2.87% 3.25% 3.01% 3.01% 2.38% 2.15% 2.27%
Net Losses as a Percent of Gross
Liquidations(2)................................. 2.35% 2.36% 2.46% 2.21% 1.43% 1.06% 1.16%
Net Losses as a Percent of Average Gross Portfolio
Outstanding(2).................................. 1.27% 1.33% 1.38% 1.28% 0.82% 0.62% 0.69%
Net Losses as a Percent of Average Net Portfolio
Outstanding(2).................................. 1.49% 1.58% 1.64% 1.53% 0.98% 0.73% 0.82%
</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) "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. Net losses include
expenses associated with outside collection agencies but exclude other
expenses associated with collection, repossession, and disposition of the
vehicle. These other expenses are not material to the data presented.
As shown above, credit losses increased each year from 1995 through 1997,
reversing a general trend of improvement that had begun in 1989. The increase
reflected an increase in losses per repossession and an increase in repossession
rates. In 1998, credit losses have stabilized, and are not expected to increase
from 1997 levels. See "Description of the Transfer and Servicing Agreements --
Servicing Procedures" in the Prospectus.
S-31
<PAGE> 32
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 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 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 of the related class of Certificates
is the product of (a) the original denomination of such Certificateholder's
Certificate and (b) the applicable 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, (iv) on the Class A-5 Notes until the Class A-4 Notes have been
paid in full or (v) on the Class B Notes until the Class A-5 Notes have been
paid in full. No distributions of principal on the Certificates will be made
until all the Notes have been paid in full. In addition, no distributions of
principal will be made on the Class D Certificates until the Certificate Balance
of the Class C Certificates has been reduced to zero. 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 each class of 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
either class of 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 each class of 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 the remaining Certificate Balance of each class of
Certificates be paid in full on the respective Final Scheduled Distribution
Dates. However, no assurance can be given that sufficient funds will be
available to pay each class of Notes and each class of 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 either class of 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,
S-32
<PAGE> 33
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 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
August 15, 1998. Interest will accrue for the period (i) with respect to the
Class A-1 Notes and the Class A-2 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 and the Class A-2 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 and the Class A-2 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 and the Class A-2 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
S-33
<PAGE> 34
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, if any. 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, the Class A-4 Noteholders and the Class A-5 Noteholders 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, if any, 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 Principal Distribution Amount. The
respective components of the Principal Distribution Amount, consisting of the
First Priority Principal Distribution Amount, the Second Priority Principal
Distribution Amount and the Regular Principal Distribution Amount, will be paid
on each Distribution Date to the extent that funds are available therefor
following payment in full of all amounts ranking senior to such component in
accordance with the priorities described in "Description of the Transfer and
Servicing Agreements -- Distributions" herein. 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). Following the occurrence and during the continuation of an
Event of Default relating to default in the payment of principal or default for
five days or more in the payment of interest on any Note 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 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. Following the occurrence
of any other Event of Default which has resulted in an acceleration of the
Notes, interest on the Class A Notes and the Class B Notes must be paid on each
Distribution Date prior to the distribution of principal on the Class A Notes on
such Distribution Date. Following the occurrence of any Event of Default, 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; (v) to the principal amount of the
Class A-5 Notes until such principal amount is paid in full; and (vi) to the
principal
S-34
<PAGE> 35
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, the principal amount of the Class A-5 Notes, to the extent
not previously paid, will be due on the Class A-5 Final Scheduled Distribution
Date and the principal 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. Upon an Event of Default,
the Noteholders will have the rights set forth in the Prospectus under
"Description of the Notes -- The Indenture -- Events of Default; Rights Upon
Event of Default." The Indenture Trustee may sell the Receivables subject to
certain conditions set forth in the Indenture following an Event of Default,
including (i) 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 or (ii) an Insolvency
Event or dissolution with respect to the Issuer. In the case of an Event of
Default not involving any such default in payment or the occurrence of any
Insolvency Event with respect to the Issuer, the Indenture Trustee is prohibited
from selling the Receivables unless one of the conditions set forth in the
Prospectus under "Description of the Notes -- The Indenture -- Event of Default;
Rights upon Event of Default" has been satisfied and, in addition, either (i)
the holders of all outstanding Certificates consent to such sale, or (ii) the
proceeds of such sale are sufficient to pay in full the principal of and accrued
interest on all of the outstanding Notes and Certificates on the date of such
sale. In the event of a sale of the Receivables by the Indenture Trustee
following an Event of Default, the Noteholders and Certificateholders will
receive notice and an opportunity to submit a bid in respect of such sale.
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-5 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
S-35
<PAGE> 36
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.
DISTRIBUTIONS OF INTEREST INCOME
On each Distribution Date, commencing August 15, 1998, the
Certificateholders of each class of Certificates will be entitled to
distributions in an amount equal to the amount of interest that would accrue on
the Certificate Balance of such class of Certificates at the applicable
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 applicable 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, if any, (iv) the interest due on the
Class B Notes, (v) the Second Priority Principal Distribution Amount, if any,
and (vi) in the case of the Class D Certificates, the interest due on the Class
C Certificates. 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 Principal Distribution Amount (after giving effect to any portion
thereof payable to Noteholders). The respective components of the Principal
Distribution Amount, consisting of the First Priority Principal Distribution
Amount, the Second Priority Principal Distribution Amount and the Regular
Principal Distribution Amount, will be paid on each Distribution
S-36
<PAGE> 37
Date to the extent that funds are available therefor following payment in full
of all amounts ranking senior to such component in accordance with the
priorities described in "Description of the Transfer and Servicing Agreements --
Distributions" herein. Distributions with respect to principal payments on the
Certificates 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). 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 with respect to principal payments on the Certificates will
be applied on each Distribution Date commencing on the Distribution Date on
which all the Notes are paid in full in the following order of priority: (i) in
reduction of the Certificate Balance of the Class C Certificates, until the
Certificate Balance of the Class C Certificates has been reduced to zero; and
(ii) in reduction of the Certificate Balance of the Class D Certificates, until
the Certificate Balance of the Class D Certificates has been reduced to zero.
The outstanding Certificate Balance, if any, of the Class C Certificates will be
payable in full on the Class C Final Scheduled Distribution Date and the
outstanding Certificate Balance, if any, of the Class D Certificates will be
payable in full on the Class D Final Scheduled Distribution Date. The actual
date on which the aggregate Certificate Balance of either class of Certificates
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.
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 of each class of Certificates will receive an amount in
respect of such Certificates equal to the outstanding Certificate Balance of
such class together with accrued interest at the applicable Certificate Rate
plus interest on any past due interest at the applicable 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.
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, if any, interest due on the Class B Notes and the
Second Priority Principal Distribution Amount, if any, before distributions of
interest on the Class C Certificates and will be applied to the payment of
principal on the Notes in full before distributions of principal on the Class C
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.
S-37
<PAGE> 38
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, (i) the Indenture
Trustee will create an administrative subaccount within the Collection Account
for the benefit of the Securityholders entitled the Principal Distribution
Account (such subaccount, the "Principal Distribution Account"), (ii) the Owner
Trustee will create two administrative subaccounts within the Certificate
Distribution Account for the benefit of the Certificateholders entitled the
Certificate Interest Distribution Account (such subaccount, the "Certificate
Interest Distribution Account") and the Certificate Principal Distribution
Account (such subaccount, the "Certificate Principal Distribution Account"),
respectively, and (iii) 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 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. The Class C
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.
S-38
<PAGE> 39
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. The Class C Certificateholders will not have the
right to determine whether any Event of Servicing Termination should be waived
until the 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 either class of 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 such class of 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.
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
S-39
<PAGE> 40
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, if any;
(iv) to the Class B Noteholders, the Accrued Class B Note Interest;
(v) to the Principal Distribution Account, the Second Priority
Principal Distribution Amount, if any;
(vi) to the Certificate Interest Distribution Account, the Accrued
Class C Certificate Interest;
(vii) to the Certificate Interest Distribution Account, the Accrued
Class D Certificate Interest;
(viii) to the Reserve Account, the amount required to reinstate the
amount in the Reserve Account up to the Specified Reserve Balance;
(ix) to the Principal Distribution Account, the Regular Principal
Distribution Amount; and
(x) 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, (x) following the occurrence and during the
continuation of an Event of Default relating to default in the payment of
principal or default for five days or more in the payment of interest on any
Note or the occurrence of an Insolvency Event or dissolution with respect
S-40
<PAGE> 41
to the Issuer which Event of Default 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 the Class A Notes to zero, and no
distributions of principal or interest on the Class B Notes will be made until
payment in full of principal and interest on the Class A Notes, and (y)
following the occurrence and during the continuation of any other Event of
Default which has resulted in an acceleration of the Notes, the funds on deposit
in the Collection Account (including funds, if any, deposited therein from the
Reserve Account and the Payahead Account) remaining after application of clauses
(i), (ii), (iii) and (iv) 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 in neither case will the Certificateholders 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 Regular 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 (ix) above, respectively, will be deposited into the
Certificate Principal 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 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.
"Accrued Class C Certificate Interest" means, with respect to any
Distribution Date, the sum of the Class C Certificateholders' Monthly Accrued
Interest for such Distribution Date and the Class C Certificateholders' Interest
Carryover Shortfall for such Distribution Date.
"Accrued Class D Certificate Interest" means, with respect to any
Distribution Date, the sum of the Class D Certificateholders' Monthly Accrued
Interest for such Distribution Date and the Class D Certificateholders' Interest
Carryover Shortfall for such Distribution Date.
"Certificate Balance" means, (i) with respect to the Class C Certificates,
initially, $46,000,000 and, thereafter, means the initial Certificate Balance of
the Class C Certificates, reduced by all amounts allocable to principal
previously distributed to the Class C Certificateholders and (ii) with respect
to the Class D Certificates, initially, $46,000,000 and, thereafter, means the
initial Certificate Balance of the Class D Certificates, reduced by all amounts
allocable to principal previously distributed to the Class D Certificateholders.
"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
S-41
<PAGE> 42
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, the Class A-4 Notes and the Class A-5 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 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.
"Class C Certificateholders' Interest Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Class C Certificateholders'
Monthly Accrued Interest for the preceding Distribution Date and any outstanding
Class C Certificateholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is actually paid
to Class C Certificateholders on such preceding Distribution Date, plus 30 days
of interest on such excess, to the extent permitted by law, at the Class C Rate.
"Class C 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 Class C Rate on the Certificate Balance
of the Class C Certificates 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 of the Class C
Certificates made on or prior to such preceding Distribution Date.
"Class D Certificateholders' Interest Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Class D Certificateholders'
Monthly Accrued Interest for the preceding Distribution Date and any outstanding
Class D Certificateholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is actually paid
to Class D Certificateholders on such preceding Distribution Date, plus 30 days
of interest on such excess, to the extent permitted by law, at the Class D Rate.
"Class D 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 Class D Rate on the Certificate Balance
of the Class D Certificates 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 of the Class D
Certificates made on or prior to such preceding Distribution Date.
S-42
<PAGE> 43
"First Priority Principal Distribution Amount" means, with respect to any
Distribution Date, an amount equal to the excess, if any, of (a) 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 the
Class A Notes on such preceding Distribution Date) over (b) the Pool Balance at
the end of the Collection Period preceding such Distribution Date; provided,
however, 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; (iv) the First Priority Principal Distribution Amount on the Class A-4
Final Scheduled Distribution Date shall not be less than the amount that is
necessary to reduce the outstanding principal amount of the Class A-4 Notes to
zero; and (v) the First Priority Principal Distribution Amount on the Class A-5
Final Scheduled Distribution Date shall not be less than the amount that is
necessary to reduce the outstanding principal amount of the Class A-5 Notes to
zero.
"Regular Principal Distribution Amount" means, with respect to any
Distribution Date, an amount not less than zero equal to the difference between
(i) the greater of (1) the aggregate outstanding principal amount of the Class
A-1 Notes and the Class A-2 Notes as of the preceding Distribution Date (after
giving effect to any principal payments made on the Class A-1 Notes and the
Class A-2 Notes 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 all the Notes and the aggregate Certificate
Balance of all the Certificates as of the preceding Distribution Date (after
giving effect to any principal payments made on the Securities on such preceding
Distribution Date) or Closing Date, as the case may be, over (b) the difference
between (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 Regular Principal Distribution Amount shall not
exceed the sum of the aggregate outstanding principal amount of all the Notes
and the aggregate Certificate Balance of all the Certificates on such
Distribution Date (after giving effect to any principal payments made on the
Securities 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 (i) the Regular Principal
Distribution Amount on the Class C Final Scheduled Distribution Date shall not
be less than the amount that is necessary to reduce the Certificate Balance of
the Class C Certificates to zero; and (ii) the Regular Principal Distribution
Amount on the Class D Final Scheduled Distribution Date shall not be less than
the amount that is necessary to reduce the Certificate Balance of the Class D
Certificates to zero.
"Second Priority Principal Distribution Amount" means, with respect to any
Distribution Date, an amount not less than zero equal to the difference between
(i) the excess, if any, of (a) the aggregate outstanding principal amount of the
Notes as of the preceding Distribution Date (after giving effect to any
principal payments made on the Notes on such preceding Distribution Date) over
(b) the Pool Balance at the end of the Collection Period preceding such
Distribution Date, 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 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 greatest of (i) $11,500,109, (ii) 1.00% of the Pool
Balance at the end of the Collection Period preceding such Distribution Date or
(iii) the aggregate principal balance of the Receivables that are
S-43
<PAGE> 44
delinquent 91 days or more and are not Liquidated Receivables at the end of the
Collection Period preceding such Distribution Date; provided, however, that the
Specified Credit Enhancement Amount with respect to any Distribution Date shall
not exceed the sum of the aggregate outstanding principal amount of all the
Notes and the aggregate Certificate Balance of all the Certificates as of the
preceding Distribution Date (after giving effect to any principal payments made
on the Securities on such preceding 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.
"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,
if any, the Accrued Class B Note Interest, the Second Priority Principal
Distribution Amount, if any, the Accrued Class C Certificate Interest and the
Accrued Class D 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 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 Noteholders in reduction of principal until
the principal amount of the Class A-4 Notes has been paid in full;
(v) to the Class A-5 Noteholders in reduction of principal until
the principal amount of the Class A-5 Notes has been paid in full;
(vi) to the Class B Noteholders in reduction of principal until the
principal amount of the Class B Notes has been paid in full;
(vii) to the Certificate Principal Distribution Account, in reduction
of the Certificate Balance of the Class C Certificates, until the
Certificate Balance of the Class C Certificates has been reduced to zero;
(viii) to the Certificate Principal Distribution Account, in reduction
of the Certificate Balance of the Class D Certificates, until the
Certificate Balance of the Class D Certificates has been reduced to zero;
and
(ix) to the Seller, any funds remaining on deposit in the Principal
Distribution Account.
On each Distribution Date, all amounts on deposit in the Certificate
Interest Distribution Account will be paid in the following order of priority:
(i) to the Class C Certificateholders, the Accrued Class C Certificate
Interest;
(ii) to the Class D Certificateholders, the Accrued Class D
Certificate Interest; and
S-44
<PAGE> 45
(iii) to the Seller, any funds remaining on deposit in the
Certificate Interest Distribution Account.
On each Distribution Date, all amounts on deposit in the Certificate
Principal Distribution Account will be paid in the following order of priority:
(i) to the Class C Certificateholders, in reduction of the
Certificate Balance of the Class C Certificates, until the Certificate
Balance of the Class C Certificates has been reduced to zero;
(ii) to the Class D Certificateholders, in reduction of the
Certificate Balance of the Class D Certificates, until the Certificate
Balance of the Class D Certificates has been reduced to zero; and
(iii) to the Seller, any funds remaining on deposit in the
Certificate Principal Distribution Account.
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 either class
of 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 such class
of Certificates in full in accordance with the priorities described in
"Description of the Transfer and Servicing Agreements -- Distributions" herein.
In addition, amounts will be withdrawn from the Reserve Account on any
Distribution Date to the extent that such amounts together with the Available
Funds for such Distribution Date would be sufficient to pay the sum of the
Servicing Fee and all outstanding Notes and Certificates in full.
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.
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 $11,500,109; provided, however, that
the Specified Reserve Balance with respect to any Distribution Date shall not
exceed the sum of the aggregate outstanding principal amount of all the Notes
and the aggregate Certificate Balance of all the
S-45
<PAGE> 46
Certificates as of the preceding Distribution Date (after giving effect to any
principal payments made on the Securities on such preceding 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
Class C 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 Class C 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 Class C 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 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 Class C Certificates described
under the heading "-- Tax Consequences to Holders of Class C 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 Class C 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,
S-46
<PAGE> 47
each investor is advised to consult its own tax advisers with regard to the tax
consequences to it of investing in Notes and Class C 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
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
S-47
<PAGE> 48
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 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.
S-48
<PAGE> 49
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
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.
S-49
<PAGE> 50
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 (a
"non-U.S. Note Owner") will not be subject to United States federal income tax
on interest (including OID) on a beneficial interest in a Note unless (i) the
non-U.S. 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. Note Owner is a controlled foreign corporation that is
related to the Seller (or the Trust) through stock ownership, (iii) the non-U.S.
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. Note Owner bears certain relationships to any
Certificateholder. 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 Note by a non-U.S. 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. Note Owner and (ii) in the case of an individual
non-U.S. Note Owner, the non-U.S. Note Owner is not present in the United States
for 183 days or more in the taxable year.
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 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.
S-50
<PAGE> 51
TAX CONSEQUENCES TO HOLDERS OF CLASS C 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 of each class of Certificates 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 such class of Certificates for such interest
period based on the applicable Certificate Rate; (ii) an amount equivalent to
interest that accrues during such interest period on amounts previously due on
such class of 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 such class of 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
S-51
<PAGE> 52
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 of each class of Certificates
may be allocated income equal to the amount of interest accruing on such class
of Certificates based on the applicable 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.
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
S-52
<PAGE> 53
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
have contributed all of its assets and liabilities to a new partnership in
exchange for an interest in the new partnership and immediately thereafter, the
terminated partnership will be considered to have distributed interests in the
new partnership to all of its partners (including the purchasing partner who
caused the termination) in proportion to their interests in the terminated
partnership in liquidation of the terminated 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).
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.
S-53
<PAGE> 54
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 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
S-54
<PAGE> 55
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 Trust (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 Class C 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 Class C 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 Class C
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.
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.
S-55
<PAGE> 56
MICHIGAN TAX CONSEQUENCES WITH RESPECT TO THE CLASS C CERTIFICATES
Michigan Tax Counsel will deliver an opinion that if the arrangement
created by the Trust Agreement is treated as a partnership (not taxable as a
corporation) for federal income tax purposes, 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, solely because of the Certificateholder's ownership of 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 OFFERED NOTES AND CLASS C 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 and the Class A-2 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 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 assets include plan
assets by reason of a plan's investment in such entity (each, a "Plan").
Although no assurance can be given in this regard, the Class B Notes should be
treated as "debt" and not as "Equity Interests" for purposes of the Plan Assets
Regulation, and accordingly may also, in general, be purchased by or on behalf
of Plans. See "ERISA Considerations" in the Prospectus. However, the acquisition
and holding of Notes of any class 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
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
S-56
<PAGE> 57
type and circumstances of the Plan fiduciary making the decision to acquire a
Note. For additional information regarding treatment of the Notes under ERISA,
see "ERISA Considerations" in the Prospectus.
THE CLASS C CERTIFICATES
The Class C 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 C 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 Notes without such Plan being covered by
one or more exemptions from the prohibited transaction rules. Each purchaser of
the Class C Certificates will be required to represent and certify that it is
neither such a Plan nor acquiring such Class C Certificates on behalf of any
such Plan. For additional information regarding treatment of the Class C
Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Class A-1 Note/Class A-2 Note Underwriting Agreement"), the Seller has
agreed to cause the Trust to sell to each of the Class A-1 Note and Class A-2
Note underwriters named below (collectively, the "Class A-1 Note/Class A-2 Note
Underwriters"), and each of the Class A-1 Note/Class A-2 Note Underwriters has
severally agreed to purchase the initial principal amount of Class A-1 Notes and
Class A-2 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF
CLASS A-1 NOTE/CLASS A-2 NOTE CLASS A-1 CLASS A-2
UNDERWRITERS NOTES NOTES
- ----------------------------- --------- ---------
<S> <C> <C>
Salomon Brothers Inc........................................ $ 1,000,000 $ 1,000,000
Ford Financial Services, Inc................................ $299,000,000 $299,000,000
------------ ------------
Total.................................................. $300,000,000 $300,000,000
============ ============
</TABLE>
The Seller has been advised by the Class A-1 Note/Class A-2 Note
Underwriters that they propose initially to offer the Class A-1 Notes and the
Class A-2 Notes to the public at the prices set forth herein. After the initial
public offering of the Class A-1 Notes and the Class A-2 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-3 Note/Class A-4 Note Underwriting Agreement"), the Seller has
agreed to cause the Trust to sell to each of the Class A-3 Note/Class A-4 Note
underwriters named below (collectively, the "Class A-3 Note/Class A-4 Note
Underwriters"), and each of the Class A-3 Note/Class A-4 Note Underwriters
S-57
<PAGE> 58
has severally agreed to purchase, the initial principal amount of Class A-3
Notes and Class A-4 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
CLASS A-3 NOTE/ AMOUNT OF AMOUNT OF
CLASS A-4 CLASS A-3 CLASS A-4
NOTE UNDERWRITERS NOTES NOTES
----------------- --------- ---------
<S> <C> <C>
Salomon Brothers Inc........................................ $130,000,000 $144,000,000
J.P. Morgan Securities Inc. ................................ 130,000,000 142,000,000
Chase Securities Inc........................................ 130,000,000 142,000,000
Goldman, Sachs & Co......................................... 130,000,000 142,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 130,000,000 142,000,000
------------ ------------
Total.................................................. $650,000,000 $712,000,000
============ ============
</TABLE>
The Seller has been advised by the Class A-3 Note/Class A-4 Note
Underwriters that they propose initially to offer the Class A-3 Notes and the
Class A-4 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-3 Note and 0.125% per Class A-4 Note. The Class A-3 Note/Class A-4 Note
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.060% per Class A-3 Note and 0.075% per Class A-4 Note to certain other
dealers. After the initial public offering of the Class A-3 Notes and the Class
A-4 Notes, the public offering prices and such concessions may be changed.
The Seller has agreed to cause the Trust to sell to Ford Credit the initial
principal amount of the Class A-5 Notes. The Class A-5 Notes may be resold to
third party investors after the Closing Date. Any such sales will be made at
prices related to prevailing market prices at the time of sale.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Class B Note/Class C Certificate Underwriting Agreement"), the Seller has
agreed to cause the Trust to sell to each of the Class B Note/Class C
Certificate underwriters named below (collectively, the "Class B Note/Class C
Certificate Underwriters" and, together with the Class A-1 Note/Class A-2 Note
Underwriters and the Class A-3 Note/Class A-4 Note Underwriters, the
"Underwriters"), and each of the Class B Note/Class C Certificate Underwriter
has severally agreed to purchase, the initial principal amount of the Class B
Notes and the Class C Certificates set forth below opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
CLASS B NOTE/ AMOUNT OF AMOUNT OF
CLASS C CERTIFICATE CLASS B CLASS C
UNDERWRITERS NOTES CERTIFICATES
------------------- --------- ------------
<S> <C> <C>
Salomon Brothers Inc........................................ $46,000,000 $23,000,000
J.P. Morgan Securities Inc. ................................ 46,000,000 23,000,000
----------- -----------
Total.................................................. $92,000,000 $46,000,000
=========== ===========
</TABLE>
The Seller has been advised by the Class B Note/Class C Certificate
Underwriters that they propose initially to offer the Class B Notes and the
Class C 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
0.210% per Class B Notes and 0.210% per Class C Certificate. The Class B
Note/Class C Certificate Underwriters may allow, and such dealers may reallow, a
concession not in excess of 0.090% per Class B Note and 0.125% per Class C
Certificate to certain other dealers. After the initial public offering of the
Class B Notes and the Class C Certificates, the public offering price and such
concessions may be changed.
The Underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Notes and the Class C Certificates in
S-58
<PAGE> 59
accordance with Regulation M under the Exchange Act. Over-allotment transactions
involve syndicate sales in excess of the offering size, which create a syndicate
short position. Stabilizing transactions permit bids to purchase the Offered
Securities so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Offered Securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate member when the Offered Securities
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such over-allotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids may cause the prices of the Offered Securities to be higher than
they would otherwise be in the absence of such transactions. None of the Issuer,
the Seller, Ford Credit or any of the Underwriters represents that the
Underwriters will engage in any such transactions or that such transactions,
once commenced, will not be discontinued without notice at any time.
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 or the Class A-2 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 or the Class A-2 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 each class of 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 Class C
Certificates will be passed upon for the Seller and the Servicer by Hurley D.
Smith, Esq., Secretary and Corporate Counsel of the Servicer. Certain legal
matters relating to the Notes and the Class C 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.
Smith 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.
S-59
<PAGE> 60
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-26
ABS Table................................................... S-27
Accrued Class A Note Interest............................... S-41
Accrued Class B Note Interest............................... S-41
Accrued Class C Certificate Interest........................ S-41
Accrued Class D Certificate Interest........................ S-41
APR......................................................... S-7
Available Collections....................................... S-39
Available Funds............................................. S-39
Business Day................................................ S-8
Cedel....................................................... S-1, I-1
Certificate Balance......................................... S-41
Certificateholders.......................................... S-13
Certificate Interest Distribution Account................... S-38
Certificate Pool Factor..................................... S-32
Certificate Principal Distribution Account.................. S-38
Certificate Rates........................................... S-13
Certificates................................................ S-2, S-6
Class A Noteholders......................................... S-5
Class A Noteholders' Interest Carryover Shortfall........... S-41
Class A Noteholders' Monthly Accrued Interest............... S-42
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-2, S-5
Class A-1 Note/Class A-2 Note Underwriters.................. S-57
Class A-1 Note/Class A-2 Note Underwriting Agreement........ S-57
Class A-1 Rate.............................................. S-8
Class A-2 Final Scheduled Distribution Date................. S-12
Class A-2 Noteholders....................................... S-9
Class A-2 Notes............................................. S-2, 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-2, S-5
Class A-3 Rate.............................................. S-8
Class A-4 Final Scheduled Distribution Date................. S-12
Class A-4 Noteholders....................................... S-9
Class A-4 Notes............................................. S-2, S-5
Class A-3 Note/Class A-4 Note Underwriters.................. S-57
Class A-3 Note/Class A-4 Note Underwriting Agreement........ S-57
Class A-4 Rate.............................................. S-8
Class A-5 Final Scheduled Distribution Date................. S-12
Class A-5 Noteholders....................................... S-9
Class A-5 Notes............................................. S-2, S-5
Class A-5 Rate.............................................. S-8
</TABLE>
S-60
<PAGE> 61
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Class B Final Scheduled Distribution Date................... S-12
Class B Note/Class C Certificate Underwriters............... S-58
Class B Note/Class C Certificate Underwriting Agreement..... S-58
Class B Noteholders......................................... S-5
Class B Noteholders' Interest Carryover Shortfall........... S-42
Class B Noteholders' Monthly Accrued Interest............... S-42
Class B Notes............................................... S-2, S-5
Class B Rate................................................ S-8
Class C Certificateholders.................................. S-6
Class C Certificateholders' Interest Carryover Shortfall.... S-42
Class C Certificateholders' Monthly Accrued Interest........ S-42
Class C Certificates........................................ S-2, S-6
Class C Final Scheduled Distribution Date................... S-14
Class C Rate................................................ S-13
Class D Certificateholders.................................. S-6
Class D Certificateholders' Interest Carryover Shortfall.... S-42
Class D Certificateholders' Monthly Accrued Interest........ S-42
Class D Certificates........................................ S-2, S-6
Class D Final Scheduled Distribution Date................... S-14
Class D Rate................................................ S-13
Closing Date................................................ S-7
Code........................................................ S-6, S-46
Collection Account.......................................... S-16
Collection Period........................................... S-11
Commission.................................................. S-3
Cutoff Date................................................. S-7
Definitive Certificates..................................... 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 Maturity Date............................... S-7
First Priority Principal Distribution Amount................ S-10, S-43
Ford Credit................................................. S-5
General Partner............................................. S-2
Global Notes................................................ I-1
Indenture................................................... S-5
Indenture Trustee........................................... S-5
Initial Pool Balance........................................ S-12
Interest Period............................................. S-9, S-33
IRS......................................................... S-46
Issuer...................................................... S-5
Liquidated Receivables...................................... S-39
Liquidation Proceeds........................................ S-39
Michigan Tax Counsel........................................ S-18
Net Losses.................................................. S-31
non-U.S. Note Owner......................................... S-50
Noteholders................................................. S-8
Note Interest Rates......................................... S-8
Note Owner.................................................. S-6
</TABLE>
S-61
<PAGE> 62
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Note Pool Factor............................................ S-32
Notes....................................................... S-2, S-5
Offered Securities.......................................... S-20
OID......................................................... S-47
OID Regulations............................................. S-47
Owner Trustee............................................... S-5
Plan........................................................ S-56
Plan Investor............................................... S-57
Pool Balance................................................ S-7
Prepayable Obligation....................................... S-48
Prepayment Assumption....................................... S-48
Principal Distribution Account.............................. S-38
Principal Distribution Amount............................... S-10
Prospectus ................................................. S-3
Purchase Agreement.......................................... S-7
Rating Agencies............................................. S-23
Realized Losses............................................. S-8
Receivables................................................. S-2, S-7
Receivables Pool............................................ S-24
Record Date................................................. S-8, S-13
Regular Principal Distribution Amount....................... S-10, S-43
Reserve Account Release Amount.............................. S-39
Reserve Initial Deposit..................................... S-14
Sale and Servicing Agreement................................ S-7
Second Priority Principal Distribution Amount............... S-10, S-43
Securities.................................................. S-2, S-6
Securityholders............................................. S-13
Seller...................................................... S-1, S-5
Servicer.................................................... S-5
Servicer Fee................................................ S-17, S-38
Servicing Fee............................................... S-17, S-38
Servicing Fee Rate.......................................... S-17, S-38
Short-Term Notes............................................ S-49
Special Tax Counsel......................................... S-18
Specified Credit Enhancement Amount......................... S-11, S-43
Specified Overcollateralization Amount...................... S-11, S-44
Specified Reserve Balance................................... S-11, S-45
Supplemental Servicing Fee.................................. S-17, S-38
Total Required Payment...................................... S-15, S-44
Transfer and Servicing Agreements........................... S-38
Trust....................................................... S-1, S-5
Trust Agreement............................................. S-5
Underwriters................................................ S-58
U.S. Person................................................. I-4
</TABLE>
S-62
<PAGE> 63
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Ford Credit
Auto Owner Trust 1998-C Class A-1 5.608% Asset Backed Notes, Class A-2 5.670%
Asset Backed Notes, Class A-3 5.73% Asset Backed Notes, Class A-4 5.81% Asset
Backed Notes, Class A-5 5.86% Asset Backed Notes and Class B 6.06% 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> 64
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> 65
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).
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
I-3
<PAGE> 66
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> 67
(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 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. In order to facilitate the ownership
of a series of Securities by investors outside the United States, if so
specified in the related Prospectus Supplement, an additional trust (each, an
"Intermediary Trust") will be formed with respect to such series pursuant to an
Intermediary Pooling and Servicing Agreement among the Trustee, the Seller and
the Servicer. The property of each Trust with respect to a series for which an
Intermediary Trust is not formed 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. The property of each
Trust with respect to a series for which an Intermediary Trust is formed will
include certificates issued by such Intermediary Trust that represent undivided
interests in such Intermediary Trust, the property of which will include the
property described in the immediately preceding sentence, all as described
herein and in the related Prospectus Supplement. Such undivided interests may
constitute all or a portion of the beneficial interests in such Intermediary
Trust. In addition, if so specified in the related Prospectus Supplement, the
property of the Trust or the related Intermediary Trust, as applicable, 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
directly, or indirectly through the related Intermediary Trust, if applicable, 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 13 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 July 16, 1998.
<PAGE> 68
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 Citicorp Center, 500 West Madison
Street, Suite 1400, 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. 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.
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> 69
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. The institution acting as Trustee
for the Trust will also act as trustee for
the Intermediary Trust, if any, with respect
to such Series.
INDENTURE TRUSTEE............. With respect to any applicable series of
Securities, the Indenture Trustee specified
in the related Prospectus Supplement.
INTERMEDIARY TRUST............ If so specified in the related Prospectus
Supplement, the Intermediary Trust to be
formed with respect to a series of Securities
pursuant to an Intermediary Pooling and
Servicing Agreement (as amended and
supplemented from time to time, the
"Intermediary Pooling and Servicing
Agreement") among the institution designated
therein as intermediary trustee, the Seller
and the Servicer.
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 may
3
<PAGE> 70
be available in book-entry form only. If
Notes are issued in book-entry form, 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 will 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 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.
Furthermore, a series may include one or more
classes of Notes ("Residual Cash Flow Notes")
entitled to all or a portion of any remaining
payments of principal and interest on the
related Receivables or, with respect to a
series for which an Intermediary Trust is
formed, the related Intermediary Trust
Certificates, after making all other
distributions required on each Distribution
Date.
If the Servicer exercises its option to
purchase the Receivables of a Trust or, with
respect to a series for which an Intermediary
Trust is formed, of such Intermediary Trust
(or, if the Servicer does not exercise such
option, 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.
4
<PAGE> 71
In addition, if the related Prospectus
Supplement provides that the property of a
Trust or the related Intermediary Trust, if
applicable, 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 may 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.
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 will 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
5
<PAGE> 72
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.
Furthermore, a series may include one or more
classes of Certificates ("Residual Cash Flow
Certificates") entitled to all or a portion
of any remaining payments of principal and
interest on the related Receivables or, with
respect to a series for which an Intermediary
Trust is formed, the related Intermediary
Trust Certificates, after making all other
distributions required on each Distribution
Date.
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, with
respect to a series for which an Intermediary
Trust is formed, of such Intermediary Trust
(or, if the Servicer does not exercise such
option, 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.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust or the related Intermediary Trust, if
applicable, 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 with respect to a
series for which an Intermediary Trust is not
formed 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. The
6
<PAGE> 73
property of each Trust with respect to a
series for which an Intermediary Trust is
formed will include certificates
("Intermediary Trust Certificates") issued by
the related Intermediary Trust, which
certificates will represent undivided
interests in the related Intermediary Trust,
the property of which will include the
property described in the immediately
preceding sentence. Such Intermediary Trust
Certificates may constitute all or a portion
of the beneficial interests in such
Intermediary Trust.
On the Closing Date (the "Closing Date")
specified in the related Prospectus
Supplement with respect to a series for which
an Intermediary Trust is not formed, 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 with respect to a series for which
an Intermediary Trust is not formed may 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.
On the Closing Date specified in the related
Prospectus Supplement with respect to a Trust
of a series for which an Intermediary Trust
is formed, the Seller will (i) sell or
transfer the Initial Receivables having an
aggregate principal balance specified in the
related Prospectus Supplement as of the
Initial Cutoff Date to such Intermediary
Trust pursuant to the related Intermediary
Pooling and Servicing Agreement among the
Seller, the Servicer and the Trustee and (ii)
sell or transfer the Intermediary Trust
Certificates issued by such Intermediary
Trust to the Trust pursuant to a Sale
Agreement between the Seller and the Trust
(as amended and supplemented from time to
time, a "Sale Agreement"). If so specified in
the related Prospectus Supplement, an
Intermediary Trust may be formed after the
Closing Date, in which case the sales and
transfers described above would occur at the
time of formation of such Intermediary Trust.
The property of each Trust with respect to a
series for which an Intermediary Trust is
formed may 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
7
<PAGE> 74
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 or
Intermediary Trust, as applicable, will be
obligated to purchase (subject to the
satisfaction of certain conditions described
in the applicable Sale and Servicing
Agreement, Intermediary Pooling 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.
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, Intermediary Pooling 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 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
8
<PAGE> 75
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 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 or the
related Intermediary Trust, if applicable,
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 of a series for
which an Intermediary Trust is not formed,
the Seller will sell the related Receivables
to such Trust pursuant to a Sale and
Servicing Agreement or a Pooling and
Servicing Agreement. With respect to each
Trust of a series for which an Intermediary
Trust is formed, the Seller will sell (i) the
related Receivables to such Intermediary
Trust pursuant to an Intermediary Pooling and
Servicing Agreement and (ii) the Intermediary
Trust Certificates issued by such
Intermediary Trust to the Trust pursuant to a
Sale Agreement. The rights and benefits of
any Trust under a Sale and Servicing
Agreement or an Intermediary Pooling and
Servicing Agreement and a Sale Agreement, as
applicable, will be assigned to the Indenture
Trustee as collateral for the Notes of the
related series. The Servicer will agree with
such Trust or the related Intermediary Trust,
as applicable, to be responsible for
servicing, managing, maintaining custody of
and making collections on the Receivables.
Ford Credit will undertake certain
administrative duties
9
<PAGE> 76
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 or Intermediary Trust, as the case may
be, in such Receivable is materially
adversely affected by a breach of any
representation or warranty made by the Seller
with respect to the Receivable, if the breach
has not been cured following the discovery by
or notice to the Seller of the breach.
The Servicer may 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 with respect to each series 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.
10
<PAGE> 77
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES; REPURCHASE
OBLIGATIONS................... In connection with the sale of Receivables to a
Trust or an Intermediary Trust, as
applicable, security interests in the
Financed Vehicles securing such Receivables
will be assigned by the Seller to such Trust
or Intermediary Trust, as the case may be.
Due to the administrative burden and expense,
the certificates of title to the Financed
Vehicles will not be amended to reflect the
assignment to such Trust or Intermediary
Trust. In the absence of such an amendment,
such Trust or Intermediary Trust, as the case
may be, 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 or an Intermediary
Trust, as applicable, 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 or Intermediary Trust, as the case may
be, if such breach shall materially adversely
affect the interest of such Trust or
Intermediary 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 or Intermediary
Trust, as applicable, does not have a
perfected security interest in a Financed
Vehicle, its ability to realize on such
Financed Vehicle in the event of a default
may be adversely affected. To the extent the
security interest is perfected, such Trust or
Intermediary Trust, as the case may be, 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 Intermediary
Trust, as applicable, 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 or
Intermediary Trust, as the case may be, 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 or an
Intermediary 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
11
<PAGE> 78
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, each of such Trust and
the related Intermediary Trust, if
applicable, 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.
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 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.
12
<PAGE> 79
RISK FACTORS
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
Pursuant to each Sale and Servicing Agreement, Intermediary Pooling and
Servicing Agreement or Pooling and Servicing Agreement, the Servicer will
service and administer the Receivables held by each Trust or Intermediary Trust,
as applicable, and, as custodian on behalf of such Trust or Intermediary Trust,
as the case may be, 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 or Intermediary Trust, as applicable, 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 or Intermediary
Trust, as the case may be, 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 or
Intermediary Trust, as the case may be, if a subsequent purchaser were to obtain
physical possession of such Receivables without knowledge of the assignment, the
Trust's or Intermediary 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, Intermediary Pooling and Servicing Agreement
or Pooling and Servicing Agreement, as applicable, relating to each Trust or
Intermediary Trust, as the case may be, 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 or Intermediary 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, Intermediary Pooling 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, Intermediary Pooling 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 or Intermediary Trust,
as applicable, as the secured party on the certificate of title, the Trust's or
Intermediary 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 or Intermediary
Trust, as applicable. 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
13
<PAGE> 80
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 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 and, with respect to a series for which an Intermediary Trust is
formed, the related Intermediary Trust Certificates 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 Intermediary Trust Certificates, as applicable, and
termination of such Trust and the related Intermediary
14
<PAGE> 81
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 and Intermediary Trust Certificates,
as applicable, will be treated as collections on the Receivables and
distributions on the Intermediary Trust Certificates, as applicable, and
deposited in the Collection Account with respect to such series. If the proceeds
from the liquidation of the Receivables and Intermediary Trust Certificates, as
the case may be, 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 series and any amounts available from any credit enhancement are not
sufficient to pay any Notes and the Certificates of such series in full, the
amount of principal returned to any Noteholders or the Certificateholders will
be reduced and such Noteholders and/or Certificateholders will incur a loss. See
"Description of the Transfer and Servicing Agreements -- Insolvency Event 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 or Certificates of a given Trust or the Receivables of a
given Trust or Intermediary Trust.
However, in connection with the sale of Receivables by the Seller to a
given Trust or Intermediary Trust, as applicable, 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/or principal on one or more classes of Certificates of a series
may be subordinated in priority of payment to interest and/or 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 (which, in the case of a Trust with respect to a series for which an
Intermediary Trust is formed, will be an indirect interest in the Receivables
provided by such Trust's ownership of the related Intermediary Trust
Certificates) 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, Ford, 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 (which, in the case
of a series for which an Intermediary Trust is formed, will be the primary
source
15
<PAGE> 82
of distributions on the related Intermediary Trust Certificates) 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 (which, in the
case of a Trust with respect to a series for which an Intermediary Trust is
formed, will be the primary source of distributions on the related Intermediary
Trust Certificates) 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 Receivables or
Intermediary Trust Certificates, as applicable, owned by the Trust with respect
to such series 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 or Intermediary Trust Certificates, as the case may
be, will at any time be equal to or greater than the aggregate principal amount
of such outstanding Notes. 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 Servicer.
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, Intermediary Pooling 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, Intermediary Pooling 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) may 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 or
Intermediary Trust, as applicable, 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
16
<PAGE> 83
"-- Insolvency Event or Dissolution" regarding the sale of the Receivables or
Intermediary Trust Certificates, as applicable, 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 series of Securities 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,
Intermediary Pooling 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 or an Intermediary Trust, as the case may be, 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.
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."
17
<PAGE> 84
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, and, if the Trust is not to be treated as a
grantor trust for federal income tax purposes, may establish a separate
Intermediary Trust pursuant to the respective Intermediary Pooling and Servicing
Agreement, for the transactions described herein and in the related Prospectus
Supplement. The property of each Trust with respect to a series for which an
Intermediary Trust is not formed 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 property
of each Trust with respect to a series for which an Intermediary Trust is formed
will include Intermediary Trust Certificates issued by such Intermediary Trust
that represent undivided interests in such Intermediary Trust, the property of
which will include the property described in the immediately preceding sentence.
Such Intermediary Trust Certificates may constitute all or a portion of the
beneficial interests in such Intermediary Trust. 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 or, in the case of a series for which
an Intermediary Trust is formed, to such Intermediary 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 or Intermediary Trust, as the case may be, as frequently as daily
during the Funding Period. Any Subsequent Receivables so conveyed will also be
assets of the applicable Trust or Intermediary Trust, as the case may be,
subject to the prior rights of the related Indenture Trustee and the
Noteholders, if any, therein. The property of each Trust with respect to a
series for which an Intermediary Trust is not formed 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. The property of each Trust with respect to a series for which an
Intermediary Trust is formed will include Intermediary Trust Certificates issued
by such Intermediary Trust that represent undivided interests in such
Intermediary Trust, the property of which will include the property described in
the immediately preceding sentence, except that the relevant agreements for
purposes of clauses (v) and (vi) of such sentence shall be the related
Intermediary Pooling and Servicing Agreement and Sale Agreement. Such
Intermediary Trust Certificates may constitute all or a portion of the
beneficial interests in such Intermediary Trust. With
18
<PAGE> 85
respect to any series of Notes, the relevant rights and benefits with respect to
the property of the related Trust 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. If so specified in the related Prospectus
Supplement, a Pre-Funding Account may be a part of the property of any given
Trust or Intermediary Trust. To the extent specified in the related Prospectus
Supplement, a Reserve Account or other form of credit enhancement may be a part
of the property of any given Trust or Intermediary Trust 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 or
Intermediary Trust, as applicable, 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 or Intermediary
Trust, as applicable, and documents relating thereto as custodian for each such
Trust or Intermediary Trust, as the case may be. Due to the administrative
burden and expense, the certificates of title to the Financed Vehicles will not
be amended to reflect the assignment of the security interest in the Financed
Vehicles to each Trust or Intermediary Trust, as the case may be. In the absence
of such amendment, any Trust or Intermediary Trust, as applicable, 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 the case of a series for which an Intermediary
Trust is formed, such Noteholders or Certificateholders, as the case may be,
would be entitled to such rights or proceeds indirectly, through the applicable
Trust's ownership of the related Intermediary Trust Certificates. In such
circumstances, certain factors, such as the applicable Trust's or Intermediary
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, Intermediary Trust, if applicable, and
the related Trustee will be specified in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee for each Trust and Intermediary 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, the Sale
and Servicing Agreement or Intermediary Pooling and Servicing Agreement, or the
related
19
<PAGE> 86
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, Intermediary Pooling and Servicing
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 or Intermediary Trust, as
applicable, 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."
"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
20
<PAGE> 87
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 or Intermediary Trust, as applicable; 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 or the related Intermediary
Trust, as applicable, 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.
Each Trust or Intermediary Trust, as applicable, 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 distributed to
the
21
<PAGE> 88
Trust or Intermediary Trust, as applicable, as owner of such Receivable, 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 or Intermediary Trust, as applicable, pursuant to
the related Sale and Servicing Agreement, Intermediary Pooling 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 or Intermediary Trust, as applicable, pursuant to
such Sale and Servicing Agreement, Intermediary Pooling 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) may 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 or Intermediary Trust, as applicable, and "--
Insolvency Event or Dissolution" regarding the sale of the Receivables or
Intermediary Trust Certificates, as applicable, 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.
22
<PAGE> 89
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 or the Administrator 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 or the
Administrator 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) in the case of a Trust with respect to a
series for which an Intermediary Trust is not formed, to the purchase of the
Receivables from the Seller, (ii) in the case of a Trust with respect to a
series for which an Intermediary Trust is formed, to the purchase of the related
Intermediary Trust Certificates from the Seller, (iii) to the deposit of the
Pre-Funded Amount into the Pre-Funding Account, if any, and (iv) 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.
23
<PAGE> 90
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
24
<PAGE> 91
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
GENERAL
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.
YEAR 2000 DATE CONVERSION
An issue affecting Ford Credit and most other companies is whether computer
systems and applications will recognize and process the year 2000 and beyond.
Ford Credit has a Year 2000 Program Office to coordinate the identification,
evaluation, and implementation of changes to systems and applications globally
to achieve compliance with the year 2000 date conversion. Ford Credit is in the
process of assessing and implementing necessary changes for all areas of its
25
<PAGE> 92
business that could be impacted, such as business computer applications,
technical infrastructure, end-user computing, building facilities, and
vendor-supplied applications and services.
Ford Credit has investigated the impact of the year 2000 issue on all
critical business applications and many are already compliant. Those which are
not will be modified or replaced. Plans have been established to complete all
necessary modifications to critical applications by the end of 1998. Ford
Credit, however, has little or no control over whether its vendors will make the
appropriate modifications to applications on a timely basis. Ford Credit is
working actively through the Automotive Industry Action Group with other
financial services companies in assessing and monitoring supplier readiness. In
addition, all vendors will be expected to ensure compliance of business
applications and technical services they supply.
Based on assessments completed to date and compliance plans in process,
Ford Credit does not expect that the year 2000 issue, including the cost of
making its critical systems and applications compliant on a timely basis, will
have a material adverse effect on its business operation, consolidated financial
condition, cash flows, or results of operations. However, if appropriate
modifications are not made by Ford Credit's vendors, or if Ford Credit's actual
costs or timing for the year 2000 date conversion differ materially from its
present estimates, Ford Credit's operations and financial results could be
significantly adversely affected.
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.
Each class of Notes may 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 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
any Notes issued in book-entry form. If a class of Notes is issued in book-entry
form, unless and until Definitive Notes are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Noteholder of such class of Notes will be entitled to receive a physical
certificate representing a Note of such class. If a class of Notes is issued in
book-entry form, all references herein and in the related Prospectus Supplement
to actions by Noteholders of such class of Notes 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 of such class of Notes refer to
distributions, notices, reports and statements to DTC or its nominee, as the
registered holder of such class of Notes, for distribution to Noteholders of
such class of Notes 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/or 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
26
<PAGE> 93
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 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, or one or more classes of
Residual Cash Flow Notes entitled to all or a portion of any remaining payments
of principal and interest on the related Receivables or, with respect to a
series for which an Intermediary Trust is formed, the related Intermediary Trust
Certificates, after making all other distributions on each Distribution Date.
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 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
27
<PAGE> 94
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 or Intermediary Trust Certificates,
as applicable, 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 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.
28
<PAGE> 95
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, with
respect to a series for which an Intermediary Trust is formed, the related
Intermediary Trust Certificates or elect to have the applicable Trust maintain
possession of such Receivables or Intermediary Trust Certificates, as the case
may be, and continue to apply collections on such Receivables or distributions
on such Intermediary Trust Certificates as if there had been no declaration of
acceleration. However, such Indenture Trustee is prohibited from selling the
related Receivables or Intermediary Trust Certificates, as the case may be,
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 or Intermediary Trust Certificates,
as the case may be, 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 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.
29
<PAGE> 96
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.
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
30
<PAGE> 97
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.
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
any class of Certificates issued in book-entry form that is not retained by the
Seller. If a class of Certificates is 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) of such class of Certificates will be entitled to
receive a physical certificate representing a Certificate of such class. If a
class of Certificates is issued in book-entry form, all references herein and in
the related Prospectus Supplement to actions by Certificateholders of such class
of Certificates refer to actions taken by DTC upon instructions from the
Participants and all references herein and in the related Prospectus Supplement
to distributions,
31
<PAGE> 98
notices, reports and statements to Certificateholders of such class of
Certificates refer to distributions, notices, reports and statements to DTC or
its nominee, as the case may be, as the registered holder of such class of
Certificates, for distribution to Certificateholders of such class of
Certificates 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, or one or more classes of Residual Cash Flow Certificates entitled to
all or a portion of any remaining payments of principal and interest on the
related Receivables or, with respect to a series for which an Intermediary Trust
is formed, the related Intermediary Trust Certificates, after making all other
distributions on each Distribution Date. 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.
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
32
<PAGE> 99
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 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.
33
<PAGE> 100
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.
Unless otherwise specified 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.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
Unless otherwise specified 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 "Commercial Paper." In the event that such rate is not published prior
to 3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper of the specified Index Maturity as published in Composite
Quotations under the heading "Commercial Paper." If by 3:00 p.m., New York City
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "Commercial Paper Rate" for such
Interest Reset Period shall be the Money Market Yield of the arithmetic mean of
the offered rates, as of 11:00 a.m., New York City time, on such Commercial
Paper Rate Determination date of three leading dealers of commercial paper in
The City of New York selected by the Calculation Agent for such Commercial
34
<PAGE> 101
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.
Unless otherwise specified in the applicable Prospectus Supplement, "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.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective rate
on the Interest Reset Date for such Interest Reset Period (a "Federal Funds Rate
Determination Date") for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)." In the event that such rate is not
published prior to 3:00 p.m., New York City time, on the Calculation Date (as
defined below) pertaining to such Federal Funds Rate Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Federal Funds Rate Determination Date as published in Composite Quotations under
the heading "Federal Funds/Effective Rate." If by 3:00 p.m., New York City time,
on such Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Federal Funds Rate" for such Interest Reset
Period shall be the rate on such Federal Funds Rate Determination Date made
publicly available by the Federal Reserve Bank of New York which is equivalent
to the rate which appears in H.15(519) under the heading "Federal Funds
(Effective)"; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
time, on such Calculation Date, the "Federal Funds Rate" for such Interest Reset
Period will be the same as the Federal Funds Rate in effect for the immediately
preceding Interest Reset Period. In the case of a Federal Funds Rate Security
that resets daily, the interest rate on such Security for the period from and
including a Monday to but excluding the succeeding Monday will be reset by the
Calculation Agent for such Security on such second Monday (or, if not a business
day, on the next succeeding business day) to a rate equal to the average of the
Federal Funds Rates in effect with respect to each such day in such week.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
35
<PAGE> 102
Unless otherwise specified 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.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Treasury Rate" for each Interest Period will be the rate for the auction held
on the Treasury Rate Determination Date (as defined below) for such Interest
Reset Period of direct obligations of the United States ("Treasury bills")
having the Index Maturity specified in the applicable Prospectus Supplement, as
such rate shall be published in H.15(519) under the heading "U.S. Government
Securities -- Treasury bills -- auction average (investment)" or, in the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Treasury Rate
Determination Date, the auction average rate (expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) on such Treasury Rate Determination Date as otherwise announced by the
United States Department of the Treasury. In the event that the results of the
auction of Treasury bills having the specified Index Maturity are not published
or reported as provided above by 3:00 p.m., New York City time, on such
Calculation
36
<PAGE> 103
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.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
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
37
<PAGE> 104
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 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.
38
<PAGE> 105
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 36
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 34
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 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.
39
<PAGE> 106
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 class of Notes and any class 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
class 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 class through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive 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
40
<PAGE> 107
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 or Administrator 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 or the
Administrator 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 and the principal balance of the Intermediary
Trust Certificates, if applicable, 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;
(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
41
<PAGE> 108
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 (i) with respect to a
series for which an Intermediary Trust is not formed, 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, (ii) with respect to a series for which an Intermediary Trust is
formed, each Intermediary Pooling and Servicing Agreement and Sale Agreement
pursuant to which an Intermediary Trust will be created, such Intermediary Trust
will purchase Receivables from the Seller, the Servicer will agree to service
such Receivables, and a Trust will purchase Intermediary Trust Certificates from
the Seller, (iii) 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.
42
<PAGE> 109
SALE AND ASSIGNMENT OF RECEIVABLES
Sale and Assignment by Ford Credit. 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, including its security interests in the related Financed
Vehicles.
Sale and Assignment by the Seller -- Series for Which an Intermediary Trust
is Not Formed. With respect to a series for which an Intermediary Trust is not
formed, at the time of issuance of the Securities of the related Trust, the
Seller will sell and assign to such Trust, 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 of such Trust will not independently verify the existence
and qualification of any Receivables. The Trustee of such Trust will,
concurrently with such sale and assignment, execute and deliver the related
Notes and/or Certificates to the Seller in exchange for the Receivables.
Sale and Assignment by the Seller -- Series for Which an Intermediary Trust
is Formed. With respect to a series for which an Intermediary Trust is formed,
at the time of issuance of the Securities of the related Trust, the Seller will
sell and assign to such Intermediary Trust, 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 Intermediary Pooling and Servicing Agreement. The
applicable Trustee of such Intermediary Trust will not independently verify the
existence and qualification of any Receivables. The Trustee of such Intermediary
Trust will, concurrently with such sale and assignment, execute, authenticate,
and deliver the related Intermediary Trust Certificates to the Seller in
exchange for the Receivables. The Seller will, concurrently with the issuance of
the Intermediary Trust Certificates, sell and assign to the related Trust,
without recourse, the Seller's entire interest in such Intermediary Trust
Certificates. The Trustee of the related Trust will, concurrently with the sale
and assignment to it of the Intermediary Trust Certificates, execute and deliver
the related Notes and/or Certificates to the Seller in exchange for such
Intermediary Trust Certificates.
General. The net proceeds received by the Seller from the sale of the
Certificates and the Notes of a 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 or
Intermediary Trust, as the case may be, 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 proceeds from the Receivables purchased by the Trust or Intermediary
Trust, as applicable, 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 making payments on the Securities.
In each Purchase Agreement, Ford Credit will represent and warrant to the
Seller, and in each Sale and Servicing Agreement, Intermediary Pooling and
Servicing Agreement or Pooling and Servicing Agreement the Seller will represent
and warrant to the applicable Trust or Intermediary Trust, as the case may be,
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
43
<PAGE> 110
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 or Intermediary Trust, as applicable, in any
Receivable, the Seller, unless it cures the breach, will purchase such
Receivable from such Trust or Intermediary Trust, as the case may be, 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 the related series for any such uncured breach.
Pursuant to each Sale and Servicing Agreement, Intermediary Pooling and
Servicing Agreement or Pooling and Servicing Agreement, the Servicer will
service and administer the Receivables held by each Trust or Intermediary Trust,
as applicable, and, as custodian on behalf of such Trust or Intermediary Trust,
as the case may be, will maintain possession as the Trustee's agent 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 or Intermediary Trust, as applicable, 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 or Intermediary
Trust, as the case may be, 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 or
Intermediary Trust, as the case may be, if a subsequent purchaser were to obtain
physical possession of such Receivables without knowledge of the assignment, the
Trust's or Intermediary 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 (i) with respect to a series for which an Intermediary Trust is not
formed, with the related Indenture Trustee one or more accounts, in the name of
the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, or (ii) with respect to series for which an Intermediary
Trust is formed, with the related Trustee one or more accounts, in the name of
the Trustee on behalf of the holders of the beneficial interests in such
Intermediary Trust, in each case into which all payments made on or with respect
to the related Receivables will be deposited (the "Collection Account"). The
Servicer may 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
44
<PAGE> 111
(including amounts distributed in respect of the related Intermediary Trust
Certificates, if applicable) 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 may 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 or, with respect to a
series for which an Intermediary Trust is formed, in the name of the Trustee of
such Intermediary Trust, into which, to the extent required by the Sale and
Servicing Agreement or Intermediary Pooling 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 with respect to the related
Receivables 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, Intermediary Pooling
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 series of
Securities, including any Pre-Funding Account, Yield Supplement Account or
Reserve Account, will be described in the related Prospectus Supplement.
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, Intermediary Pooling 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 such 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
45
<PAGE> 112
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 series of Securities, (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 or Intermediary Trust, as
applicable, 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, Intermediary Pooling
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 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 series of Securities, 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 or an Intermediary Trust,
as the case may be, to the
46
<PAGE> 113
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 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,
47
<PAGE> 114
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 series of Securities.
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 and Intermediary Trust, as applicable. 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 series of Securities, on each Distribution Date,
collections on the related Receivables will be transferred from or, with respect
to a series for which an Intermediary Trust is formed, distributions with
respect to the related Intermediary Trust Certificates will be made from, the
Collection Account to the Note Payment Account, if any, and the Certificate
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 the related
Trust or Intermediary Trust 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
48
<PAGE> 115
(a "Determination Date"), the Indenture Trustee, if any, or, otherwise, the
Trustee shall determine the amount in the Collection Account available to make
payments or distributions to Securityholders on the related Distribution Date.
Such amount shall be allocated to the interest and principal portion of
scheduled payments on the Receivables in accordance with the Servicer's
customary servicing procedures and distributed as described in the related
Prospectus Supplement, 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. Such credit or cash flow enhancement may be part of the
property of the related Trust or Intermediary Trust, if applicable.
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.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement, Sale Agreement,
Intermediary Pooling 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.
49
<PAGE> 116
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
series 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 series as if all deposits,
distributions, and transfers were made individually.
STATEMENTS TO TRUSTEES AND TRUSTS
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, Intermediary Pooling 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.
Each Sale and Servicing Agreement, Intermediary Pooling 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,
Intermediary Pooling 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
50
<PAGE> 117
Servicing Termination under the related Sale and Servicing Agreement,
Intermediary Pooling 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, Intermediary Pooling 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, Intermediary Pooling and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement, Intermediary Pooling 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, the related Intermediary 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,
Intermediary Pooling 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, Intermediary Pooling 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,
Intermediary Pooling 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,
Intermediary Pooling 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,
Intermediary Pooling 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,
Intermediary Pooling 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, Intermediary Pooling 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.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" under each Sale and Servicing Agreement,
Intermediary Pooling and Servicing Agreement and Pooling and Servicing Agreement
will consist of (i) any failure
51
<PAGE> 118
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,
Intermediary Pooling 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 or Intermediary
Pooling 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 or Intermediary Pooling 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 or Intermediary Pooling 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, Intermediary Pooling
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, Intermediary Pooling 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,
Intermediary Pooling 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,
Intermediary Pooling and Servicing Agreement or Pooling and Servicing Agreement.
52
<PAGE> 119
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 or
Intermediary Pooling 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 or
Intermediary Pooling 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, Intermediary Pooling
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, Intermediary
Pooling 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 and, with respect to a series for which an Intermediary
Trust is formed, distributions on the related Intermediary Trust Certificates 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 and, with respect to a series for which an Intermediary
Trust is formed, the related Intermediary Trust Certificates, will be
53
<PAGE> 120
liquidated and the Trust and the related Intermediary Trust, if applicable, 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) 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 Intermediary Trust
Certificates, as applicable, and termination of such Trust and Intermediary
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 each of such Trust and Intermediary 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 and Intermediary Trust
Certificates, as applicable, of such Trust will be treated as collections on
such Receivables and distributions on the Intermediary Trust Certificates, as
applicable, and deposited in the related Collection Account. With respect to any
series, if the proceeds from the liquidation of the related Receivables and
Intermediary Trust Certificates, as applicable, 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 such series in full, the amount
of principal returned to Noteholders and Certificateholders thereof will be
reduced and some or all of such Noteholders and/or Certificateholders will incur
a loss.
Each Trust Agreement and Intermediary Pooling and Servicing 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.
54
<PAGE> 121
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.
TERMINATION
With respect to each Trust and each Intermediary 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 or Intermediary Trust, as
applicable, as of the end of any applicable Collection Period, if the then
outstanding Pool Balance with respect to the Receivables held by such Trust or
Intermediary Trust, as the case may be, 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 or the related Intermediary Trust, as applicable, 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 or
Intermediary Trust, as the case may be, 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 certain
reports 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.
55
<PAGE> 122
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.
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. With respect to a series for which an
Intermediary Trust is not formed, 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 the related Receivables to
the Trust. With respect to a series for which an Intermediary Trust is formed,
pursuant to the related Intermediary Pooling and Servicing Agreement, the Seller
will assign its security interests in the Financed Vehicles securing the related
Receivables to the Intermediary Trust. The related Trust will have the benefit
of such security interests through its ownership of the related Intermediary
Trust Certificates. However, because of the administrative burden and expense,
the Servicer, the Seller and the Trust or Intermediary Trust, as applicable,
will not amend any certificate of title to identify the Trust or Intermediary
Trust, as the case may be, 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 or Intermediary Trust, as applicable, 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, Intermediary Pooling and Servicing Agreement
or Pooling and Servicing Agreement, as applicable, relating to each Trust or
Intermediary Trust, as the case may be, 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 or Intermediary 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, Intermediary Pooling 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, Intermediary Pooling 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 or Intermediary Trust,
as applicable, as the secured party on the certificate of title, the Trust's or
Intermediary Trust's interest in the chattel paper may not have the benefit of
the security interest in the Financed Vehicle in all
56
<PAGE> 123
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 or Intermediary 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, Intermediary
Pooling 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 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 or
Intermediary Trust, as applicable, Ford Credit will represent to the Seller and
the Seller will represent to the Trust or Intermediary Trust, as the case may
be, 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.
57
<PAGE> 124
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.
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 or Intermediary Trust, as applicable, 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
58
<PAGE> 125
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, Intermediary Pooling 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, Intermediary Pooling 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 or an Intermediary Trust for violation of
any law and such claim materially and adversely affects such Trust's or
Intermediary Trust's interest in a Receivable, such violation would constitute a
breach of warranty under the related Purchase Agreement and the related Sale and
Servicing Agreement, Intermediary Pooling 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.
59
<PAGE> 126
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.
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 each of the applicable Trust
and the related Intermediary Trust, if any, will not be classified as an
association (or publicly traded partnership) taxable as a corporation 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
60
<PAGE> 127
"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 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
61
<PAGE> 128
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 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.
62
<PAGE> 129
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 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
63
<PAGE> 130
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. (If provided in the Prospectus Supplement that Notes of any class
are not to be treated as indebtedness for ERISA purposes, the discussion in "--
The Certificates" below will apply to any such class of Notes.) 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 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
64
<PAGE> 131
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") 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.
As of the date hereof, the Department of Labor has issued proposed
regulations under Section 401(c). It should be noted that if the General Account
Regulations are adopted substantially in the form in which proposed, the General
Account Regulations may not exempt the assets of insurance company general
accounts from treatment as "plan assets" after December 31, 1998. The General
Account Regulations should not, however, adversely affect the applicability of
PTCE 95-60.
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 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
65
<PAGE> 132
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 Hurley D.
Smith, Esq., Secretary and Corporate Counsel of the Servicer. Certain Michigan
state tax and other matters will be passed upon for each Trust by Hurley D.
Smith, Esq., Secretary and Corporate Counsel of the Servicer, or other counsel
to the Servicer acceptable to the Underwriters. Mr. Smith is a full-time
employee of Ford Credit and owns and holds options to purchase shares of Common
Stock of Ford.
66
<PAGE> 133
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....................................... 20
Administration Agreement.................................... 55
Administration Fee.......................................... 55
Administrator............................................... 55
Advances.................................................... 10, 47
Applicable Trustee.......................................... 38
APR......................................................... 10
Base Rate................................................... 33
Basic Documents............................................. 30
Book-Entry Certificates..................................... 37
Book-Entry Notes............................................ 37
Book-Entry Securities....................................... 37
Calculation Agent........................................... 33
Calculation Date............................................ 34, 35, 37
CD Rate..................................................... 34
CD Rate Determination Date.................................. 34
CD Rate Security............................................ 33
Cede........................................................ 17
Cedel....................................................... 37
Cedel Participants.......................................... 39
Certificate Balance......................................... 5
Certificate Distribution Account............................ 45
Certificateholders.......................................... 17, 38
Certificate Owner........................................... 5
Certificate Pool Factor..................................... 23
Certificate Rate............................................ 5
Certificates................................................ 1
Closing Date................................................ 7
Code........................................................ 12, 60
Collection Account.......................................... 44
Collection Period........................................... 46
Commercial Paper Rate....................................... 34
Commercial Paper Rate Determination Date.................... 34
Commercial Paper Rate Security.............................. 33
Commission.................................................. 2
Composite Quotations........................................ 33
Cutoff Date................................................. 18
Dealer Agreements........................................... 18
Dealer Recourse............................................. 18
Dealers..................................................... 8, 18
Definitive Certificates..................................... 40
Definitive Notes............................................ 40
Definitive Securities....................................... 40
Depositaries................................................ 37
Depository.................................................. 26
Determination Date.......................................... 49
Disqualified Persons........................................ 61
</TABLE>
67
<PAGE> 134
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distribution Date........................................... 32
DOL......................................................... 61
DTC......................................................... 17
DTC's Nominee............................................... 17, 37
Eligible Deposit Account.................................... 46
Eligible Institution........................................ 46
Equity Interest............................................. 61
ERISA....................................................... 12
Euroclear................................................... 39
Euroclear Operator.......................................... 39
Euroclear Participants...................................... 39
Euroclear System............................................ 39
Events of Default........................................... 28
Events of Servicing Termination............................. 51
Exchange Act................................................ 2
Excluded Plan............................................... 63
Federal Funds Rate.......................................... 35
Federal Funds Rate Determination Date....................... 35
Federal Funds Rate Security................................. 33
Final Payment Receivables................................... 21
Final Payment Securities.................................... 54
Final Scheduled Maturity Date............................... 10
Financed Vehicles........................................... 6
Fixed Rate Securities....................................... 32
Floating Rate Securities.................................... 33
Ford........................................................ 15
Ford Credit................................................. 3
FTC Rule.................................................... 58
Funding Period.............................................. 5
General Account Regulations................................. 65
General Partner............................................. 14
H.15(519)................................................... 33
Indenture................................................... 3
Indenture Trustee........................................... 1
Index Maturity.............................................. 33
Indirect Participants....................................... 38
Initial Cutoff Date......................................... 7
Initial Pool Balance........................................ 55
Initial Receivables......................................... 7
Insolvency Event............................................ 52
Insolvency Laws............................................. 14
Interest Reset Date......................................... 33
Interest Reset Period....................................... 33
Intermediary Pooling and Servicing Agreement................ 3
Intermediary Trust.......................................... 1
Intermediary Trust Certificates............................. 7
Investment Earnings......................................... 46
IRS......................................................... 60
Issuer...................................................... 3
LIBOR....................................................... 36
LIBOR Determination Date.................................... 36
LIBOR Security.............................................. 33
</TABLE>
68
<PAGE> 135
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
London Banking Day.......................................... 36
Michigan Tax Counsel........................................ 12
Money Market Yield.......................................... 35
MSRP........................................................ 20
Noteholders................................................. 17, 38
Note Interest Rate.......................................... 4
Note Owner.................................................. 4
Note Payment Account........................................ 45
Note Pool Factor............................................ 23
Notes....................................................... 1
Obligors.................................................... 18
Participants................................................ 26, 37
Parties in Interest......................................... 61
Payahead Account............................................ 45
Payahead Balance............................................ 47
Payaheads................................................... 45
Permitted Investments....................................... 45
Plan........................................................ 61
Plan Assets Regulation...................................... 61
Plan Investor............................................... 65
Pool Balance................................................ 23
Pooling and Servicing Agreement............................. 3
Precomputed Advance......................................... 10
Precomputed Receivables..................................... 20
Pre-Funded Amount........................................... 8
Pre-Funding Account......................................... 1, 5
Prospectus Supplement....................................... 1
PTCE........................................................ 63
Purchase Agreement.......................................... 8, 43
Purchase Amount............................................. 44
Rating Agencies............................................. 28
Receivables................................................. 1, 6
Receivables Pool............................................ 18
Registration Statement...................................... 2
Reserve Account............................................. 49
Residual Cash Flow Certificates............................. 6
Residual Cash Flow Notes.................................... 4
Restricted Group............................................ 62
Reuters Screen LIBO Page.................................... 36
Rule of 78's Receivables.................................... 20
Rules....................................................... 38
Sale Agreement.............................................. 7
Sale and Servicing Agreement................................ 7
Securities.................................................. 1
Securities Act.............................................. 2
Securityholders............................................. 17
Seller...................................................... 1, 3
Senior Certificates......................................... 61
Servicer.................................................... 1, 3
Servicer Fee................................................ 48
Servicing Fee............................................... 48
Servicing Fee Rate.......................................... 48
</TABLE>
69
<PAGE> 136
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Simple Interest Advance..................................... 10
Simple Interest Receivables................................. 20
Special Tax Counsel......................................... 12, 60
Spread...................................................... 33
Spread Multiplier........................................... 33
Strip Certificates.......................................... 6
Strip Notes................................................. 4
Subordinated Certificates................................... 63
Subsequent Receivables...................................... 1, 8
Subsequent Transfer Date.................................... 43
Supplemental Servicing Fee.................................. 48
Terms and Conditions........................................ 39
Transfer and Servicing Agreements........................... 42
Treasury bills.............................................. 36
Treasury Rate............................................... 36
Treasury Rate Determination Date............................ 37
Treasury Rate Security...................................... 33
Trust....................................................... 1, 3
Trust Accounts.............................................. 45
Trust Agreement............................................. 3
Trustee..................................................... 1
UCC......................................................... 56
Underwriters' Exemption..................................... 61
Underwriting Agreements..................................... 65
</TABLE>
70
<PAGE> 137
(This page intentionally left blank)
<PAGE> 138
(This page intentionally left blank)
<PAGE> 139
(This page intentionally left blank)
<PAGE> 140
- ------------------------------------------------------
- ------------------------------------------------------
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 AND THIS PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER 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-20
The Trust.................................... S-23
The Receivables Pool......................... S-24
Pool Factors................................. S-32
Maturity and Prepayment Considerations....... S-32
Description of the Notes..................... S-33
Description of the Certificates.............. S-36
Description of the Transfer and Servicing
Agreements................................. S-38
Certain Federal Income Tax Consequences...... S-46
Certain State Tax Consequences............... S-55
Legal Investment............................. S-56
ERISA Considerations......................... S-56
Underwriting................................. S-57
Legal Opinions............................... S-59
Index of Terms............................... S-60
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................................. 13
The Trusts................................... 18
The Receivables Pools........................ 20
Maturity and Prepayment Considerations....... 22
Pool Factors and Trading Information......... 23
Use of Proceeds.............................. 23
The Seller and the General Partner........... 24
The Servicer................................. 25
Description of the Notes..................... 26
Description of the Certificates.............. 31
Certain Information Regarding the
Securities................................. 32
Description of the Transfer and Servicing
Agreements................................. 42
Certain Legal Aspects of the Receivables..... 56
Certain Federal Income Tax Consequences...... 60
ERISA Considerations......................... 60
Plan of Distribution......................... 65
Legal Opinions............................... 66
Index of Terms............................... 67
</TABLE>
UNTIL OCTOBER 18, 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$2,300,000,000
FORD CREDIT
AUTO OWNER TRUST
1998-C
$300,000,000
CLASS A-1
5.608% ASSET BACKED NOTES
$300,000,000
CLASS A-2
5.670% ASSET BACKED NOTES
$650,000,000
CLASS A-3
5.73% ASSET BACKED NOTES
$712,000,000
CLASS A-4
5.81% ASSET BACKED NOTES
$200,000,000
CLASS A-5
5.86% ASSET BACKED NOTES
$92,000,000
CLASS B
6.06% ASSET BACKED NOTES
$46,000,000
CLASS C
6.30% ASSET BACKED CERTIFICATES
FORD CREDIT AUTO
RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
------------
PROSPECTUS SUPPLEMENT
JULY 20, 1998
------------
SALOMON SMITH BARNEY
J.P. MORGAN & CO.
CHASE SECURITIES INC.
FORD FINANCIAL SERVICES, INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
- ------------------------------------------------------
- ------------------------------------------------------
