<PAGE> 1
REGISTRATION NO. 333-63551
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FORD CREDIT AUTO RECEIVABLES TWO L.P.
(Originator of the Trusts described herein)
(Exact Name of Registrant as Specified in Its Charter)
A Delaware Limited Partnership
IRS EMPLOYER NUMBER: 38-3295857
THE AMERICAN ROAD
DEARBORN, MICHIGAN 48121
(313) 322-3000
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R. P. CONRAD, ESQ.
FORD MOTOR CREDIT COMPANY
THE AMERICAN ROAD
DEARBORN, MICHIGAN 48121
(313) 594-7765
(Name and Address of Agent for Service)
COPY TO:
SUSAN M. CURTIS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Asset Backed Securities........... $8,000,000,000 100% $8,000,000,000 $2,360,000
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE GENERAL RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS WHICH IS A PART OF THIS
REGISTRATION STATEMENT IS A COMBINED PROSPECTUS RELATING ALSO TO REGISTRATION
STATEMENT NO. 333-40421 AND CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT NO. 333-40421.
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<PAGE> 2
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating to
the offering of series of Asset Backed Notes and/or Asset Backed Certificates by
various Ford Credit Auto Trusts created from time to time by Ford Credit Auto
Receivables Two L.P. and (ii) two forms of Prospectus Supplement relating to the
offering by Ford Credit Auto Trust 199 of the particular series of Asset Backed
Certificates or of Asset Backed Notes and Asset Backed Certificates described
therein. Each form of Prospectus Supplement relates only to the securities
described therein and is a form which may be used by Ford Credit Auto
Receivables Two L.P. to offer Asset Backed Notes and/or Asset Backed
Certificates under this Registration Statement and may be used by Ford Motor
Credit Company in connection with offers and sales of Asset Backed Notes and
Asset Backed Certificates originally purchased by Ford Motor Credit Company from
the Seller.
<PAGE> 3
The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION DATED , 199
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199
$
FORD CREDIT AUTO OWNER TRUST 199 -
$ % [CLASS A-1] ASSET BACKED NOTES
[$ FLOATING RATE CLASS A-2 ASSET BACKED NOTES]
[$ % CLASS A-3 ASSET BACKED NOTES]
[$ % ASSET BACKED CERTIFICATES]
FORD LOGO
FORD CREDIT AUTO RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
---------------------------
The Ford Credit Auto Owner Trust 199 - (the "Trust") will be governed by
an Amended and Restated Trust Agreement, to be dated as of , 199 ,
between Ford Credit Auto Receivables Two L.P. (the "Seller") and ,
as Owner Trustee. The Trust will issue $ aggregate initial principal amount
of [Class A-1] % Asset Backed Notes (the "[Class A-1] Notes")[, $
aggregate initial principal amount of Class A-2 Floating Rate Asset Backed Notes
(the "Class A-2 Notes") and $ aggregate initial principal amount of Class A-3
% Asset Backed Notes (the "Class A-3 Notes" and, together with the Class A-1
Notes and the Class A-2 Notes, the "Notes")] pursuant to an Indenture to be
dated as of , 199 , between the Trust and , as
Indenture Trustee. The Trust will also issue $ aggregate initial principal
balance of % Asset Backed Certificates (the "Certificates" and, together with
the Notes, the "Securities"). 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 related Cutoff Date (as
defined herein), which will be purchased by the Trust from the Seller on or
prior to the Closing Date, [monies on deposit in a trust account (the
"Pre-Funding Account") to be established with the Indenture Trustee] and certain
other property, as more fully described herein. See "Summary -- The Trust
Property" herein. [Additional motor vehicle retail installment sale contracts
(the "Subsequent Receivables") will be purchased by the Trust from the Seller
from time to time on or before , 199 , from funds on deposit in the
Pre-Funding Account.] The Notes will be secured by the assets of the Trust
pursuant to the Indenture.
(continued on following page)
---------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE S-22 HEREIN AND ON PAGE 12 OF THE
ACCOMPANYING PROSPECTUS.
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THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS
IN, AND ARE NOT GUARANTEED OR INSURED BY, FORD CREDIT AUTO RECEIVABLES TWO L.P.,
FORD CREDIT AUTO RECEIVABLES TWO, INC., FORD MOTOR CREDIT COMPANY, FORD MOTOR
COMPANY OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PUBLIC TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)(2)
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<S> <C> <C> <C>
Per [Class A-1] Note................................ % % %
[Per Class A-2 Note................................. % % %]
[Per Class A-3 Note................................. % % %]
[Per Certificate.................................... % % %]
Total............................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 199 .
(2) Before deducting expenses, estimated to be $ .
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[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 a prices related to
prevailing market prices at the time of sale.
[This Prospectus Supplement and the Prospectus may be used by Ford Motor
Credit Company in connection with offers and sales of the [Class Notes] [and
Class Certificates] originally purchased by Ford Motor Credit Company from the
Seller. Such sales will be made at prices related to prevailing market prices at
the time of sale.]
The Notes and the Certificates are offered by the Underwriters when, as and
if issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes and the
Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company, or through Cedel Bank,
societe anonyme or the Euroclear System, on or about the Closing Date.
---------------------------
The date of this Prospectus Supplement is , 199 .
<PAGE> 4
(CONTINUED FROM PREVIOUS PAGE)
Interest on [the] [all classes of] Notes [other than the Class A-2 Notes]
will accrue at the fixed per annum interest rates specified above. [The Class
A-2 Notes will accrue interest at a rate of % per annum for the period from
the Closing Date through 199 . Thereafter, the Class A-2 Notes will accrue
interest at a per annum rate equal to LIBOR plus %.] Interest on the Notes
will generally be payable [quarterly] on the day of each [month]
[ , , and ] (each, a "[Distribution] [Payment] Date"),
commencing , 199 . Principal of the Notes will be payable on each
[Distribution] [Payment] Date to the extent described herein[; however, no
principal will be paid on the Class A-2 Notes until the Class A-1 Notes have
been paid in full and no principal will be paid on the Class A-3 Notes until the
Class A-2 Notes have been paid in full].
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 A-3 Notes will
be made until payment in full of principal and interest on the [Class A-1] Notes
and the Class A-2 Notes. Following the occurrence of any other Event of Default
which has resulted in an acceleration of the Notes, interest on the [Class A-1]
Notes and the Class A-2 Notes and the Class A-3 Notes must be paid in full on
each Distribution Date prior to the distribution of principal on the [Class A-1]
Notes and the Class A-2 Notes.
The Certificates will represent [fractional undivided] interests in the
Trust. Interest, to the extent of the Certificate Rate specified above, will be
distributed to the Certificateholders on [each Distribution Date] [the day
of each month (each, a "Distribution Date"), commencing , 199 ].
Principal, to the extent described herein, will be distributed to the
Certificateholders on each Distribution Date commencing with the later of (i)
the Distribution Date next succeeding the Distribution Date on which the [Class
A-1] Notes are paid in full and (ii) the , 199 Distribution Date.
Distributions of principal and interest on the Certificates will be subordinated
in priority to payments due on the Notes [to the extent] [as] described herein.
In addition, upon the occurrence and during the continuation of an Event of
Default which has resulted in an acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to the Seller or Ford Credit Auto
Receivables Two, Inc., the general partner of the Seller (the "General
Partner"), distributions of any amounts on the Certificates will be subordinated
in priority of payment to payment in full of principal of the Notes. [Moreover,
upon any downgrading or withdrawal by any Rating Agency of its rating of any
class of Notes, no distributions of principal on the Certificates will be made
until all the Notes have been paid in full, unless such rating has been
restored.]
[The] [Class A-1] Notes will be payable in full on the [Payment]
[Distribution] Date[, the Class A-2 Notes will be payable in full on the
[Payment] [Distribution] Date and the Class A-3 Notes will be payable in full on
the [Payment] [Distribution] Date. The final scheduled Distribution Date with
respect to the Certificates will be the Distribution Date. However, payment in
full of [the] [a class of] Notes or of the Certificates could occur earlier or
later than such dates as described herein. In addition, the [Class A-3] Notes
will be subject to redemption in whole, but not in part, and the Certificates
will be subject to prepayment in whole, but not in part, on any Distribution
Date on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the aggregate principal balance of
the Receivables shall have declined to 10% or less of the initial aggregate
principal balance of the Receivables purchased by the Trust. [One or more
classes of the Notes will be subject to partial mandatory redemption and the
Certificates may be subject to partial mandatory prepayment, at a premium
described herein, in the event that funds remain in the Pre-Funding Account at
the end of the Funding Period (as defined herein).]
[The Class Notes] [and Class Certificates] may be offered for sale from
time to time by the Ford Credit or other affiliates of the Seller, to or through
underwriters or directly to purchasers through agents in one or more
transactions, at prices related to prevailing market prices or at negotiated
prices. See "Underwriting." Such selling affiliates of the Seller and any
brokers and dealers through whom sales of the Offered Shares are made may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and the commissions or discounts and other
compensation paid to such persons may be regarded as underwriters' compensation.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE NOTES AND THE
CLASS CERTIFICATES, INCLUDING PURCHASES OF THE NOTES OR THE CLASS
CERTIFICATES TO STABILIZE THE MARKET PRICE THEREOF, PURCHASES OF THE NOTES OR
THE CLASS CERTIFICATES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES
OR THE CLASS CERTIFICATES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. SEE "UNDERWRITING" HEREIN.
S-2
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REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
periodic and annual unaudited reports containing information concerning the
Receivables will be prepared by the Servicer and sent on behalf of the Trust
only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC")
and registered holder of the Notes and the Certificates. See "Certain
Information Regarding the Securities -- Book-Entry Registration" and "-- Reports
to Securityholders" in the accompanying Prospectus (the "Prospectus"). Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The Seller, as originator of the
Trust, will file with the Securities and Exchange Commission (the "Commission")
such periodic reports as are required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder. In addition, the Commission maintains a public access site on the
Internet through the World Wide Web at which site reports, information
statements and other information, including all electronic filings, may be
viewed. The Internet address of such World Wide Web site is http://www.sec.gov.
S-3
<PAGE> 6
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 199 -- (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 , 199 , among 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............. , as trustee under the Indenture
(the "Indenture Trustee").
OWNER TRUSTEE................. , 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 , 199 (as amended
and supplemented from time to time, the
"Indenture"), between the Issuer and the
Indenture Trustee[, as follows: (1) Class A-1
% Asset-Backed Notes (the "Class A-1
Notes") in the aggregate initial principal
amount of $ ; (2) Class A-2 Floating
Rate Asset Backed Notes (the "Class A-2
Notes") in the aggregate initial principal
amount of $ ; and (3) Class A-3 %
Asset Backed Notes (the "Class A-3 Notes") in
the aggregate initial principal amount of
$ ].
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 CERTIFICATES.............. The Trust will issue % Asset-Backed
Certificates (the "Certificates" and,
together with the Notes, the "Securities")
with an aggregate initial Certificate Balance
of $ . The Certificates will
represent [fractional undivided] interests in
the Trust and will be issued pursuant to the
Trust Agreement.
S-4
<PAGE> 7
The Certificates 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 Certificates
(a "Certificate Owner") will be entitled to
receive Definitive Certificates, except in
the limited circumstances described herein.
See "Certain Information Regarding the
Securities -- Definitive Securities" in the
Prospectus. [Purchasers of Certificates and
their assignees must represent that they are
United States persons, and each must provide
a certification of non-foreign status under
penalties of perjury.]
The rights of the Certificateholders to receive
distributions with respect to the
Certificates will be subordinated to the
rights of the Noteholders to receive
principal and interest on the Notes [to the
extent] [as] described herein.
THE TRUST PROPERTY............ The property of the Trust will include (i) the
Receivables; (ii) with respect to Precomputed
Receivables, all monies due thereunder on or
after the related Cutoff Date and with
respect to Simple Interest Receivables, all
monies due or received thereunder on or after
the related 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[, the Yield
Supplement Account] [and the Pre-Funding
Account]; (viii) certain rights under the
Sale and Servicing Agreement [and the Yield
Supplement 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;
[(xii) the Interest Rate Cap;] [(xiii) the
Interest Rate Swap;] [(xiv) the Guaranteed
Rate Agreement;] and (xv) any and all
proceeds of the foregoing. The rights and
benefits with respect to such property will
be assigned by the Seller and the Owner
Trustee to the Indenture Trustee for the
benefit of the Securityholders. The property
of the Trust does not include the Payahead
Account.
THE RECEIVABLES............... On , 199 (the "Closing Date"),
the Trust will purchase Receivables (the
"[Initial] Receivables") having an aggregate
principal balance of approximately
$ as of , 199 (the
"[Initial] Cutoff
S-5
<PAGE> 8
Date") from the Seller pursuant to a Sale and
Servicing Agreement to be dated as of
, 199 (as amended and
supplemented from time to time, the "Sale and
Servicing Agreement"), among the Trust, the
Seller and the Servicer. As of the [Initial]
Cutoff Date, the weighted average annual
percentage rate ("APR") of the [Initial]
Receivables was approximately %, the
weighted average remaining maturity of the
[Initial] Receivables was approximately
months and the weighted average original
maturity of the [Initial] Receivables was
approximately months.
[On and following the Closing Date, pursuant to
the Sale and Servicing Agreement, the Seller
will be obligated, subject only to the
availability thereof, to sell, and the Trust
will be obligated to purchase, subject to the
satisfaction of certain conditions set forth
therein, additional Receivables (the
"Subsequent Receivables") from time to time
during the Funding Period having an aggregate
principal balance equal to approximately
$ (such amount being equal to an
amount on deposit in the Pre-Funding Account
(the "Pre-Funded Amount") on the Closing
Date). The Seller will designate as a cutoff
date (each a "Subsequent Cutoff Date") each
date as of which payments in respect of
particular Subsequent Receivables are
conveyed to the Trust. It is expected that
certain of the Subsequent Receivables arising
between the Initial Cutoff Date and the
Closing Date will be conveyed to the Trust on
the Closing Date and that other Subsequent
Receivables will be conveyed to the Trust as
frequently as daily thereafter on dates
specified by the Seller (each date on which
Subsequent Receivables are conveyed to the
Trust being referred to as a "Subsequent
Transfer Date") occurring during the Funding
Period. See "Description of the Transfer and
Servicing Agreements -- Sale and Assignment
of Receivables; Subsequent Receivables"
herein.] [Coincident with each such transfer
of Subsequent Receivables, the Yield
Supplement Agreement will require Ford Credit
to deposit into the Yield Supplement Account
an amount equal to the Additional Yield
Supplement Amount, if any, in respect of such
Subsequent Receivables. See "Description of
the Transfer and Servicing Agreements --
Yield Supplement Account; Yield Supplement
Agreement" herein.]
The [Initial] Receivables [and the Subsequent
Receivables] 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, the "Purchase Agreement"). The
[Initial] Receivables have been selected[,
and the Subsequent Receivables will be
selected,] from the contracts owned by Ford
Credit based on the criteria specified in the
Sale and Servicing Agreement and described
herein and in the Prospectus.
S-6
<PAGE> 9
No [Initial] Receivable has[, and no
Subsequent Receivable will have,] a scheduled
maturity later than (the
"Final Scheduled Maturity Date").
[Subsequent Receivables may be originated by
Ford Credit at a later date using credit
criteria different from those which were
applied to the Initial Receivables and may be
of a different credit quality and seasoning.
In addition, following the transfer of
Subsequent Receivables to the Trust, the
characteristics of the entire pool of
Receivables included in the Trust may vary
significantly from those of the Initial
Receivables. See "Risk Factors -- The
Subsequent Receivables and the Pre-Funding
Account" and "The Receivables Pool" herein.]
The "Pool[/Pre-Funding] Balance" at any time
[will represent] [is the sum of (i)] the
aggregate principal balance of the
Receivables at the end of the preceding
Collection Period, after giving effect to all
payments (other than Payaheads) received from
Obligors, Liquidation Proceeds, Advances and
Purchase Amounts to be remitted by the
Servicer or the Seller, as the case may be,
all for such Collection Period and all
Realized Losses during such Collection Period
[(such amount, the "Pool Balance") and (ii)
the amount on deposit in the Pre-Funding
Account (excluding any Investment Earnings)].
"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] [PAYMENT]
DATES...................... Payments of interest and principal on the Notes
will be made [quarterly] on the day of each
[month] [ , ,
and ] or, if any such day is not a
Business Day, on the next succeeding Business
Day (each, a "[Distribution] [Payment]
Date"), commencing , 199 .
[Under certain limited circumstances, such
payments will be made monthly rather than
quarterly.] Payments will be made to holders
of record of the Notes (the "Noteholders") as
of the day immediately preceding such
[Distribution] [Payment] Date or, if
Definitive Notes are issued, as of the day of
the preceding month [(a "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 are authorized by law, regulation
or executive order to be closed.
B. NOTE INTEREST RATES........ The [Class A-1] Notes will bear interest at the
rate of % per annum (the ["Note Interest
Rate"] ["Class A-1 Rate"]) [and the Class A-3
Notes will bear interest at the rate of %
per annum (the "Class A-3 Rate"). The rate of
interest with respect to the Class A-2 Notes
(the
S-7
<PAGE> 10
"Class A-2 Rate" and, together with the Class
A-1 Rate and the Class A-3 Rate, the "Note
Interest Rates") will be % per annum for
the period from the Closing Date to but
excluding the first [Distribution] [Payment]
Date, and will be equal to LIBOR for the
applicable Interest Reset Period plus %
for each [Distribution] [Payment] Date
thereafter[; provided that the Class A-2 Rate
shall not exceed % per annum]].
C. INTEREST................... On each [Distribution] [Payment] Date, the
Indenture Trustee will distribute pro rata to
Noteholders [of each class of Notes] accrued
interest at the [applicable] Note Interest
Rate generally to the extent of funds
available following payment of the Servicing
Fee from the Available Funds and the Reserve
Account. Interest on the outstanding
principal amount of the Notes [of each class]
will accrue at the [applicable] Note Interest
Rate from and including the Closing Date (in
the case of the first [Distribution]
[Payment] Date) or from and including the
most recent [Distribution] [Payment] Date on
which interest has been paid to but excluding
the following [Distribution] [Payment] Date
(each an "Interest Period"). [Interest on the
Class A-1 Notes will be calculated on the
basis of actual days elapsed and a 365- or
366-day year, as applicable.] Interest on the
[[Class A-1 Notes and the] Class A-3] Notes
will be calculated on the basis of a 360-day
year of twelve 30-day months. [Interest on
the Class A-2 Notes will be calculated on the
basis of actual days elapsed and a 360-day
year.] See "Description of the Notes --
Payments of Interest" herein.
D. PRINCIPAL.................. Principal of the Notes will be payable
[quarterly] on each [Distribution] [Payment]
Date in an amount equal to [the sum of] the
Noteholders' Principal Payment Amount for
[each of] the [three] calendar month[s]
([the] [each, a] "Collection Period")
preceding such [Distribution] [Payment] Date
(in the case of the first [Distribution]
[Payment] Date, including the period from
, 199 to and including
, 199 ) to the extent of funds
available therefor. The "Noteholders'
Principal Payment Amount" [with respect to a
Collection Period] will generally be the sum
of (i) the Noteholders' Percentage of the
Regular Principal (such "Regular Principal"
being the sum of (a) all scheduled payments
of principal and the principal portion of 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), (b) the principal portion of all
payments collected with respect to Simple
Interest Receivables, and (c) the principal
balance of each Receivable purchased by the
Servicer, repurchased by the Seller or
liquidated by the Servicer, each with respect
to [the preceding] [such] Collection Period)
plus (ii) % of
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<PAGE> 11
the portion, if any, of the Available Funds
for such Collection Period that remains after
payment of (a) the Servicing Fee, (b) the
interest [due] [accrued] on the Notes, (c)
the portion of the Regular Principal
allocated to the Noteholders pursuant to
clause (i), (d) the interest due on the
Certificates, (e) the portion of the Regular
Principal distributed to the
Certificateholders as described below under
"Description of the Certificates --
Distributions of Principal Payments" herein,
and (f) the amount, if any, required to be
deposited in the Reserve Account on [such]
[the related] Distribution Date [plus the
excess of the amount on deposit in the
Reserve Account on such Distribution Date
(after giving effect to all deposits or
withdrawals therefrom on such Distribution
Date) over the Specified Reserve Balance]
(such percentage of the remaining portion of
Available Funds [plus such excess], the
"Noteholders' Accelerated Principal"). [Or,
state other method for determining the amount
of principal to be paid on the Notes.]
[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-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) 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
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<PAGE> 12
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 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) $ , (ii) % 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
$ ; 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 , 199 , 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
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<PAGE> 13
allocable to interest and the amount
allocable to principal on the basis described
under "Description of the Transfer and
Servicing Agreements -- Distributions --
Allocation of Collections on Receivables" in
the Prospectus, and payments to
Securityholders on the following Distribution
Date will be based on such allocation.
Payments of principal on the Notes will be made
on each [Distribution] [Payment] Date in the
amounts and subject to the priorities
described in "Description of the Notes --
Payments of Principal" herein.
The outstanding principal amount of the [Class
A-1] Notes, to the extent not previously
paid, will be payable on (the "[Class A-1]
Final Scheduled [Distribution] [Payment]
Date")[, the outstanding principal amount of
the Class A-2 Notes, to the extent not
previously paid, will be payable on (the
"Class A-2 Final Scheduled [Distribution]
[Payment] Date") and the outstanding
principal amount of the Class A-3 Notes, to
the extent not previously paid, will be
payable on (the "Class A-3 Final Scheduled
[Distribution] [Payment] Date")].
E. OPTIONAL REDEMPTION........ The [Class A-3] Notes will be redeemed in
whole, but not in part, on any Distribution
Date [after all the other classes of Notes
have been paid in full] 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, at a redemption price
equal to the unpaid principal amount of the
[Class A-3] Notes plus accrued and unpaid
interest thereon. See "Description of the
Notes -- Optional Redemption" herein. The
"Initial Pool Balance" will equal [the sum of
(i)] the aggregate principal balance of the
[Initial] Receivables as of the [Initial]
Cutoff Date [plus (ii) the aggregate
principal balances of all Subsequent
Receivables added to the Trust on or prior to
such date as of their respective Subsequent
Cutoff Dates].
[F. MANDATORY REDEMPTION FROM
PRE-FUNDING ACCOUNT....... [The] [A Class or classes of] Notes then
outstanding will be redeemed in part on the
Distribution Date on or immediately following
the last day of the Funding Period in the
event that amounts remain on deposit in the
Pre-Funding Account after giving effect to
the purchase of all Receivables, including
any such purchase on such date (a "Mandatory
Redemption"). If the amount on deposit in the
Pre-Funding Account on such date is equal to
$ or less, then such amount will be
used to redeem the [Class A-1] Notes [up to
an amount not to exceed their outstanding
amount, with any remaining amount used to
redeem the Class A-2 Notes]. Otherwise the
amount on deposit in the Pre-Funding Account
on such date will be used to redeem [each
Class of] the Notes and the Certificates. The
aggregate principal
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<PAGE> 14
amount of [each Class of] the Notes to be
redeemed will be an amount equal to [the
Notes'] [such class'] Pre-Funded Percentage
of the amount then on deposit in the
Pre-Funding Account. The "Pre-Funded
Percentage" with respect to [the] [a Class
of] Notes or the Certificates is the
percentage derived from the fraction, the
numerator of which is the initial principal
amount of [the] [such Class of] Notes or the
initial Certificate Balance, as the case may
be, and the denominator of which is the sum
of the initial principal amount of the Notes
and the initial Certificate Balance.]
[A limited recourse mandatory prepayment
premium (the "Note Prepayment Premium") will
be payable by the Trust to the Noteholders
pursuant to a Mandatory Redemption if the
amount on deposit in the Pre-Funding Account
exceeds $ . The Note Prepayment Premium [for
each Class of Notes] will equal the excess,
if any, discounted as described below, of (i)
the amount of interest that would accrue on
[the Notes'] [such class'] portion of any
remaining Pre-Funded Amount (the "Note
Prepayment Amount") at the Note Interest Rate
borne by [the] [such Class of] Notes during
the period commencing on and including the
Distribution Date on which such Note
prepayment amount is required to be
distributed to Noteholders [of such class] to
but excluding [, in the case
of the Class A-1 Notes, in the case of the
Class A-2 Notes and , in the
case of the Class A-3 Notes], over (ii) the
amount of interest that would have accrued on
such Note Prepayment Amount over the same
period at a per annum rate of interest equal
to the bond equivalent yield to maturity on
the Determination Date preceding such
Distribution Date on the [, in
the case of the Class A-1 Notes, the
, in the case of the Class A-2
Notes, and the , in the case
of the Class A-3 Notes]. Such excess shall be
discounted to present value to such
Distribution Date at the applicable yield
described in clause (ii) above. Pursuant to
the Sale and Servicing Agreement, the Seller
will be obligated to pay the sum of the Note
Prepayment Premium [for each class of Notes]
and the Certificate Prepayment Premium to the
Trust as liquidated damages for the failure
to deliver Subsequent Receivables having an
aggregate principal balance equal to the
Pre-Funded Amount. The Trust's obligation to
pay the Note Prepayment Premium [for each
class of Notes] and the Certificate
Prepayment Premium will be limited to funds
received from the Seller pursuant to the
preceding sentence. In the event that such
funds are insufficient to pay the Note
Prepayment Premium [for each class of Notes]
and the Certificate Prepayment Premium in
full, Noteholders [of each class of Notes]
will receive their ratable share (based upon
the aggregate Note
S-12
<PAGE> 15
Prepayment Premium [for such class]) of the
aggregate amount available to be distributed
in respect of the Note Prepayment Premium and
the Certificate Prepayment Premium. No other
assets of the Trust will be available for the
purpose of making such payment.]]
[G. LIMITED RIGHTS............ If an Event of Default occurs under the
Indenture, the Class A-3 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-1] Notes and the Class A-2 Notes have been
paid in full, and if an Event of Servicing
Termination occurs, the Class A-3 Noteholders
will not have any right to direct or consent
to removal of the Servicer until the [Class
A-1] Notes and the Class A-2 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-1]
Notes and the Class A-2 Notes have been paid
in full, the failure to pay interest due on
the Class A-3 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 of
Servicing Termination" and "-- Waiver of Past
Events of Servicing Termination" herein.]
TERMS OF THE CERTIFICATES..... The principal terms of the Certificates will be
as described below:
A. DISTRIBUTION DATES......... Distributions with respect to the Certificates
will be made on [each Distribution Date] [the
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 , 199 .
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 (which will be the day
of the month if Definitive Certificates are
issued)] [as of the day immediately preceding
such Distribution Date or, if Definitive
Certificates are issued, as of the day of the
preceding month].
B. CERTIFICATE RATE........... % per annum (the "Certificate Rate").
C. INTEREST................... On each Distribution Date, the Owner Trustee
will distribute pro rata to
Certificateholders accrued interest at the
Certificate Rate on the outstanding
Certificate Balance generally to the extent
of funds available following payment of the
Servicing Fee and distributions in respect of
the Notes from the Available Funds and the
Reserve Account; provided, however, that 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
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<PAGE> 16
Event or a dissolution with respect to the
Seller or the General Partner, distributions
of any amounts on the Certificates will be
subordinated in priority of payment to
payment in full of principal of the Notes.
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 most recent
Distribution Date on which interest has been
paid to but excluding the following
Distribution Date. Interest will be
calculated on the basis of a 360-day year
consisting of twelve 30-day months.
D. PRINCIPAL.................. On each Distribution Date commencing on the
later of (i) the 199 Distribution Date
and (ii) the Distribution Date next
succeeding the Distribution Date on which the
[Class A-1] Notes are paid in full, principal
of the Certificates will be payable in an
amount generally equal to the
Certificateholders' Principal Distribution
Amount for the Collection Period preceding
such Distribution Date, to the extent of
funds available therefor following payment of
the Servicing Fee and payments of interest
and principal in respect of the Notes and the
distribution of interest in respect of the
Certificates; provided, however, that upon
the occurrence and during the continuation of
an Event of Default which has resulted in an
acceleration of the Notes or following an
Insolvency Event or a dissolution with
respect to the Seller or the General Partner,
distributions of any amounts on the
Certificates will be subordinated in priority
of payment to payment in full of principal of
the Notes[; and provided further that upon
any reduction or withdrawal by any Rating
Agency of its rating of [the] [any class of]
Notes, no distributions of principal on the
Certificates will be made until all the Notes
have been paid in full or until such rating
has been restored]. The Certificateholders'
Principal Distribution Amount will be based
on the Certificateholders' Percentage of the
Regular Principal, and will be calculated by
the Servicer in the manner described under
"Description of the Transfer and Servicing
Agreements -- Distributions" herein. The
outstanding principal balance, if any, of the
Certificates will be payable in full on
, 199 (the "Final Scheduled
Distribution Date").
E. OPTIONAL PREPAYMENT........ If the Servicer exercises its option to
purchase the Receivables, which can occur
after the Pool Balance declines to 10% or
less of the Initial Pool Balance, the
Certificateholders will receive an amount in
respect of the Certificates equal to the
Certificate Balance together with accrued
interest at the Certificate Rate, and the
Certificates will be retired. See
"Description of the Certificates -- Optional
Prepayment" herein.
[F. MANDATORY REPURCHASE FROM
PRE-FUNDING ACCOUNT....... The Certificates will be prepaid, in part, pro
rata on the basis of their initial principal
balances, on the Distribution Date on or
immediately following the last day of the
Funding
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<PAGE> 17
Period in the event that the amount on
deposit in the Pre-Funding Account after
giving effect to the purchase of all
Receivables, including any such purchase on
such date exceeds $ (a "Mandatory
Repurchase"). The aggregate principal balance
of Certificates to be prepaid will be an
amount equal to the Certificates' Pre-Funded
Percentage of the amount then on deposit in
the Pre-Funding Account.
[A limited recourse mandatory prepayment
premium (the "Certificate Prepayment
Premium") will be payable by the Trust to the
Certificateholders at the time of any
prepayment of the Certificates pursuant to a
Mandatory Repurchase. The Certificate
Prepayment Premium will equal the excess, if
any, discounted as described below, of (i)
the amount of interest that would accrue on
the Certificates' portion of any remaining
Pre-Funded Amount (the "Certificate
Prepayment Amount") at the Certificate Rate
during the period commencing on and including
the Distribution Date on which such
Certificate Prepayment Amount is required to
be distributed to Certificateholders to but
excluding , over (ii) the amount of
interest that would have accrued on such
Certificate Prepayment Amount over the same
period at a per annum rate of interest equal
to the bond equivalent yield to maturity on
the Determination Date preceding such
Distribution Date on the . Such excess
will be discounted to present value to such
Distribution Date at the yield described in
clause (ii) above. Pursuant to the Sale and
Servicing Agreement, the Seller will be
obligated to pay the sum of the Note
Prepayment Premium [for each class of Notes]
and the Certificate Prepayment Premium to the
Trust as liquidated damages for the failure
to deliver Subsequent Receivables having an
aggregate principal balance equal to the
Pre-Funded Amount. The Trust's obligation to
pay the Note Prepayment Premium [for each
class of Notes] and the Certificate
Prepayment Premium will be limited to funds
received from the Seller pursuant to the
preceding sentence. In the event that such
funds are insufficient to pay the Note
Prepayment Premium [for each class of Notes]
and the Certificate Prepayment Premium in
full, Certificateholders will receive their
ratable share (based upon the aggregate
Certificate Prepayment Premium) of the
aggregate amount available to be distributed
in respect of the Note Prepayment Premium and
the Certificate Prepayment Premium. No other
assets of the Trust will be available for the
purpose of making such payment.]]
[INTEREST RATE CAP............ On the Closing Date, the Seller will enter into
an Interest Rate Cap in respect of the Class
A-2 Notes with (the "Interest Rate
Cap Provider"). Pursuant to the Interest Rate
Cap, the Interest Rate Cap Provider will make
a payment to the Trust on each [Distribution]
[Payment] Date on which [the Class A-2 Rate]
[LIBOR] for the
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<PAGE> 18
preceding [Distribution] [Payment] Date
exceeds the Cap Rate in an amount equal to
the product of (i) the difference between
[such Class A-2 Rate] [LIBOR] and the Cap
Rate, (ii) the Cap Notional Amount and (iii)
the actual number of days from and including
the preceding [Distribution] [Payment] Date
to but excluding such [Distribution]
[Payment] Date divided by 360. The Cap
Notional Amount on any [Distribution]
[Payment] Date will equal at least the
principal amount of the Class A-2 Notes as of
the close of the preceding [Distribution]
[Payment] Date. See "Description of the
Transfer and Servicing Agreements -- Interest
Rate Cap" herein. Payments received by the
Indenture Trustee pursuant to the Interest
Rate Cap will be deposited in the Collection
Account for the benefit of all
Securityholders.]
[INTEREST RATE SWAP........... On the Closing Date, the Indenture Trustee, on
behalf of the Trust, will enter into one or
more Interest Rate Swap Agreements
(collectively, the "Interest Rate Swap") with
(the "Swap Counterparty").
Pursuant to the Interest Rate Swap, the Swap
Counterparty will pay to the Trust, on each
[Distribution] [Payment] Date, interest at a
per annum rate equal to [the Class A-2 Rate]
[LIBOR] on the Swap Notional Amount. The Swap
Notional Amount on any [Distribution]
[Payment] Date will equal the principal
amount of the Class A-2 Notes as of the close
of the preceding [Distribution] [Payment]
Date. In exchange for such payments, the
Trust will pay to the Swap Counterparty, on
each [Distribution] [Payment] Date, interest
at a per annum rate equal to [the lesser of]
[ %] [and] [the Prime Rate less %],
on the outstanding principal amount of the
Class A-2 Notes as of the close of the
preceding [Distribution] [Payment] Date [,
which rate will be reset [on various dates
in] each [month] [Interest Period]]. With
respect to each [Distribution] [Payment]
Date, any difference between the [monthly]
[quarterly] payment by the Swap Counterparty
to the Trust and the [monthly] [quarterly]
payment by the Trust to the Swap Counterparty
will be referred to herein as the "Net Trust
Swap Receipt," if such difference is a
positive number, and the "Net Trust Swap
Payment," if such difference is a negative
number. Net Trust Swap Receipts, if any, will
be deposited in the Collection Account for
the benefit of all Securityholders and Net
Trust Swap Payments, if any, will be paid
from the Collection Account in the same
manner and priority as accrued and unpaid
interest on the Notes on each [Distribution]
[Payment] Date. See "Description of the
Transfer and Servicing Agreements -- Interest
Rate Swap" herein.]
[PRE-FUNDING ACCOUNT.......... During the period (the "Funding Period") from
and including the Closing Date until the
earliest of (a) the Determination Date on
which the amount on deposit in the
Pre-Funding Account is equal to $ or
less, (b) the occurrence of
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<PAGE> 19
an Event of Default under the Indenture or an
Event of Servicing Termination under the Sale
and Servicing Agreement, (c) the occurrence
of certain events of insolvency or
dissolution with respect to the Seller, the
General Partner or the Servicer and (d) the
Determination Date with respect to the
, 199 Distribution Date, the
Pre-Funded Amount will be maintained as an
account in the name of the Indenture Trustee
(the "Pre-Funding Account"). The Pre-Funded
Amount will initially equal approximately
$ , and, during the Funding Period,
will be reduced by the amount thereof used to
purchase Subsequent Receivables in accordance
with the Sale and Servicing Agreement and the
amount thereof deposited in the Reserve
Account in connection with the purchase of
such Subsequent Receivables. The Seller
expects that the Pre-Funded Amount will be
reduced to $ or less by the
Distribution Date. Any Pre-Funded Amount
remaining at the end of the Funding Period
will be payable to the Noteholders and
Certificateholders as described above.]
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 value at least equal to % of the
[Initial Pool Balance] [Pool Balance as of
the Initial Cutoff Date] [plus an amount
attributable to the difference between the
anticipated investment earnings on the
Pre-Funded Amount and the weighted average
interest expense on the portion of the Notes
and Certificates represented by the
Pre-Funded Amount]. [On each Subsequent
Transfer Date, cash or Permitted Investments
having a value approximately equal to % of
the aggregate principal balance of the
Subsequent Receivables conveyed to the Trust
on such Subsequent Transfer Date will be
withdrawn from the Pre-Funding Account from
amounts otherwise distributable to the Seller
in connection with the sale of Subsequent
Receivables and deposited in the Reserve
Account.] The amount initially deposited in
the Reserve Account by the Seller [together
with the aggregate amount transferred from
the Pre-Funding Account to the Reserve
Account on each Subsequent Transfer Date] is
referred to as 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 will be withdrawn from the Reserve
Account up to the Available Reserve Amount to
the extent that the Available Funds with
respect to any Collection Period remaining
after the Servicing Fee is paid is less than
the Noteholders' Payment Amount and will be
deposited in the Note Payment Account for
distribution to the Noteholders on the
related [Distribution] [Payment] Date. In
addition, funds will be withdrawn from the
Reserve Account up to the Available Reserve
Amount (as reduced by any withdrawal pursuant
to the preceding sentence) to the extent
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<PAGE> 20
that the Available Funds remaining after
payment of the Servicing Fee and the deposit
of the Noteholders' Payment Amount in the
Note Payment Account is less than the
Certificateholders' Distribution Amount and
will be deposited in the Certificate
Distribution Account for distribution to the
Certificateholders. [If funds applied in
accordance with the preceding sentence are
insufficient to distribute the interest due
on the Certificates, subject to certain
limitations, funds will be withdrawn from the
Reserve Account and applied to distribute
interest on the Certificates to the extent of
the Certificate Interest Reserve Amount.]
On each Distribution Date, the Reserve Account
will be reinstated up to the Specified
Reserve Balance to the extent, if any, of the
Available Funds remaining after payment of
the Servicing Fee, the deposit of the
Noteholders' Payment Amount into the Note
Payment Account and the deposit of the
Certificateholders' Distribution Amount into
the Certificate Distribution Account.
Certain amounts in the Reserve Account on any
Distribution Date (after giving effect to all
distributions to be made on such Distribution
Date) in excess of the Specified Reserve
Balance for such Distribution Date will be
released to the Seller (except to the extent
described under "Description of the Transfer
and Servicing Agreements -- Reserve Account"
herein). Subject to reduction as described
below, the "Specified Reserve Balance" with
respect to any Distribution Date generally
will be equal to the sum of (i) % of the
[Initial Pool Balance] [Pool Balance as of
the Initial Cutoff Date] [, plus an amount
related to the difference between anticipated
investment earnings on the remaining
Pre-Funded Amount and the weighted average
interest expense on the portion of the Notes
and Certificates represented by the remaining
Pre-Funded Amount] and (ii) % of the Pool
Balance on the first day of the related
Collection Period. [However, so long as on
any Distribution Date (except the first
Distribution Date) the sum of (x) the
outstanding principal amount of the
Securities (after giving effect to
distributions made on the prior Distribution
Date) and (y) the aggregate amount of
Payaheads that have been collected but not
yet applied as payments under the related
Receivables as of the first day of the
related Collection Period is less than or
equal to [the sum of] % of [(a)] the Pool
Balance on the first day of the related
Collection Period [and (b) the Pre-Funded
Amount on such date], then the portion of the
Specified Reserve Balance set forth in clause
(i) above will be reduced to % of the
[Initial Pool Balance] [Pool Balance as of
the Initial Cutoff Date].] [In addition, so
long as on any Distribution Date (except the
first Distribution Date) the sum of (x) the
outstanding principal amount of the
Securities (after giving effect to
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<PAGE> 21
distributions made on the prior Distribution
Date) and (y) the aggregate amount of
Payaheads that have been collected but not
yet applied as payments under the related
Receivables as of the first day of the
related Collection Period is less than or
equal to [the sum of] % of [(a)] the Pool
Balance on the first day of the related
Collection Period [and (b) the Pre-Funded
Amount on such day], then such portion of the
Specified Reserve Balance set forth in clause
(i) above will be reduced to % of the
[Initial Pool Balance] [Pool Balance as of
the Initial Cutoff Date].] [With respect to
the portion of the Specified Reserve Balance
set forth in clause (ii) above, so long as on
any Distribution Date (except the first
Distribution Date) the sum of (x) the
outstanding principal amount of the
Securities (after giving effect to
distributions made on the prior Distribution
Date) and (y) the aggregate amount of
Payaheads that have been collected but not
yet applied as payments under the related
Receivables as of the first day of the
related Collection Period is less than or
equal to [the sum of] % of [(a)] the Pool
Balance on the first day of the related
Collection Period [and (b) the Pre-Funded
Amount on such day], then such portion will
be reduced to an amount equal to the product
of (I) the Pool Balance on the first day of
the related Collection Period and (II) the
percentage (which shall not be greater than
% or less than zero) equal to (X) the
percentage derived from the fraction, the
numerator of which is the outstanding
principal amount of the Securities (after
giving effect to distributions made on the
prior Distribution Date) and the denominator
of which is such Pool Balance less (Y) %.]
[The Specified Reserve Balance is further
subject to adjustment in certain
circumstances described herein.]
[YIELD SUPPLEMENT ACCOUNT;
YIELD SUPPLEMENT AGREEMENT.... Ford Credit will establish a yield supplement
account with the Indenture Trustee for the
benefit of the Securityholders (the "Yield
Supplement Account"). The Yield Supplement
Account is designed solely to hold funds to
be applied to provide payments to the
Securityholders in respect of Receivables the
APR of which is less than the sum of (i) the
weighted average of the Note Interest Rates
and Certificate Rate and (ii) the Servicing
Fee Rate (the "Required Rate"). The Yield
Supplement Account will be created with an
initial deposit by Ford Credit (the "Yield
Supplement Initial Deposit") in an amount
(which amount may be discounted at a rate to
be specified in the Sale and Servicing
Agreement) equal to the aggregate amount by
which (i) interest on the principal balance
of each [Initial] Receivable for the period
commencing on the [Initial] Cutoff Date and
ending with the scheduled maturity of such
Receivable, assuming that payments on such
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<PAGE> 22
Receivables are made as scheduled and no
prepayments are made, at a rate equal to the
Required Rate, exceeds (ii) interest on such
principal balances at the APR of such
Receivable (the "Yield Supplement Amount"
and, with respect to all of the [Initial]
Receivables, the "Maximum [Initial] Yield
Supplement Amount").
[Ford Credit, the Seller and the Indenture
Trustee will enter into a Yield Supplement
Agreement (as amended and supplemented from
time to time, the "Yield Supplement
Agreement") pursuant to which, on each
Subsequent Transfer Date, Ford Credit will
deposit an amount (which amount may be
discounted at a rate to be specified in the
Sale and Servicing Agreement), if any, into
the Yield Supplement Account (the "Additional
Yield Supplement Amount") equal to the
aggregate Yield Supplement Amounts in respect
of the related Subsequent Receivables for the
period commencing with the related Subsequent
Cutoff Date and ending with the scheduled
maturity of each such Subsequent Receivable,
assuming that payments on such Receivables
are made as scheduled and no prepayments are
made. The aggregate of the Additional Yield
Supplement Amounts in respect of the
Subsequent Receivables is referred to herein
as the "Maximum Subsequent Yield Supplement
Amount" and, together with the Maximum
Initial Yield Supplement Amount, the "Maximum
Yield Supplement Amount." See "Description of
the Transfer and Servicing Agreements --
Yield Supplement Account; Yield Supplement
Agreement" 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 [ ]
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 and to
apply such funds on each 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 Accrued Note
Interest and the Noteholders' Principal
Payment Amount into the Note Payment Account,
(iii) the Accrued Certificate Interest and,
commencing on the later of (a) the
199 Distribution Date and (b)
the Distribution Date next succeeding the
Distribution Date on which the [Class A-1]
Notes are paid in full, the
Certificateholders' Principal Distribution
Amount into the Certificate Distribution
Account and (iv) the remaining balance, if
any, to the Reserve Account; provided,
however, that on each Distribution Date
following the occurrence of an Event of
Default which has resulted in
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<PAGE> 23
acceleration of the Notes or following an
Insolvency Event with respect to the Seller
or the General Partner, the principal amount
of the Notes must be paid in full prior to
the distribution of any amounts on the
Certificates.
[GUARANTEED RATE AGREEMENT.... Amounts on deposit in the [Collection] [Note
Payment] Account will be invested from the
date of deposit to the related [Distribution]
[Payment] Date by the Indenture Trustee at
the direction of (the "Investment Provider")
in certain eligible investments pursuant to a
Guaranteed Rate Agreement, which provides
that the Investment Provider will guarantee a
rate of return on such amounts equal to the
weighted average of the Note Interest Rates
[and the Certificate Rate] and will be
entitled to receive any Investment Earnings
in excess of such guaranteed return. See
"Description of the Transfer and Servicing
Agreements -- Guaranteed Rate Agreement"
herein.]
SERVICER FEE.................. The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of 1.00% (the
"Servicing Fee Rate") and the Pool Balance
outstanding at the beginning of the previous
month, plus (b) any late, prepayment, and
other administrative fees and expenses
collected during such month [plus (c)
reinvestment proceeds on any payments
received in respect of the Receivables].
MATURITY AND PREPAYMENT
CONSIDERATIONS............. The [Class A-2 Notes, the Class A-3 Notes and
the] Certificates will not receive any
principal payments until the [Class A-1]
Notes have been paid in full[, and the Class
A-3 Notes will not receive any principal
payments until the Class A-2 Notes have been
paid in full]. In addition, no principal
payments on the Certificates will be made
until the later of (i) the
199 Distribution Date and (ii) the
Distribution Date next
succeeding the Distribution Date on which the
[Class A-1] Notes are paid in full. As the
rate of payment of principal of [the] [each
class of] Notes and the Certificates depends
on the rate of payment (including
prepayments) of the principal balance of the
Receivables, final payment of [the] [any
class of] Notes and the final distribution in
respect of the Certificates could occur
significantly earlier than the respective
[Final Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution
Date]. In addition, the rate of payment of
principal of [the] [each Class of] Notes and
the Certificates will be affected by the
application of the Noteholders' Accelerated
Principal to pay the principal of the Notes.
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 [the]
[each class of] Notes and the final
distribution in respect of the
S-21
<PAGE> 24
Certificates will occur on or prior to the
respective [Final Scheduled Distribution
Dates] [final scheduled Payment Dates or
Distribution Date]. However, if sufficient
funds are not available to pay [the] [any
class of] Notes or the Certificates in full
on or prior to the respective [Final
Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution
Date], final payment of [the] [such class of]
Notes and the final distribution in respect
of the Certificates could occur later than
such dates.
All of the Receivables are prepayable at any
time. Prepayments that do not constitute
Payaheads will shorten the weighted average
remaining term of the Receivables and the
weighted average life of the Securities. Such
prepayments, to the extent allocable to
principal, will be included in the
Noteholders' Principal Payment Amount or the
Certificateholders' Principal Distribution
Amount and will be payable to the
Securityholders as set forth in the priority
of distributions herein. See "Description of
the Transfer and Servicing Agreements --
Distributions" herein.
CLEARANCE AND SETTLEMENT...... Securityholders may elect to hold their Notes
or Certificates 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 ("Special Tax Counsel"), for
federal income tax purposes, the Notes will
be characterized as debt, and the Trust will
not be characterized as an association (or
publicly traded partnership) taxable as a
corporation. In the opinion of ("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 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. Alternative
characterizations of the Trust and the
Certificates are possible, but would not
result in materially adverse tax consequences
to Certificateholders. Certificateholders may
be allocated income equal to the amount of
interest accruing on the Certificates at the
Certificate Rate even though the Trust may
not have sufficient cash to make current cash
distributions of such amount. See "Certain
Federal Income Tax Consequences" herein and
in the Prospectus and
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<PAGE> 25
"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.
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 the Employee Retirement
Income Security Act of 1974, as amended
("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
the Internal Revenue Code of 1986, as amended
(the "Code").
The Certificates may not be acquired by an
employee benefit plan subject to the
fiduciary responsibility provisions of ERISA
or Section 4975 of the Code, or by an
individual retirement account. Any investor
considering the purchase of 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 is a
"party in interest" or "disqualified person"
purchases the Certificates without the
benefit of an exemption from the prohibited
transaction rules. See "ERISA Considerations"
herein and in the Prospectus.
[LEGAL INVESTMENT............. The [Class A-1] Notes will be eligible
securities for purchase by money market funds
under paragraph (a)(5) of Rule 2a-7 under the
Investment Company Act of 1940, as amended.]
RATING[S] OF THE NOTES........ It is a condition to the issuance of the [Class
A-1,] [Class A-2] [and Class A-3] Notes that
they be rated in the highest investment
rating category by at least two nationally
recognized rating agencies. [However, the
rating agencies do not evaluate, and the
rating does not address, the likelihood that
the Note Prepayment Premium will be paid.]
There can be no assurance that a rating will
not be lowered or withdrawn by a rating
agency if circumstances so warrant.
RATING OF THE CERTIFICATES.... It is condition of the issuance of the
Certificates that they be rated [at least]
" " or its equivalent by at least
two nationally recognized rating agencies.
[However, the rating agencies do not
evaluate, and the rating does not address,
the likelihood that the Certificate
Prepayment Premium will be paid.] There can
be no assurance that a rating will not be
lowered or withdrawn by a rating agency if
circumstances so warrant.
S-23
<PAGE> 26
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each Underwriter
currently intends to make a market in the Securities for which it is an
Underwriter, but it is under no obligation to do so. There can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide the Securityholders with liquidity of investment or that it
will continue for the life of the Securities.
[THE SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT
On the Closing Date, the Seller will transfer to the Trust the
approximately $ of Initial Receivables and the approximately
$ Pre-Funded Amount on deposit in the Pre-Funding Account. If the
principal balance of eligible Receivables originated by Ford Credit during the
Funding Period is less than the Pre-Funded Amount, the Seller will have
insufficient Receivables to sell to the Trust on the Subsequent Transfer Dates,
thereby resulting in a prepayment of principal to the Noteholders and the
Certificateholders as described in the following paragraph. See "-- Trust's
Relationship to Ford and Ford Credit" below. In addition, any conveyance of
Subsequent Receivables is subject to the satisfaction, on or before the related
Subsequent Transfer Date, of the following conditions precedent, among others:
(i) each such Subsequent Receivable must satisfy the eligibility criteria
specified in the Sale and Servicing Agreement; (ii) the Seller will not select
such Subsequent Receivables in a manner that it believes is adverse to the
interests of the Noteholders or the Certificateholders; (iii) as of the related
Subsequent Cutoff Date, the Receivables in the Trust at that time, including the
Subsequent Receivables to be conveyed by the Seller as of such Subsequent Cutoff
Date, will satisfy the parameters described under "The Receivables Pool" herein
and under "The Receivables Pools" in the Prospectus; (iv) the applicable Reserve
Initial Deposit for such Subsequent Transfer Date shall have been made; and (v)
the Seller shall have executed and delivered to the Trust (with a copy to the
Indenture Trustee) a written assignment conveying such Subsequent Receivables to
the Trust (including a schedule identifying such Subsequent Receivables).
Moreover, any such conveyance of Subsequent Receivables made during any given
Collection Period will also be subject to the satisfaction, on or about the
fifteenth day of the month following such Collection Period, of the following
conditions subsequent, among others: (a) the Seller will deliver certain
opinions of counsel to the Owner Trustee, Indenture Trustee and the Rating
Agencies with respect to the validity of the conveyance of all such Subsequent
Receivables conveyed during such Collection Period; (b) the Trust and the
Indenture Trustee shall have received written confirmation from a firm of
independent certified public accountants that, as of the end of the preceding
Collection Period, the Receivables in the Trust at that time, including the
Subsequent Receivables conveyed by the Seller during such Collection Period,
satisfied the parameters described under "The Receivables Pool" herein and under
"The Receivables Pools" in the Prospectus; and (c) the Rating Agencies shall
have each notified the Seller in writing that, following the addition of all
such Subsequent Receivables, [each class of] the Notes and the Certificates will
be rated in the same rating category as they were rated by the Rating Agencies
on the Closing Date. The Seller will immediately repurchase any Subsequent
Receivable, at a price equal to the Purchase Amount thereof, upon the failure of
the Seller to satisfy any of the foregoing conditions subsequent with respect
thereto. Such confirmation of the ratings of the Notes and the Certificates may
depend on factors other than the characteristics of the Subsequent Receivables,
including the delinquency, repossession and net loss experience on the
automobile and light truck receivables in the portfolio serviced by Ford Credit.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the conveyance of Subsequent Receivables to the Trust by
the end of the Funding Period and such amount exceeds $ , the Noteholders
and the Certificateholders will receive, on the Distribution Date on or
immediately following the last day of the Funding Period, a prepayment of
principal in an
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<PAGE> 27
amount equal to the applicable Pre-Funded Percentage, in respect of [a class of]
the Notes or the Certificates, of the Pre-Funded Amount remaining in the
Pre-Funding Account following the purchase of any Subsequent Receivables on such
Distribution Date. Otherwise such remaining Pre-Funded Amount will be paid as
principal of the [Class A-1] Notes [up to an amount not to exceed their
outstanding principal amount, with any remaining amount used to redeem the Class
A-2 Notes]. It is anticipated that the principal balance of Subsequent
Receivables sold to the Trust will not be exactly equal to the amount on deposit
in the Pre-Funding Account and that therefore there will be at least a nominal
amount of principal prepaid to the [Class A-1] Noteholders.
Each Subsequent Receivable must satisfy the eligibility criteria specified
in the Sale and Servicing Agreement and any additional criteria specified by the
Rating Agencies at the time of its addition. However, Subsequent Receivables may
have been originated by Ford Credit at a later date using credit criteria
different from those which were applied to the Initial Receivables and may be of
a different credit quality and seasoning. In addition, an increasing percentage
of the Subsequent Receivables may be Final Payment Receivables. Therefore,
following the transfer of Subsequent Receivables to the Trust, the
characteristics of the entire Receivables Pool included in the Trust may vary
significantly from those of the Initial Receivables. See "The Receivables Pool"
herein and "The Receivables Pools" in the Prospectus. The ability of Ford Credit
to generate Subsequent Receivables is largely dependent upon the level of retail
sales of automobiles and light trucks. The level of retail sales of automobiles
and light trucks may change as a result of a variety of social and economic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumer perceptions of economic conditions generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the level of vehicle sales.]
[TRUST'S RELATIONSHIP TO FORD AND FORD CREDIT
Neither the Seller nor Ford Credit is obligated to make any payments in
respect of the Notes, the Certificates or the Receivables. However, the ability
of the Seller to convey Subsequent Receivables on Subsequent Transfer Dates is
completely dependent upon the generation of additional receivables by Ford
Credit. The ability of Ford Credit to generate receivables is, in turn,
dependent to a large extent on the sales of automobiles and light trucks
manufactured or distributed by Ford Motor Company and its consolidated
subsidiaries ("Ford"). If, during the Funding Period, Ford were temporarily or
permanently no longer manufacturing or distributing vehicles, the rate of sales
of automobiles and light trucks manufactured by Ford would decrease, adversely
affecting the ability of the Seller to sell Subsequent Receivables to the Trust.
The use of incentive programs (e.g., manufacturers' rebate programs) also may
affect retail sales. There can be no assurance, therefore, that Ford Credit will
continue to generate receivables at the same rate as in prior years. In
addition, 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.
Ford and Ford Credit are subject to the informational requirements of the
Exchange Act and in accordance therewith file reports and other information with
the Commission. For further information regarding Ford and Ford Credit,
reference is made to such reports and other information which are available as
described under "Available Information" in the Prospectus.]
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables[, the
Pre-Funding Account] [, the Yield Supplement Account] and the Reserve Account
[and the payments, if any, received pursuant to the [Interest Rate Cap,] [the
Interest Rate Swap] [and the] [Guaranteed Rate Agreement]]. Holders of the Notes
and the Certificates must rely for repayment upon payments on the Receivables
and, if and to the extent available, amounts on deposit in the [Pre-Funding
Account][, the Yield Supplement Account] [and
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<PAGE> 28
the] Reserve Account [and the payments, if any, received pursuant to the
[Interest Rate Cap,] [the Interest Rate Swap] [and the] [Guaranteed Rate
Agreement]]. [The Pre-Funding Account will be available only during the Funding
Period and is designed solely to cover obligations of the Trust relating to a
portion of its funds not invested in Receivables and is not designed to cover
losses on the Receivables.] [The Yield Supplement Account is designed solely to
hold funds to be applied to provide payments to the Securityholders in respect
of Receivables the APR of which is less than the Required Rate.] 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 [Pre-Funding Account[, the Yield
Supplement Account] and the] Reserve Account are limited in amount. If the
[Pre-Funding Account[, the Yield Supplement Account] and the] Reserve Account is
[are] exhausted, the Trust will depend solely on current distributions on the
Receivables [and the payments, if any, received pursuant to the [Interest Rate
Cap,] [the Interest Rate Swap] [and the] [Guaranteed Rate Agreement]] to make
payments on the Notes and the Certificates. [Payments under [the Interest Rate
Cap,] [the Interest Rate Swap] [and the Guaranteed Rate Agreement] will be
received only under certain circumstances. See "Description of the Transfer and
Servicing Agreements[-- Interest Rate Cap,"] ["-- Interest Rate Swap"] [and "--
Guaranteed Rate Agreement" herein.]]
DEFICIENCIES FROM SALE UPON INSOLVENCY OR DISSOLUTION OF SELLER OR 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 to promptly sell, dispose of or otherwise liquidate the Receivables
[and [the Interest Rate Cap,] [the Interest Rate Swap] [and the Guaranteed Rate
Agreement]] in a commercially reasonable manner on commercially reasonable
terms, unless (i) the Noteholders (other than the Seller, the Servicer or their
affiliates) of each class of Notes representing not less than a majority of the
aggregate unpaid principal amount of such class of the Notes and the right to
receive interest thereon, (ii) the Certificateholders (other than the Seller) of
Certificates representing not less than a majority of the aggregate Certificate
Balance and the right to receive interest thereon, and (iii) not less than a
majority of the holders (other than the Seller, the Servicer or their
affiliates) 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 such Trust and to act
as a substitute "general partner" for federal income tax purposes and (y) an
opinion of counsel as to certain tax matters is delivered. 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. The
proceeds from the liquidation of the Receivables [and [the Interest Rate Cap,]
[the Interest Rate Swap] [and the Guaranteed Rate Agreement]] and any amounts on
deposit in the Reserve Account, [the Pre-Funding Account,] [the Yield Supplement
Account,] the Note Payment Account and the Certificate Distribution Account will
be distributed first to Noteholders and then to Certificateholders in the
priority set forth in the Indenture. If such proceeds and amounts are not
sufficient to pay all the Notes in full, the amount of principal returned to
Noteholders will be reduced, no such proceeds or amounts will be distributed to
the Certificateholders, and the Noteholders and Certificateholders will incur a
loss on their investment. If such proceeds and amounts are sufficient to pay all
the Notes in full but are not sufficient to pay both the Notes and Certificates
in full, the amount of principal returned to Certificateholders will be reduced,
and the Certificateholders will incur a loss on their investment. See
"Description of the Transfer and Servicing Agreements -- Insolvency Event or
Dissolution" in the Prospectus.
SUBORDINATION
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
Consequently, the Certificateholders will not receive any distributions with
respect to a Collection Period until the full amount of interest on and
principal of the Notes on such Distribution Date has been deposited in the Note
Payment Account.
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<PAGE> 29
The Certificateholders will not receive any distributions of principal until
after the later to occur of (i) the Distribution Date next
succeeding the Distribution Date on which the [Class A-1] Notes were paid in
full and (ii) the Distribution Date. However, upon the occurrence
and during the continuation of an Event of Default which has resulted in an
acceleration of the Notes or following an Insolvency Event or a dissolution with
respect to the Seller or the General Partner, distributions of any amounts on
the Certificates will be subordinated in priority of payment to payment in full
of principal of principal of the Notes. [In addition, upon any reduction or
withdrawal by any Rating Agency of its rating of [the] [any class of] Notes (see
"-- Ratings of the Securities" below), the Certificateholders will not receive
any distributions of principal until after all the Notes have been paid in full
or until such rating has been restored].
If an Event of Default occurs, the Indenture Trustee or the holders of a
majority of the aggregate principal amount of all the Notes may declare the
principal of the Notes to be immediately due and payable, and 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). 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 and the Certificate Balance
plus accrued interest. 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, the interests of Noteholders and the
Certificateholders may conflict, and 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 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" and "Description of the
Transfer and Servicing Agreements -- Insolvency Event or Dissolution" in the
Prospectus.
In general, the Seller may, and in certain circumstances the
Certificateholders may, direct the Owner Trustee in the administration of the
Trust. However, because the Trust has pledged the property of the Trust 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 property of the Trust 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 and requires
the Owner Trustee to obtain the consent of the Indenture Trustee or the holders
of 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 Notes, or the Indenture
Trustee acting on behalf of the Noteholders, and not the Seller 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 Certificateholders. In addition, the holders of not less than a
majority of the outstanding principal amount of the Notes would have the right
to waive certain Events of Servicing Termination, without consideration of the
effect such waiver would have on Certificateholders. After all the Notes have
been paid in full and the lien of the Indenture has been released, upon the
occurrence of an Event of Servicing
S-27
<PAGE> 30
Termination, the holders of a majority of the outstanding Certificate Balance,
or the Owner Trustee acting on behalf of the Certificateholders, may terminate
the Servicer. See "Description of the Transfer and Servicing Agreements --
Events of Servicing Termination" and "-- Rights upon Event of Servicing
Termination" in the Prospectus.
MATURITY AND PREPAYMENT CONSIDERATIONS
The [Class A-2 Notes, the Class A-3 Notes and the] Certificates will not
receive any principal payments until the [Class A-1] Notes have been paid in
full[, and the Class A-3 Notes will not receive any principal payments until the
Class A-2 Notes have been paid in full]. In addition, no principal payments on
the Certificates will be made until the later of (i) the 199
Distribution Date and (ii) the Distribution Date next succeeding the
Distribution Date on which the [Class A-1] Notes are paid in full. As the rate
of payment of principal of [the] [each class of] Notes and the Certificates
depends on the rate of payment (including prepayments) of the principal balance
of the Receivables, final payment of [the] [any class of] Notes and the final
distribution in respect of the Certificates could occur significantly earlier
than the respective [Final Scheduled Distribution Dates] [final scheduled
Payment Dates or Distribution Date]. In addition, the rate of payment of
principal of [the] [each Class of] Notes and the Certificates will be affected
by the application of the Noteholders' Accelerated Principal to pay the
principal of the Notes. It is expected that final payment of [the] [each class
of] Notes and the final distribution in respect of the Certificates will occur
on or prior to the respective [Final Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution Date]. However, if sufficient funds are
not available to pay [the] [any class of] Notes or the Certificates in full on
or prior to the respective [Final Scheduled Distribution Dates] [final scheduled
Payment Dates or Distribution Date], final payment of [the] [such class of]
Notes and the final distribution in respect of the Certificates could occur
later than such dates. See "Maturity and Prepayment Considerations" herein and
in the Prospectus.
RATINGS OF THE SECURITIES
It is a condition to the issuance of [each class of] the Notes and of the
Certificates that [each class of] the Notes be rated in the highest rating
category, and the Certificates be rated [at least] " " or its equivalent,
by at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The ratings of the Securities address the likelihood of the payment of
principal and interest on the Securities pursuant to their terms. [However, the
Rating Agencies do not evaluate, and the ratings of the Securities do not
address, the likelihood that the Note Prepayment Premium or the Certificate
Prepayment Premium will be paid.] 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 %, %, %,
%, % and % by principal balance of the Receivables were in
, , , , , and
, 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 % of the
aggregate principal balance of the Receivables as of the Cutoff Date.
S-28
<PAGE> 31
THE TRUST
GENERAL
The Issuer, Ford Credit Auto Owner Trust 199 , 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. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments on
the Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust will initially be capitalized with the Notes and the
Certificates. Certificates with an original principal balance of $ will be
retained by the Seller and the remaining 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 proceeds from the issuance of the
Notes and the Certificates will be used by the Trust to purchase the [Initial]
Receivables from the Seller pursuant to the Sale and Servicing Agreement [, to
fund the deposit of the Pre-Funded Amount] and to fund the initial deposit into
the Reserve Account.
If the protection provided to the investment of the Securityholders by the
[Yield Supplement Account and the] Reserve Account is insufficient, the Trust
would have to look principally to the Obligors on the Receivables, the proceeds
from the repossession and sale of Financed Vehicles which secure defaulted
Receivables and the proceeds from any recourse against Dealers with respect to
the Receivables [and from the Pre-Funding Account]. 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" [, "-- Yield Supplement
Account; Yield Supplement Agreement"] 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......................................... $
[Class A-2 Notes]......................................... [ ]
[Class A-3 Notes]......................................... [ ]
Certificates..............................................
-----------------
Total..................................................... $
=================
</TABLE>
THE OWNER TRUSTEE
is the Owner Trustee under the Trust Agreement. is
a Delaware and its principal offices are located at ,
Delaware. 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 [Initial]
Receivables purchased as of the [Initial] Cutoff Date [and will include any
Subsequent Receivables purchased as of the applicable Subsequent Cutoff Date
(the Initial Cutoff Date or any Subsequent Cutoff Date being individually
referred to herein as a "Cutoff Date")].
The [Initial] Receivables were purchased[, and the Subsequent Receivables
were or will be purchased,] by Ford Credit from Dealers in the ordinary course
of business in accordance with Ford
S-29
<PAGE> 32
Credit's underwriting standards, and were [or will be] 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 the APR and fully amortize the amount financed over an
original term no greater than months, (ii) is not more than days past
due as of the [applicable] Cutoff Date and has never been extended and (iii) was
originated on or after . As of the [applicable] Cutoff Date, no
Obligor on any Receivable was [or will have been] noted in the related records
of the Servicer as being the subject of a bankruptcy proceeding. No selection
procedures believed by the Seller to be adverse to the Noteholders or the
Certificateholders were [or will be used] in selecting the Receivables.
[The obligation of the Trust to purchase the Subsequent Receivables on a
Subsequent Transfer Date will be subject to the Receivables in the Trust,
including the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, meeting the following criteria: (i) not more than %
of the principal balances of the Receivables in the Trust will represent
vehicles financed at Ford Credit's used vehicle rates; and (ii) the weighted
average APR of the Receivables in the Trust will not be less than %, unless
the Seller increases the Reserve Initial Deposit by the amounts, if any,
specified by the Rating Agencies to maintain the ratings of the Notes and the
Certificates. In addition, such obligation will be subject to the Receivables,
including the Subsequent Receivables to be transferred to the Trust on such
Subsequent Transfer Date, having a weighted average remaining term not greater
than months. Such criteria will be based on the characteristics of the
Initial Receivables on the Initial Cutoff Date and any Subsequent Receivables on
the related Subsequent Cutoff Dates.]
[The Initial Receivables will represent approximately % of the
aggregate initial principal amount of the Securities. However, except for the
criteria described in the preceding paragraphs and the criteria, if any,
specified by the Rating Agencies to maintain the ratings of the Notes and the
Certificates, there will be no required characteristics of the Subsequent
Receivables. Therefore, following the transfer of Subsequent Receivables to the
Trust, the aggregate characteristics of the entire Receivables Pool, including
the composition of the Receivables, the distribution by APR and the geographic
distribution described in the following tables, may vary significantly from
those of the Initial Receivables.]
Neither Ford Credit nor any of its affiliates maintains records adequate to
provide quantitative data regarding its prepayment experience on its portfolio
of U.S. retail installment sale contracts for either new or used vehicles.
However, Ford Credit (i) believes that the actual rate of prepayments will
result in a substantially shorter weighted average life than the scheduled
weighted average life and (ii) estimates that the actual weighted average life
of its portfolio of U.S. retail installment contracts for new and used
automobiles and light trucks ranges between 60% and 70% of their scheduled
weighted average life. See "Maturity and Prepayment Considerations" herein and
in the Prospectus.
S-30
<PAGE> 33
The composition, geographical distribution, and distribution by annual
percentage rate of the [Initial] Receivables as of the [Initial] Cutoff Date are
set forth in the following tables.
COMPOSITION OF THE [INITIAL] RECEIVABLES POOL
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $
Number of Receivables
Average Principal Balance................................... $
$ to
(Range)................................................... $
Average Original Amount Financed............................ $
$ to
(Range)................................................... $
Weighted Average APR........................................ %
(Range)................................................... % to %
Weighted Average Original Term.............................. months
(Range)................................................... to months
Weighted Average Remaining Term............................. months
(Range)................................................... to months
Scheduled Weighted Average Life(1).......................... months
</TABLE>
- -------------------------
(1) Based on payments due on or after the [Initial] Cutoff Date, assuming that
no prepayments on the [Initial] Receivables are made after the [Initial]
Cutoff Date and that all payments on Simple Interest Receivables are
received on their respective due dates.
S-31
<PAGE> 34
GEOGRAPHIC DISTRIBUTION OF THE [INITIAL] RECEIVABLES POOL
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1) BALANCE(2)
-------- -------------------
<S> <C>
Alabama[(3)]................ %
Alaska......................
Arizona.....................
Arkansas....................
California..................
Colorado....................
Connecticut.................
Delaware....................
District of Columbia........
Florida.....................
Georgia.....................
Hawaii......................
Idaho.......................
Illinois....................
Indiana.....................
Iowa........................
Kansas......................
Kentucky....................
Louisiana...................
Maine.......................
Maryland....................
Massachusetts...............
Michigan....................
Minnesota...................
Mississippi.................
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1) BALANCE(2)
-------- -------------------
<S> <C>
Missouri.................... %
Montana.....................
Nebraska....................
Nevada......................
New Hampshire...............
New Jersey..................
New Mexico..................
New York....................
North Carolina..............
North Dakota................
Ohio........................
Oklahoma....................
Oregon......................
Pennsylvania[(3)]...........
Rhode Island................
South Carolina..............
South Dakota................
Tennessee...................
Texas.......................
Utah........................
Vermont.....................
Washington..................
West Virginia...............
Wisconsin...................
Wyoming.....................
</TABLE>
- -------------------------
(1) Based on the billing addresses of the Obligors on the [Initial] Receivables
as of the [Initial] Cutoff Date.
(2) Percentages may not add to 100.00% due to rounding. States showing 0.0% each
represent less than 0.05%.
[(3) Alabama and Pennsylvania were excluded for administrative reasons.]
S-32
<PAGE> 35
DISTRIBUTION BY APR OF THE [INITIAL] RECEIVABLES POOL
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE RECEIVABLES BALANCE BALANCE(1)
--------- ----------- --------- -------------
<S> <C> <C> <C>
0.00% to 1.00%........................................... $ %
1.01 to 2.00.............................................
2.01 to 3.00.............................................
3.01 to 4.00.............................................
4.01 to 5.00.............................................
5.01 to 6.00.............................................
6.01 to 7.00.............................................
7.01 to 8.00.............................................
8.01 to 9.00.............................................
9.01 to 10.00............................................
10.01 to 11.00...........................................
11.01 to 12.00...........................................
12.01 to 13.00...........................................
13.01 to 14.00...........................................
14.01 to 15.00...........................................
15.01 to 16.00...........................................
16.01 to 17.00...........................................
17.01 to 18.00...........................................
18.01 to 19.00...........................................
19.01 to 20.00...........................................
------ ------ ------
Totals.............................................. $ 100.00%
====== ====== ======
</TABLE>
- -------------------------
(1) Percentages may not add to 100.00% due to rounding.
Approximately % of the aggregate principal balance of the [Initial]
Receivables, constituting % of the number of [Initial] Receivables, as of the
[Initial] Cutoff Date, represent vehicles financed at new vehicle rates, and the
remainder of the [Initial] Receivables represent vehicles financed at used
vehicle rates.
By aggregate principal balance, approximately % of the [Initial]
Receivables constitute Precomputed Receivables, % of the [Initial]
Receivables constitute Simple Interest Receivables and % constitute Final
Payment Receivables. In addition, % of the [Initial] Receivables that are
Precomputed Receivables and % that are Simple Interest Receivables constitute
Final Payment Receivables. See "The Receivables Pools" in the Prospectus for a
further description of the characteristics of Precomputed Receivables, Simple
Interest Receivables and Final Payment Receivables.
Based on principal balance, less than % of the [Initial] 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
S-33
<PAGE> 36
scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal of each class of Notes and the
Certificates will depend on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of any class of Notes and
the final distribution in respect of the Certificates could occur significantly
earlier than the respective [Final Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution Date]. 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 [Initial] Receivables [and
certain assumed characteristics with respect to the Subsequent 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 [are made
on each Payment Date] and distributions on the Certificates are made on each
Distribution Date (and each such date is assumed to be the day of [the month
in which such Payment Date or Distribution Date occurs] [each applicable
month]), (iv) the balance in the Reserve Account on each [Payment Date and]
Distribution Date is equal to the Specified Reserve Balance, and (v) the Seller
exercises its option to purchase the Receivables on the first Distribution Date
on which it is permitted to do so, as described herein. [State assumed
characteristics with respect to the Subsequent Receivables.] [And/or, state
other assumptions on which the ABS Table is based.] The pools have an assumed
cutoff date of , 199 . The ABS Table indicates the projected weighted
average life of each class of Notes and the Certificates and sets forth the
percent of the initial principal amount of each class of Notes and the percent
of the initial Certificate Balance that is projected to be outstanding after
each of the [Payment Dates or] Distribution Dates shown at various constant ABS
percentages.
The ABS Table also assumes that the [Initial] Receivables have been
aggregated into hypothetical pools with all of the [Initial] 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 [Initial] Cutoff Date) will be such that each pool will be
fully amortized by the end of its remaining term to maturity. [State assumed
characteristics with respect to hypothetical pools of Subsequent Receivables.]
<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................................... $ %
2...................................
3...................................
4...................................
-----------------
$
=================
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Table. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Table at the various constant
S-34
<PAGE> 37
percentages of ABS specified, even if the original and remaining terms to
maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each class of Notes and
the Certificates.
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
[PAYMENT] [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>
06/15/96.................. 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000
07/15/96..................
08/15/96..................
09/15/96..................
10/15/96..................
11/15/96..................
12/15/96..................
01/15/97..................
02/15/97..................
03/15/97..................
04/15/97..................
05/15/97..................
06/15/97..................
07/15/97..................
08/15/97..................
09/15/97..................
10/15/97..................
11/15/97..................
12/15/97..................
01/15/98..................
02/15/98..................
03/15/98..................
04/15/98..................
05/15/98..................
06/15/98..................
07/15/98..................
08/15/98..................
09/15/98..................
10/15/98..................
11/15/98..................
12/15/98..................
01/15/99..................
02/15/99..................
03/15/99..................
04/15/99..................
05/15/99..................
06/15/99..................
07/15/99..................
Weighted Average Life
(years)(1)...............
<CAPTION>
CLASS A-3 NOTES
[PAYMENT] [DISTRIBUTION] ----------------
DATE 1.5% 1.8%
------------------------ ---- ----
<S> <C> <C>
06/15/96.................. 100.000 100.000
07/15/96..................
08/15/96..................
09/15/96..................
10/15/96..................
11/15/96..................
12/15/96..................
01/15/97..................
02/15/97..................
03/15/97..................
04/15/97..................
05/15/97..................
06/15/97..................
07/15/97..................
08/15/97..................
09/15/97..................
10/15/97..................
11/15/97..................
12/15/97..................
01/15/98..................
02/15/98..................
03/15/98..................
04/15/98..................
05/15/98..................
06/15/98..................
07/15/98..................
08/15/98..................
09/15/98..................
10/15/98..................
11/15/98..................
12/15/98..................
01/15/99..................
02/15/99..................
03/15/99..................
04/15/99..................
05/15/99..................
06/15/99..................
07/15/99..................
Weighted Average Life
(years)(1)...............
</TABLE>
- -------------------------
(1) The weighted average life of a Class A-1 Note, Class A-2 Note, or Class A-3
Note is determined by (i) multiplying the amount of each principal payment
on a Note by the number of years from the date of the issuance of the Note
to the related [Payment] [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-35
<PAGE> 38
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.8%
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
06/15/96............................................. 100.000 100.000 100.000 100.000
07/15/96.............................................
08/15/96.............................................
09/15/96.............................................
10/15/96.............................................
11/15/96.............................................
12/15/96.............................................
01/15/97.............................................
02/15/97.............................................
03/15/97.............................................
04/15/97.............................................
05/15/97.............................................
06/15/97.............................................
07/15/97.............................................
08/15/97.............................................
09/15/97.............................................
10/15/97.............................................
11/15/97.............................................
12/15/97.............................................
01/15/98.............................................
02/15/98.............................................
03/15/98.............................................
04/15/98.............................................
05/15/98.............................................
06/15/98.............................................
07/15/98.............................................
08/15/98.............................................
09/15/98.............................................
10/15/98.............................................
11/15/98.............................................
12/15/98.............................................
01/15/99.............................................
02/15/99.............................................
03/15/99.............................................
04/15/99.............................................
05/15/99.............................................
06/15/99.............................................
07/15/99.............................................
Weighted Average Life (years)(1).....................
</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-36
<PAGE> 39
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).
[Ford Credit began originating Final Payment Receivables in 19 .] There is no
assurance that the behavior of the Receivables will be comparable to Ford
Credit's experience shown in the following tables or that the trend in losses
and delinquencies will continue into the future.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Number of Contracts
Outstanding During the
Period........................ 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)................. % % 2.85% 2.54% 2.21% 2.03% 2.02%
61-90 Days(2)................. % % 0.32% 0.26% 0.17% 0.15% 0.15%
Over 90 Days(3)............... % % 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>
SIX MONTHS ENDED
JUNE 30, 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................................ $ $ $41,186 $40,269 $35,699 $33,703 $31,205
Net.................................. $ $ $34,715 $33,647 $30,015 $28,526 $26,152
Percent of Average Gross Portfolio
Outstanding During the Period
without Recourse to Dealers........ % % 99.5% 99.4% 99.1% 98.6% 97.7%
Repossessions as a Percent of Average
Number of Contracts Outstanding.... %(2) %(2) 3.01% 3.01% 2.38% 2.15% 2.27%
Net Losses as a Percent of Gross
Liquidations(3).................... % % 2.46% 2.21% 1.43% 1.06% 1.16%
Net Losses as a Percent of Average
Gross Portfolio Outstanding(3)..... %(2) %(2) 1.38% 1.28% 0.82% 0.62% 0.69%
Net Losses as a Percent of Average
Net Portfolio Outstanding(3)....... %(2) %(2) 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) Annualized rate.
(3) "Net Losses" are equal to the aggregate balance of all contracts which are
determined to be uncollectible in the period less any recoveries on
contracts charged-off in the period or any prior periods. Effective January
1, 1993, net losses include expenses associated with outside collection
agencies. Other expenses associated with collection, repossession, and
disposition of the vehicle continue to be excluded. These other expenses are
not material to the data presented.
[As shown above, credit losses have increased since the beginning of 1995
reversing a general trend of improvement that had begun in 1989. The increase
reflects an increase in losses per
S-37
<PAGE> 40
repossession and an increase in repossession rates.] See "Description of the
Transfer and Servicing Agreements -- Servicing Procedures" in the Prospectus.
POOL FACTORS
The "Note Pool Factor" for [the] [each class of] Notes will be a
seven-digit decimal which the Servicer will compute prior to each distribution
with respect to [the] [such class of] Notes indicating the remaining outstanding
principal amount of [the] [such class of] Notes, as of the applicable
[Distribution] [Payment] Date (after giving effect to payments to be made on
such [Distribution] [Payment] Date), as a fraction of the initial outstanding
principal amount of [the] [such class of] Notes. The "Certificate Pool Factor"
for the Certificates will be a seven-digit decimal which the Servicer will
compute prior to each distribution with respect to the Certificates indicating
the remaining Certificate Balance, as of the applicable Distribution Date (after
giving effect to distributions to be made on such Distribution Date), as a
fraction of the initial Certificate Balance. [The] [Each] Note Pool Factor and
the Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal amount of the
[applicable class of] Notes, or the reduction of the Certificate Balance, as the
case may be, as a result of scheduled payments, prepayments and liquidations of
the Receivables [(and also as a result of a prepayment arising from application
of the Pre-Funding Account)]. [[The] [Each] Note Pool Factor and the Certificate
Pool Factor will not change as a result of the addition of Subsequent
Receivables.] A Noteholder's portion of the aggregate outstanding principal
amount of the [related class of] Notes is the product of (i) the original
denomination of such Noteholder's Note and (ii) the [applicable] Note Pool
Factor. A Certificateholder's portion of the aggregate outstanding Certificate
Balance for the Certificates is the product of (a) the original denomination of
such Certificateholder's Certificate and (b) the Certificate Pool Factor.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. In addition, the [Class A-2 Notes, the Class
A-3 Notes and the] Certificates will not receive any principal payments until
the [Class A-1] Notes have been paid in full[, and the Class A-3 Notes will not
receive any principal payments until the Class A-2 Notes have been paid in
full]. In addition, no principal payments on the Certificates will be made until
the later of (i) the 199 Distribution Date and (ii) the Distribution
Date next succeeding the Distribution Date on which the [Class A-1] Notes are
paid in full. See "Description of the Notes -- Payments of Principal" and
"Description of the Certificates -- Distributions of Principal Payments" herein.
As the rate of payment of principal of [the] [each class of] Notes and the
Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of [the] [any class of]
Notes and the final distribution in respect of the Certificates could occur
significantly earlier than the respective [Final Scheduled Distribution Dates]
[final scheduled Payment Dates or Distribution Date]. In addition, the rate of
payment of principal of [the] [each Class of] Notes and the Certificates will be
affected by the application of the Noteholders' Accelerated Principal to pay
principal of the Notes.
It is expected that final payment of [the] [each class of] Notes and the
final distribution in respect of the Certificates will occur on or prior to the
respective [Final Scheduled Distribution Dates] [final scheduled Payment Dates
or Distribution Date]. Failure to make final payment of [the] [any class of]
Notes on or prior to the respective Final Scheduled [Payment] [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" in the Prospectus. In addition, the Sale and Servicing Agreement
requires that any remaining Certificate Balance be paid in full on the Final
Scheduled Distribution Date. However, no assurance can be given that sufficient
funds will be
S-38
<PAGE> 41
available to pay [the] [each class of] Notes and the Certificates in full on or
prior to the respective [Final Scheduled Distribution Dates] [final scheduled
Payment Dates or Distribution Date]. If sufficient funds are not available,
final payment of [the] [any class of] Notes and the final distribution in
respect of the Certificates could occur later than such dates.
The rate of prepayments of the Receivables may be influenced by a variety
of economic, social and other factors, and under certain circumstances relating
to breaches of representations, warranties or covenants, the Seller and/or the
Servicer will be obligated to repurchase Receivables from the Trust. See "The
Receivables Pool" herein and "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the Prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal balance
of the Receivables more quickly 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.
Holders of Securities 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. , a
, will be the Indenture Trustee under the Indenture.
PAYMENTS OF INTEREST
[The] [Each class of] Notes [other than the Class A-2 Notes] will
constitute Fixed Rate Securities, as such term is defined under "Certain
Information Regarding the Securities -- Fixed Rate Securities" in the
Prospectus. [The Class A-2 Notes will constitute Floating Rate Securities which
are LIBOR Securities, as such terms are defined under "Certain Information
Regarding the Securities -- Floating Rate Securities" in the Prospectus.]
Interest on the principal amount[s] of the [classes of the] Notes will accrue at
the [respective] per annum Note Interest Rate[s] and will be payable to the
Noteholders [monthly] [quarterly] on each [Distribution] [Payment] Date
commencing , 199 . [However, if on any two consecutive Distribution
Dates any amount is withdrawn from the Reserve Account to cover shortfalls on
the Notes or the Certificates, then each following Distribution Date will
constitute a Payment Date, until the quarterly Payment Date following the first
Distribution Date on which (i) no amount is withdrawn from the Reserve Account
to cover shortfalls and (ii) the amount on deposit in the Reserve Account is
equal to the Specified Reserve Balance.] [However, if the commercial paper
rating or certificate of deposit rating of the Investment
S-39
<PAGE> 42
Provider is at any time reduced below A-1+ or P1 by the applicable Rating Agency
and the Servicer is unable to obtain a Replacement Guaranteed Rate Agreement or
a pledge of securities or otherwise satisfy the applicable Rating Agency within
60 days of receiving notice of such decline, then each following Distribution
Date will constitute a Payment Date. See "Description of the Transfer and
Servicing Agreements -- Guaranteed Rate Agreement" herein.] Interest will accrue
from and including the Closing Date (in the case of the first [Distribution]
[Payment] Date), or from the most recent [Distribution] [Payment] Date on which
interest has been paid to but excluding the following [Distribution] [Payment]
Date (each an "Interest Period"). [Interest on the Class A-1 Notes will be
calculated on the basis of actual days elapsed and a 365- or 366-day year, as
applicable.] Interest on the [[Class A-1 Notes and] Class A-3] Notes will be
calculated on the basis of a 360-day year of twelve 30-day months. [Interest on
the Class A-2 Notes will be calculated on the basis of actual days elapsed and a
360-day year.] Interest accrued as of any [Distribution] [Payment] Date but not
paid on such [Distribution] [Payment] Date will be due on the next
[Distribution] [Payment] Date, together with interest on such amount at the
[applicable] Note Interest Rate [plus 2.00%] (to the extent lawful). [With
respect to the Class A-2 Rate, the "Index Maturity" for LIBOR will be [one]
[three] month[s] [(in the case of quarterly Payment Dates) and one month (in the
case of monthly Payment Dates)] and the "Interest Reset Period" for such
calculation will be the Interest Period. See "Certain Information Regarding the
Securities -- Floating Rate Securities" in the Prospectus.] Interest payments on
the Notes will generally be derived from the Available Funds remaining after the
payment of the Servicing Fee and from the Reserve Account. See "Description of
the Transfer and Servicing Agreements -- Distributions" and "-- Reserve Account"
herein. [Interest payments to all classes of Noteholders will have the same
priority. Under certain circumstances, the amount available for interest
payments could be less than the amount of interest payable on the Notes on any
[Distribution] [Payment] Date, in which case each class of Noteholders will
receive their 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.]
PAYMENTS OF PRINCIPAL
Principal payments will be made [quarterly] to the Noteholders on each
[Distribution] [Payment] Date in an amount generally equal to the sum [, for
each of the three Collection Periods preceding such Payment Date,] of (i) the
Noteholders' Percentage of the amount (such amount, the "Regular Principal")
equal to the sum of (a) all scheduled payments of principal and the principal
portion of 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), (b)
the principal portion of all payments collected with respect to Simple Interest
Receivables, and (c) the principal balance of each Receivable purchased by the
Servicer, repurchased by the Seller or liquidated by the Servicer, each with
respect to [the preceding] [such] Collection Period, plus (ii) % of the
portion, if any, of the Available Funds for such Collection Period that remains
after payment of (a) the Servicing Fee, (b) the Accrued Note Interest, (c) the
portion of the Regular Principal allocated to the Noteholders pursuant to clause
(i), (d) the Accrued Certificate Interest, (e) the portion of the Regular
Principal distributed to Certificateholders as described under "Description of
the Certificates -- Distributions of Principal Payments" herein, and (f) the
amount, if any, required to be deposited in the Reserve Account on [such] [the
related] Distribution Date [plus the excess of the amount on deposit in the
Reserve Account on such Distribution Date (after giving effect to all deposits
or withdrawals therefrom on such Distribution Date) over the Specified Reserve
Balance)] (such percentage of the remaining portion of Available Funds [plus
such excess], the "Noteholders' Accelerated Principal"). [Principal] [Amounts
deposited in the Note Payment Account on each Distribution Date in respect of
principal] payments on the Notes generally will be derived from the Available
Funds and the amount, if any, in the Reserve Account up to the Available Reserve
Amount remaining after the payment of the Servicing Fee and the Accrued Note
Interest and, in the case of the Noteholders'
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<PAGE> 43
Accelerated Principal, the Certificateholders' Distribution Amount and the
amount, if any, required to be deposited into the Reserve Account. See
"Description of the Transfer and Servicing Agreements -- Distributions" and "--
Reserve Account" herein.
On the Business Day immediately preceding each Distribution Date (a
"Determination Date") the Indenture Trustee will determine the amount in the
Collection Account allocable to interest and the amount allocable to principal
on the basis described under "Description of the Transfer and Servicing
Agreements -- Distributions" in the Prospectus, and payments to Securityholders
on the following Distribution Date will be based on such allocation.
[On each Distribution Date, the Indenture Trustee will deposit into the
Note Payment Account amounts set aside for the payment of principal and interest
on the Notes on the related Payment Date, as described under "Description of the
Transfer and Servicing Agreements -- Distributions" herein. Such amounts will be
invested from the date of deposit to the related Payment Date by the Indenture
Trustee in [Permitted Investments] [certain eligible investments pursuant to the
Guaranteed Rate Agreement]. [See "Description of the Transfer and Servicing
Agreements -- Guaranteed Rate Agreement" herein.]]
Principal payments on the Notes will be applied on each [Distribution]
[Payment] Date [, first,] to the principal amount of the [Class A-1] Notes until
such principal amount is reduced to zero[, then second, to the principal amount
of the Class A-2 Notes until such principal amount is reduced to zero and then
third, to the principal amount of the Class A-3 Notes until such principal
amount is reduced to zero]. 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] [Payment] 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] [Payment] Date, and 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] [Payment] Date]. The actual date on which the aggregate
outstanding principal amount of [the] [any class of] Notes is paid may be
earlier or later than the [respective] Final Scheduled [Distribution] [Payment]
Date[s] 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-1] Notes and the Class A-2 Notes have
been paid in full, the failure to pay interest due on the Class A-3 Notes will
not be an Event of Default. Pursuant to the Trust Indenture Act of 1939, as
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<PAGE> 44
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-1] Notes, the Class A-2
Notes or the Class A-3 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 each of the [Class A-1] Notes, the Class A-2 Notes and
Class A-3 Notes, in order that there be separate trustees for each of the [Class
A-1] Notes, the Class A-2 Notes and the Class A-3 Notes. So long as any amounts
remain unpaid with respect to the [Class A-1] Notes and the Class A-2 Notes,
only the indenture trustee for the [Class A-1] Noteholders and the Class A-2
Noteholders will have the right to exercise remedies under the Indenture (but
the Class A-3 Noteholders will be entitled to their respective shares of any
proceeds of enforcement, subject to the subordination of the Class A-3 Notes to
the [Class A-1] Notes and the Class A-2 Notes as described herein), and only the
[Class A-1] Noteholders and the Class A-2 Noteholders will have the right to
direct or consent to any action to be taken, including sale of the Receivables,
until the [Class A-1] Notes and the Class A-2 Notes are paid in full. Upon
repayment of the [Class A-1] Notes and the Class A-2 Notes in full, all rights
to exercise remedies under the Indenture will transfer to the trustee for the
Class A-3 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.]
[MANDATORY REDEMPTION
[The] [A class or classes of] Notes will be redeemed in part on the
Distribution Date on or immediately following the last day of the Funding Period
in the event that amounts remain on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such date (a "Mandatory Redemption"). If the amount on deposit in
the Pre-Funding Account is less than or equal to $ , then such amount will
be used to redeem the [Class A-1] Notes [up to an amount not to exceed their
outstanding principal amount and then to redeem the Class A-2 Notes]. Otherwise
the amount on deposit in the Pre-Funding Account on such date will be used to
redeem [each class of] the Notes and the Certificates, and the aggregate
principal amount of [each class of] the Notes to be redeemed will be an amount
equal to [the Notes'] [such class'] Pre-Funded Percentage of the amount then on
deposit in the Pre-Funding Account.
[The Note Prepayment Premium will be payable by the Trust to the
Noteholders pursuant to a Mandatory Redemption if the amount on deposit in the
Pre-Funding Account exceeds $ . The Note Prepayment Premium [for each
class of Notes] will equal the excess, if any, discounted as described below, of
(i) the amount of interest that would accrue on [the Notes'] [such class']
Pre-Funded Percentage of any remaining Pre-Funded Amount (the "Note Prepayment
Amount") at the Note Interest Rate borne by [the] [such class of] Notes during
the period commencing on and including the Distribution Date on which such Note
Prepayment Amount is required to be distributed to the Noteholders [of such
class] to but excluding [, in the case of the Class A-1 Notes,
, in the case of the Class A-2 Notes and , in the case of
the Class A-3 Notes], over (ii) the amount of interest that would have accrued
on such Note Prepayment Amount over the same period at a per annum rate of
interest equal to the bond equivalent yield to maturity on the Determination
Date preceding such Distribution Date on the [, in the case of the Class A-1
Notes, the , in the case of the Class A-2 Notes and the , in the
case of the Class A-3 Notes]. Such excess shall be discounted to present value
to such Distribution Date at the applicable yield described in clause (ii)
above. Pursuant to the Sale and Servicing Agreement, the Seller will be
obligated to pay the sum of the Note Prepayment Premium [for each class of
Notes] and the Certificate Prepayment Premium to the Trust as liquidated damages
for the failure to deliver Subsequent Receivables having an aggregate principal
balance equal to the Pre-Funded Amount. The Trust's obligation to pay the Note
Prepayment Premium [for each class of Notes] and the Certificate Prepayment
Premium will be limited to funds received from the Seller pursuant to the
preceding sentence. In the event that such funds are insufficient to pay the
Note Prepayment
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<PAGE> 45
Premium [for each class of Notes] and the Certificate Prepayment Premium in
full, Noteholders [of each class of Notes] will receive their ratable share
(based upon the aggregate Note Prepayment Premium [for such class]) of the
aggregate amount available to be distributed in respect of the Note Prepayment
Premium and the Certificate Prepayment Premium. No other assets of the Seller or
the Trust will be available for the purpose of making such payment.]]
OPTIONAL REDEMPTION
The [Class A-3] Notes will be redeemed in whole, but not in part, on any
Distribution Date [after all the other classes of Notes have been paid in full]
on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the Pool Balance shall have declined
to 10% or less of the Initial Pool Balance, as described in the Prospectus under
"Description of the Transfer and Servicing Agreements -- Termination." The
redemption price will be equal to the unpaid principal amount of the [Class A-3]
Notes plus accrued and unpaid interest thereon (the "Redemption Price").
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 , 199 , the
Certificateholders will be entitled to distributions in an amount equal to the
amount of interest that would accrue on the Certificate Balance at the
Certificate Rate. The Certificates will constitute Fixed Rate Securities, as
such term is defined under "Certain Information Regarding the Securities --
Fixed Rate Securities" in the Prospectus. Interest 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 most recent Distribution Date on
which interest has been paid to but excluding the following Distribution Date,
and will be calculated on the basis of a 360-day year of twelve 30-day months.
Interest distributions due for any Distribution Date but not distributed on such
Distribution Date will be due on the next Distribution Date increased by an
amount equal to interest on such amount at the Certificate Rate (to the extent
lawful). Interest distributions with respect to the Certificates will generally
be funded from the portion of the Available Funds and the funds in the Reserve
Account remaining after the distribution of the Servicing Fee and the
Noteholders' Payment Amount. 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.
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<PAGE> 46
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions on each Distribution
Date, commencing with the later of (i) the Distribution Date and (ii) the
Distribution Date next succeeding the Distribution Date on which the [Class
A-1] Notes are paid in full, in an amount generally equal to the
Certificateholders' Percentage of the Regular Principal. Distributions with
respect to principal payments will generally be funded from the portion of the
Available Funds and funds in the Reserve Account remaining after the
distribution of the Servicing Fee, the Noteholders' Payment Amount and the
Accrued Certificate Interest. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve Account" herein. 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. [In addition, upon any
reduction or withdrawal by any Rating Agency of its rating of [any class of] the
Notes, then, with respect to each Distribution Date thereafter, the
Certificateholders will not receive any distributions of principal until all the
Notes have been paid in full or such rating has been restored. There can be no
assurance that a rating will remain for a 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.]
[MANDATORY REPURCHASE
Cash distributions to Certificateholders will be made, on a pro rata basis,
on the Distribution Date on or immediately following the last day of the Funding
Period in the event that the amount on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such date, exceeds $ (a "Mandatory Repurchase"). The aggregate
principal balance of the Certificates to be repurchased will be an amount equal
to the Certificates' Pre-Funded Percentage of the amount then on deposit in the
Pre-Funding Account.
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders at the time of any prepayment of the Certificates pursuant to
a Mandatory Repurchase. The Certificate Prepayment Premium for the Certificates
will equal the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Certificates' share of any remaining
Pre-Funded Amount (the "Certificate Prepayment Amount") at the Certificate Rate
during the period commencing on and including the Distribution Date on which
such Certificate Prepayment Amount is required to be distributed to
Certificateholders to but excluding , over (ii) the amount of interest
that would have accrued on such Certificate Prepayment Amount over the same
period at a per annum rate of interest equal to the bond equivalent yield to
maturity on the Determination Date preceding such Distribution Date on the
. Such excess shall be discounted to present value to such Distribution
Date at the yield described in clause (ii) above. Pursuant to the Sale and
Servicing Agreement, the Seller will be obligated to pay the sum of the Note
Prepayment Premium [for each class of Notes] and the Certificate Prepayment
Premium to the Trust as liquidated damages for the failure to deliver Subsequent
Receivables having an aggregate principal balance equal to the Pre-Funded
Amount. The Trust's obligation to pay the Note Prepayment Premium [for each
class of Notes] and the Certificate Prepayment Premium will be limited to funds
received from the Seller pursuant to the preceding sentence. In the event that
such funds are insufficient to pay the Note Prepayment Premium [for each class
of Notes] and the Certificate Prepayment Premium in full, Certificateholders
will receive their ratable share (based upon the aggregate Certificate
Prepayment Premium) of the aggregate amount available to be distributed in
respect of the Note Prepayment Premium and the Certificate Prepayment Premium.
No other assets of the Trust will be available for the purpose of making such
payment.]]
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 10% or less of the Initial Pool Balance,
Certificateholders will receive an amount in respect of the
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<PAGE> 47
Certificates equal to the outstanding Certificate Balance together with accrued
interest at the Certificate Rate, 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-1] Notes and the Class A-2
Notes, [the First Priority Principal Distribution Amount, if any,][and] interest
due on the Class A-3 Notes [and the Second Priority Principal Distribution
Amount, if any,] before distributions of interest on the Certificates and will
be applied to the payment of principal on the Notes in full before distributions
of principal on the Certificates. In addition, following the occurrence of an
Event of Default which has resulted in an acceleration of the Notes or following
an Insolvency Event or a dissolution with respect to the Seller or the General
Partner, the Noteholders will be entitled to be paid in full before the
Certificateholders are entitled to any distributions. See "Description of the
Transfer and Servicing Agreements -- Insolvency Event or Dissolution" in the
Prospectus.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement. A copy 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 headings "Description of the
Transfer and Servicing Agreements" in the Prospectus, to which description
reference is hereby made.
[SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the conveyance of the Initial
Receivables from the Seller to the Trust on the Closing Date pursuant to the
Sale and Servicing Agreement is set forth under "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables" in the Prospectus.
In addition, during the Funding Period, pursuant to the Sale and Servicing
Agreement, the Seller will be obligated to sell to the Trust Subsequent
Receivables having an aggregate principal balance equal to approximately
$ (such amount being equal to the initial Pre-Funded Amount) to the extent
that such Subsequent Receivables are available.
During the Funding Period on each Subsequent Transfer Date, subject to the
conditions described below, the Seller will sell and assign to the Trust,
without recourse, the Seller's entire interest in the Subsequent Receivables
designated by the Seller as of the related Subsequent Cutoff Date and identified
in a schedule attached to a subsequent transfer assignment relating to such
Subsequent Receivables executed on such date by the Seller. It is expected that
on the Closing Date, subject to the conditions described below, certain of the
Subsequent Receivables designated by the Seller and arising between the Initial
Cutoff Dates and the Closing Date will be conveyed to the Trust. Upon the
conveyance of Subsequent Receivables to the Trust on a Subsequent Transfer Date,
(i) the Pool Balance will increase in an amount equal to the aggregate principal
balances of
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the Subsequent Receivables, (ii) an amount equal to EEE% of the aggregate
principal balances of such Subsequent Receivables will be withdrawn from the
Pre-Funding Account and will be deposited in the Reserve Account and (iii) an
amount equal to the excess of the aggregate principal balances of such
Subsequent Receivables over the amount described in clause (ii) will be
withdrawn from the Pre-Funding Account and paid to the Seller.] [Coincident with
each such transfer of Subsequent Receivables, the Yield Supplement Agreement
will require Ford Credit to deposit into the Yield Supplement Account an amount
equal to the Additional Yield Supplement Amount, if any, in respect of such
Subsequent Receivables. See "-- Yield Supplement Account; Yield Supplement
Agreement" herein.]
[Any conveyance of Subsequent Receivables is subject to the satisfaction,
on or before the related Subsequent Transfer Date, of the following conditions
precedent, among others: (i) each such Subsequent Receivable must satisfy the
eligibility criteria specified in the Sale and Servicing Agreement; (ii) the
Seller will not have selected such Subsequent Receivables in a manner that it
believes is adverse to the interests of the Noteholders or the
Certificateholders; (iii) as of the related Subsequent Cutoff Date, the
Receivables, including any Subsequent Receivables conveyed by the Seller as of
such Subsequent Cutoff Date, satisfy the criteria described under "The
Receivables Pool" herein and "The Receivables Pools" in the Prospectus; (iv) the
applicable Reserve Initial Deposit for such Subsequent Transfer Date shall have
been made; and (v) the Seller shall have executed and delivered to the Trust
(with a copy to the Indenture Trustee) a written assignment conveying such
Subsequent Receivables to the Trust (including a schedule identifying such
Subsequent Receivables). Moreover, any such conveyance of Subsequent Receivables
made during any given Collection Period will also be subject to the
satisfaction, on or before the fifteenth day of the month following the end of
such Collection Period, of the following conditions subsequent, among others:
(i) the Seller will have delivered certain opinions of counsel to the Owner
Trustee, the Indenture Trustee and the Rating Agencies with respect to the
validity of the conveyance of all such Subsequent Receivables conveyed during
such Collection Period; (ii) the Trust and the Indenture Trustee shall have
received written confirmation from a firm of independent certified public
accountants that, as of the end of the preceding Collection Period, the
Receivables in the Trust at that time, including the Subsequent Receivables
conveyed by the Seller during each Collection Period, satisfied the parameters
described under "The Receivables Pool" herein and under "The Receivables Pools"
in the Prospectus; and (iii) each of the Rating Agencies shall have notified the
Seller in writing that, following the addition of all such Subsequent
Receivables, each class of the Notes and the Certificates will be rated by the
Rating Agencies in the same rating category as they were rated by the Rating
Agencies on the Closing Date. The Seller will immediately repurchase any
Subsequent Receivable, at a price equal to the Purchase Amount thereof, upon the
failure of the Seller to satisfy any of the foregoing conditions subsequent with
respect thereto.]
[Subsequent Receivables may have been originated by Ford Credit at a later
date using credit criteria different from those which were applied to the
Initial Receivables. See "Risk Factors -- The Subsequent Receivables and the
Pre-Funding Account" and "The Receivables Pool" herein.]]
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Servicer will also
establish and will maintain with the Indenture Trustee [the Pre-Funding Account]
[the Yield Supplement Account] [and] the Reserve Account, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders. 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.
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SERVICING COMPENSATION AND EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the Servicer
will be 1.00% per annum of 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 solely to the extent of the Available Interest. The Servicer
is also 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 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-1] Noteholders and Class A-2 Noteholders evidencing not less than a
majority of the principal amount of the [Class A-1] Notes and the Class A-2
Notes may remove the Servicer without the consent of any of the Class A-3
Noteholders or the Certificateholders. The Class A-3 Noteholders will not have
the ability to remove the Servicer if an Event of Servicing Termination occurs
until the [Class A-1] and the Class A-2 Notes have been paid in full. 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.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, the [Class A-1] Noteholders
and the Class A-2 Noteholders evidencing not less than a majority of the
principal amount of the [Class A-1] Notes and the Class A-2 Notes may, with
certain specified exceptions, waive any Events of Servicing Termination, without
the consent of any of the Class A-3 Noteholders or the Certificateholders. The
Class A-3 Noteholders will not have the right to determine whether any Event of
Servicing Termination should be waived until the [Class A-1] Notes and the Class
A-2 Notes have been paid in full. The 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 each Distribution Date, the
Servicer will cause all collections and other amounts constituting the Available
Funds to be deposited into the Collection Account. The "Available Funds" for a
Distribution Date shall be the sum of the Available Interest and the Available
Principal.
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
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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 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) (amounts received in respect of interest on Simple Interest Receivables
during the preceding Collection Period in excess of the amount of interest that
would have been due during the Collection Period on Simple Interest Receivables
at their respective APRs (assuming that a payment is received on each Simple
Interest Receivable on the due date thereof);] [and] (v) 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;
[(v) amounts constituting the Supplemental Servicing Fee;] [and (vi) amounts
released from the Pre-Funding Account].
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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 --
Allocation of Collections on Receivables" in the Prospectus and will instruct
the Indenture Trustee to make the following deposits and distributions, to the
extent of the amount then on deposit in the Collection Account, in the following
order of priority:
(i) to the Servicer, from the Available Interest (as so allocated),
the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
(ii) to the Note Payment Account, from the Available Funds remaining
after the application of clause (i), the Accrued Note Interest [and the Net
Trust Swap Payment, if any];
(iii) to the Note Payment Account, from the Available Funds remaining
after the application of clauses (i) and (ii), the Noteholders' Principal
Payment Amount;
(iv) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (iii), the Accrued
Certificate Interest;
(v) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (iv), the
Certificateholders' Principal Distribution Amount; and
[(vi) to the Reserve Account, the amount required to reinstate the
amount in the Reserve Account up to the Specified Reserve Balance.]
[(vii) to the Principal Distribution Account, the Regular Principal
Distribution Amount; and]
(viii) to the Seller, any funds remaining on deposit in the Collection
Account with respect to the Collection Period preceding such Distribution
Date.
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes or following an Insolvency Event with respect to the Seller or the General
Partner, the Available Funds remaining after the application of clauses (i) and
(ii) above will be deposited in the Note Payment Account to the extent necessary
to reduce the principal amount of all the Notes to zero, and the
Certificateholders will not receive any distributions until the principal amount
and accrued interest on the Notes has been paid in full.
On each Determination Date (other than the first Determination Date), the
Servicer will provide the Indenture Trustee with certain information with
respect to the Collection Period related to the prior Distribution Date,
including the amount of aggregate collections on the Receivables, the aggregate
amount of Receivables which were written off, 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 Note Interest" means, with respect to any Distribution Date, the
sum of the Noteholders' Monthly Accrued Interest for such Distribution Date and
the Noteholders' Interest Carryover Shortfall for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Accrued Interest for
the preceding Distribution Date and any outstanding Noteholders' Interest
Carryover Shortfall on such preceding Distribution Date, over the amount in
respect of interest that is actually deposited in the Note Payment Account on
such preceding Distribution Date, plus interest on the amount of interest due
but not paid to Noteholders on the preceding [Distribution] [Payment] Date, to
the extent permitted by law, at the [respective] Note Interest Rate[s] borne by
[each class of] the Notes for the [related Interest Period] [period
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<PAGE> 52
from and including the prior Distribution Date to but excluding such
Distribution Date] [plus 2.00% per annum].
"Noteholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, interest accrued for the [related Interest Period] [period
from and including the Closing Date (in the case of the first Distribution Date)
or from and including the prior Distribution Date to but excluding such
Distribution Date] on [the] [each class of] 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] [Payment] Date after
giving effect to all payments of principal to the Noteholders [of such class] on
or prior to such [Distribution] [Payment] Date (or, in the case of the first
[Distribution] [Payment] Date, on the Closing Date).
"Noteholders' Monthly Principal" means, with respect to any Distribution
Date, the sum of (i) the Noteholders' Percentage of the Regular Principal and
(ii) the Noteholders' Accelerated Principal. [Or, state other formula for
determining the Noteholders' Monthly Principal.]
"Noteholders' Payment Amount" means, with respect to any Distribution Date,
the sum of the Noteholders' Principal Payment Amount and the Accrued Note
Interest.
"Noteholders' Percentage" means (i) 100% for each Distribution Date to and
including the later to occur of (x) the Distribution Date next succeeding the
Distribution Date on which the principal amount of the [Class A-1] Notes is
reduced to zero [and (y) the 199 Distribution Date], (ii) for each Distribution
Date thereafter to and including the Distribution Date on which the principal
amount of the [Class A-3] Notes is reduced to zero, the percentage equivalent of
a fraction, the numerator of which is the outstanding principal amount of the
Notes on the Distribution Date immediately preceding the Distribution Date for
which the Noteholders' Percentage is being calculated (after giving effect to
all distributions made on such immediately preceding Distribution Date) and the
denominator of which is the Pool[/Pre-Funding] Balance on the last day of the
Collection Period second preceding the Distribution Date for which the
Noteholders' Percentage is being calculated, [unless the Reserve Account balance
is less than [ % of] the Specified Reserve Balance, then the Noteholders'
Percentage shall be %,] and (iii) zero for each Distribution Date thereafter
[; provided, however, upon any reduction or withdrawal by any Rating Agency of
its rating of [the] [any class of] Notes, then, with respect to each
Distribution Date thereafter until the principal amount of all the Notes is paid
in full or such rating is restored, the Noteholders' Percentage shall mean
100%]. [Or, state other methods for determining the Noteholders' Percentage.]
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal and any
outstanding Noteholders' Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Note Payment Account.
"Noteholders' Principal Payment Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal for such
Distribution Date and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Distribution Date; provided, however, that the
Noteholders' Principal Payment Amount shall not exceed the outstanding principal
amount of the Notes; and provided, further, that (i) the Noteholders' Principal
Payment Amount on the [Class A-1] Final Scheduled [Distribution] [Payment] Date
shall not be less than the amount that is necessary (after giving effect to
other amounts [on deposit and] to be deposited in the Note Payment Account on
such Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the [Class A-1] Notes to zero[; (ii) the Noteholders'
Principal Payment Amount on the Class A-2 Final Scheduled [Distribution]
[Payment] Date shall not be less than the amount that is necessary (after giving
effect to other amounts [on deposit and] to be deposited in the Note Payment
Account on such Distribution Date and allocable to principal) to reduce the
outstanding principal amount of the Class A-2 Notes to zero; and (iii) on the
Class A-3 Final Scheduled [Distribution] [Payment] Date the Noteholders'
Principal Payment Amount shall not be less than
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the amount that is necessary (after giving effect to other amounts [on deposit
and] to be deposited in the Note Payment Account on such Distribution Date and
allocable to principal) to reduce the outstanding principal amount of the Class
A-3 Notes to zero].
["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-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) 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 and (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.
"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 Certificate Final Scheduled Distribution Date
shall not be less than the amount that is necessary to reduce the Certificate
Balance of the Class Certificates to zero; and (ii) the Regular Principal
Distribution Amount on the Class Final Scheduled Distribution Date shall not
be less than the amount that is necessary to reduce the Certificate Balance of
the Class 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 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.
"Specified Credit Enhancement Amount" means, with respect to any
Distribution Date, the greatest of (i) $ , (ii) % 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
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<PAGE> 54
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.]
"Accrued Certificate Interest" means, with respect to any Distribution
Date, the sum of the Certificateholders' Monthly Accrued Interest for such
Distribution Date and the Certificateholders' Interest Carryover Shortfall for
such Distribution Date.
"Certificate Balance" equals, initially, $ and, thereafter, equals
the initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distribution
Amount and the Accrued Certificate Interest.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
for the related Interest Period.
"Certificateholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) at the Certificate Rate on the Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all payments allocable to the reduction of the Certificate Balance made on or
prior to such Distribution Date (or, in the case of the first Distribution Date,
on the Closing Date).
"Certificateholders' Monthly Principal" means, with respect to any
Distribution Date, the Certificateholders' Percentage of the Regular Principal.
[Or, state other method for determining the Certificateholders' Monthly
Principal.]
"Certificateholders' Percentage" means (i) for each Distribution Date to
and including the later to occur of (x) the Distribution Date next succeeding
the Distribution Date on which the principal amount of [all classes of] the
[Class A-1] Notes is reduced to zero [and (y) the 199 Distribution Date],
zero, and (ii) for each Distribution Date thereafter to and including the
Distribution Date on which the Certificate Balance is reduced to zero, the
percentage equivalent of a fraction, the numerator of which is the outstanding
Certificate Balance on the Distribution Date immediately preceding the
Distribution Date for which the Certificateholders' Percentage is being
calculated (after giving effect to all distributions made on such immediately
preceding Distribution Date) and the denominator of which is the
Pool[/Pre-Funding] Balance on the last day of the Collection Period second
preceding the Distribution Date for which the Certificateholders' Percentage is
being calculated, [unless the Reserve Account balance is less than [ % of] the
Specified Reserve Balance, then the Certificateholders' Percentage shall be %]
[; provided, however, upon any reduction or withdrawal by any Rating Agency of
its rating of [the] [any class of] Notes, then, with respect to each
Distribution Date thereafter until the principal amount of all the Notes is paid
in full or such rating is restored, the Certificateholders' Percentage shall
mean zero]. [Or, state other methods for determining the Certificateholders'
Percentage.]
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal and any outstanding Certificateholders'
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<PAGE> 55
Principal Carryover Shortfall from the preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account.
"Certificateholders' Principal Distribution Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal for
such Distribution Date and the Certificateholders' Principal Carryover Shortfall
as of the close of the preceding Distribution Date; provided, however, that the
Certificateholders' Principal Distribution Amount shall not exceed the
Certificate Balance. In addition, on the Final Scheduled Distribution Date, the
principal required to be distributed to Certificateholders will include the
lesser of (a) (i) any scheduled payments of principal due and remaining unpaid
on each Precomputed Receivable and (ii) any principal due and remaining unpaid
on each Simple Interest Receivable, in each case, in the Trust as of the Final
Scheduled Maturity Date or (b) the portion of the amount required to be advanced
under clause (a) above that is necessary (after giving effect to the other
amounts to be deposited in the Certificate Distribution Account on such
Distribution Date and allocable to principal) to reduce the Certificate Balance
to zero, and, in the case of clauses (a) and (b), remaining after any required
distribution in respect of the Notes.
On each [Distribution] [Payment] Date, all amounts on deposit in the Note
Payment Account [(other than [any] Investment Earnings [in excess of the
weighted average of the Note Interest Rates] [and the Certificate Rate])] will
be paid in the following order of priority:
(i) to the [applicable] Noteholders, accrued and unpaid interest on
the outstanding principal amount of the [applicable class of] Notes at the
[applicable] Note Interest Rate [and to the Swap Counterparty, the Net
Trust Swap Payment, if any, for such [Distribution] [Payment] Date, on a
pro rata basis with the amount[s] payable to the Noteholders pursuant to
this clause (i)]; [and]
(ii) to the Noteholders [of the Class A-1 Notes] in reduction of
principal until the principal amount of the [Class A-1] Notes has been
reduced to zero[;
(iii) to the Noteholders of the Class A-2 Notes in reduction of
principal until the principal amount of the Class A-2 Notes has been
reduced to zero; and
(iv) to the Noteholders of the Class A-3 Notes in reduction of
principal until the principal amount of the Class A-3 Notes has been
reduced to zero].
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
["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-1] Note Interest and the Class A-2 Note Interest, the First
Priority Principal Distribution Amount, if any, the Accrued Class A-3 Note
Interest, the Second Priority Principal Distribution Amount, if any and the
Accrued Class 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 Note Interest, the Accrued Class 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;
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(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 Certificate Principal Distribution Account, in reduction
of the Certificate Balance of the Class Certificates, until the
Certificate Balance of the Class Certificates has been reduced to zero;
and
(v) 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 Certificateholders, the Accrued Class Certificate
Interest;
(ii) 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 Certificateholders, in reduction of the Certificate
Balance of the Class Certificates, until the Certificate Balance of the
Class Certificates has been reduced to zero;
(ii) to the Seller, any funds remaining on deposit in the Certificate
Principal Distribution Account.]
RESERVE ACCOUNT
The rights of the Certificateholders to receive distributions with respect
to the Receivables generally will be subordinated to the rights of the
Noteholders in the event of defaults and delinquencies on the Receivables as
provided in the Sale and Servicing Agreement. The protection afforded to the
Noteholders through subordination will be effected both by the preferential
right of the Noteholders to receive current distributions with respect to the
Receivables and by the establishment of the Reserve Account. The Reserve Account
will be created with a deposit initially by the Seller on the Closing Date [and
thereafter with deposits from funds in the Pre-Funding Account that would
otherwise be payable to the Seller on each Subsequent Transfer Date] (such
deposit[s, collectively], the "Reserve Initial Deposit").
Subject to reduction as hereafter described, the "Specified Reserve
Balance" with respect to any Distribution Date means the sum of (i) [the sum of
(a)] % of the [Initial Pool Balance] [Pool Balance as of the Initial Cutoff
Date] [, plus (b) an amount related to the difference between anticipated
investment earnings on the remaining Pre-Funded Amount and the weighted average
interest expense on the portion of the Notes and Certificates represented by the
remaining Pre-Funded Amount] and (ii) % of the Pool Balance on the first day
of the related Collection Period. [However, so long as on any Distribution Date
(except the first Distribution Date) the sum of (x) the outstanding principal
amount of the Securities (after giving effect to distributions made on the prior
Distribution Date) and (y) the aggregate amount of Payaheads that have been
collected but not yet applied as payments under the related Receivables as of
the first day of the related Collection Period is less than or equal to [the sum
of] % of (a) the Pool Balance on the first day of the related Collection
Period [and (b) the Pre-Funded Amount on such date], then the portion of the
Specified Reserve Balance set forth in clause (i) above will be reduced to %
of the [Initial Pool Balance] [Pool Balance as of the Initial Cutoff Date].] [In
addition, so long as on any Distribution Date (except the first Distribution
Date) the sum of (x) the outstanding principal amount of the Securities (after
giving effect to distributions made on the prior Distribution Date) and (y) the
aggregate amount of Payaheads that have been collected but not yet applied as
payments
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under the related Receivables as of the first day of the related Collection
Period is less than or equal to [the sum of] % of [(a)] the Pool Balance on
the first day of the related Collection Period [and (b) the Pre-Funded Amount on
such day], then such portion of the Specified Reserve Balance set forth in
clause (i) above will be reduced to % of the [Initial Pool Balance] [Pool
Balance as of the Initial Cutoff Date].] [With respect to the portion of the
Specified Reserve Balance set forth in clause (ii) above, so long as on any
Distribution Date (except the first Distribution Date) the sum of (x) the
outstanding principal amount of the Securities (after giving effect to
distributions made on the prior Distribution Date) and (y) the aggregate amount
of Payaheads that have been collected but not yet applied as payments under the
related Receivables as of the first day of the related Collection Period is less
than or equal to [the sum of] % of [(a)] the Pool Balance on the first day of
the related Collection Period [and (b) the Pre-Funded Amount on such day], then
such portion will be reduced to an amount equal to the product of (I) the Pool
Balance on the first day of the related Collection Period and (II) the
percentage (which shall not be greater than % or less than zero) equal to (X)
the percentage derived from the fraction, the numerator of which is the
outstanding principal amount of the Securities (after giving effect to
distributions made on the prior Distribution Date) and the denominator of which
is such Pool Balance less (Y) %.] The portion of the Specified Reserve
Balance specified in clause (ii) above may be invested in motor vehicle sale
contracts originated by Ford Credit and secured by motor vehicles financed
thereby that are not included in the Pool Balance. [The Specified Reserve
Balance is further subject to adjustment in certain circumstances described
herein.]
[The Specified Reserve Balance would also be increased to the extent that
the Receivables in the Trust on a Subsequent Transfer Date, including the
Subsequent Receivables to be conveyed to the Trust on such Subsequent Transfer
Date, have a weighted average APR of less than EEE%. See "The Receivables Pool"
herein. In addition, subject to certain limitations, the Seller has the option
to increase the Specified Reserve Balance in connection with the addition of
Subsequent Receivables.]
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Balance for such
Distribution Date, except as described below and subject to certain limitations,
the Servicer will instruct the Indenture Trustee to [distribute such excess to
the Seller] [apply such excess as Noteholders' Accelerated Principal]. Upon any
distribution to the Seller of amounts from the Reserve Account, neither the
Noteholders nor the Certificateholders will have any rights in, or claims to,
such amounts. [Subsequent to any reduction or withdrawal by any Rating Agency of
its rating of [the] [any class of] Notes, unless such rating has been restored,
any such excess released from the Reserve Account on a Distribution Date will be
deposited in the Note Payment Account for payment to Noteholders as an
accelerated payment of principal on [such Distribution] [the related Payment]
Date.] [Or, state other methods for determining the Specified Reserve Balance
and applying such excess amounts.]
Amounts held from time to time in the Reserve Account will continue to be
held for the benefit of Noteholders and Certificateholders. On each Distribution
Date, funds will be withdrawn from the Reserve Account up to the Available
Reserve Amount to the extent that the [part of the] Available Funds (after the
payment of the Servicing Fee) with respect to any Collection Period is less than
the Noteholders' Payment Amount and will be deposited in the Note Payment
Account. In addition, funds will be withdrawn from the Reserve Account up to the
Available Reserve Amount (as reduced by any withdrawal pursuant to the preceding
sentence) to the extent that the Available Funds remaining after the payment of
the Servicing Fee and the deposit of the Noteholders' Payment Amount in the Note
Payment Account is less than the Certificateholders' Distribution Amount and
will be deposited in the Certificate Distribution Account. [If funds applied in
accordance with the preceding sentence are insufficient to distribute interest
due on the Certificates, subject to certain limitations, funds will be withdrawn
from the Reserve Account and applied to distribute interest due on the
Certificates to the extent of the Certificate Interest Reserve Amount.] On each
Distribution
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Date, the Reserve Account will be reinstated up to the Specified Reserve Balance
to the extent, if any, of the Available Funds remaining after payment of the
Servicing Fee, the deposit of the Noteholders' Payment Amount into the Note
Payment Account and the deposit of the Certificateholders' Distribution Amount
into the Certificate Distribution Account.
"Available Reserve Amount" means, with respect to any Distribution Date,
the amount of funds on deposit in the Reserve Account on such Distribution Date
[(other than Investment Earnings)] [less the Certificate Interest Reserve Amount
with respect to such Distribution Date, in each case,] before giving effect to
any reduction thereto on such Distribution Date.
["Certificate Interest Reserve Amount" means the lesser of (i) $ less
the amount of any application of the Certificate Interest Reserve Amount to pay
interest on the Certificates on any prior Distribution Date and (ii) % of
the Certificate Balance on such Distribution Date (before giving effect to any
reduction thereof on such Distribution Date)[; provided, however, that the
Certificate Interest Reserve Amount shall be zero subsequent to any reduction by
any Rating Agency to less than " " or its equivalent, or withdrawal by any
Rating Agency, of its rating of [the] [any class of] Notes, unless such rating
has been restored].]
If on any Distribution Date the entire Noteholders' Payment Amount for such
Distribution Date (after giving effect to any amounts withdrawn from the Reserve
Account) is not deposited in the Note Payment Account, the Certificateholders
generally will not receive any distributions.
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.
The Reserve Account is intended to enhance the likelihood of receipt by the
Noteholders and the Certificateholders of the full amount of principal and
interest due them and to decrease the likelihood that the Noteholders and the
Certificateholders will experience losses. In addition, the subordination of the
Certificates to the Notes is intended to enhance further the likelihood of
receipt by Noteholders of the full amount of principal and interest due them and
to decrease the likelihood that the Noteholders will experience losses. However,
in certain circumstances, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in
collections on the Receivables exceeds the amount of available cash in the
Reserve Account, Noteholders or Certificateholders could incur losses or a
shortfall in the amounts distributed to the Noteholders or the
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates.
[YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
The Yield Supplement Account will be created with an initial deposit by
Ford Credit of the Yield Supplement Initial Deposit. The Yield Supplement
Initial Deposit will equal an amount (which amount may be discounted at a rate
to be specified in the Sale and Servicing Agreement) equal to the aggregate
amount by which (i) interest on the principal balance of each [Initial]
Receivable for the period commencing on the [Initial] Cutoff Date and ending
with the scheduled maturity of such Receivable, assuming that payments on such
Receivables are made as scheduled and no prepayments are made, at a rate equal
to the Required Rate, exceeds (ii) interest on such principal balances at the
APR of such Receivable (the "Yield Supplement Amount" and, with respect to all
of the [Initial] Receivables, the "Maximum [Initial] Yield Supplement Amount").
On each Distribution Date, the Indenture Trustee will transfer to the
Collection Account from monies on deposit in the Yield Supplement Account an
amount equal to the Yield Supplement Deposit Amount in respect of the
Receivables for such Distribution Date. The "Yield Supplement Deposit Amount"
with respect to a Distribution Date is the aggregate Yield Supplement Amount, if
any, in respect of the Receivables for the related Collection Period. Amounts on
deposit on any Distribution Date in the Yield Supplement Account in excess of
the Maximum Yield Supplement
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Amount, after giving effect to all distributions to be made on such Distribution
Date, will be paid to the Seller. Monies on deposit in the Yield Supplement
Account may be invested in Permitted Investments under the circumstances and in
the manner described in the Sale and Servicing Agreement. Any monies remaining
on deposit in the Yield Supplement Account upon the termination of the Trust
will be paid to the Seller.
[Pursuant to the Yield Supplement Agreement, on each Subsequent Transfer
Date, Ford Credit will deposit into the Yield Supplement Account an amount equal
to the Additional Yield Supplement Amount. The aggregate of the Additional Yield
Supplement Amounts in respect of Subsequent Receivables, if any, is referred to
herein as the "Maximum Subsequent Yield Supplement Amount" and, together with
the Maximum Initial Yield Supplement Amount, the "Maximum Yield Supplement
Amount."]]
[INTEREST RATE CAP
With respect to the Class A-2 Notes, the Seller will enter into an Interest
Rate Cap, dated as of the Closing Date (the "Interest Rate Cap") with the
Interest Rate Cap Provider. The notional amount of the Interest Rate Cap on any
[Distribution] [Payment] Date (the "Cap Notional Amount") will be at least equal
to the outstanding principal amount of the Class A-2 Notes as of the close of
the preceding [Distribution] [Payment] Date. Pursuant to the Interest Rate Cap,
on each [Distribution] [Payment] Date on which [the Class A-2 Rate] [LIBOR] for
the preceding [Distribution] [Payment] Date exceeds % (the "Cap Rate"), the
Interest Rate Cap Provider will make a payment to the Indenture Trustee, on
behalf of the Trust, in an amount equal to the product of (i) the difference
between [such Class A-2 Rate] [LIBOR] and the Cap Rate, (ii) the Cap Notional
Amount and (iii) the actual number of days from and including the preceding
[Distribution] [Payment] Date to but excluding such [Distribution] [Payment]
Date divided by 360. The Interest Rate Cap will terminate on the Class A-2
Scheduled Final [Distribution] [Payment] Date. Payments received by the
Indenture Trustee pursuant to the Interest Rate Cap will be deposited in the
Collection Account for the benefit of all Securityholders.
The payment obligations of the Interest Rate Cap Provider under the
Interest Rate Cap constitute general unsecured obligations of the Interest Rate
Cap Provider. No assurance can be given that the Trust will receive the payments
due to be received under the Interest Rate Cap when due. A failure by the
Interest Rate Cap Provider to make such payments or to make such payments on a
timely basis would reduce amounts available for distributions to
Securityholders, and in such event Securityholders could incur a loss on their
investment. With respect to each Collection Period, any shortfall between
amounts due from the Interest Rate Cap Provider under the Interest Rate Cap and
amounts actually received from the Interest Rate Cap Provider during such
Collection Period will be reported in the statement delivered to Securityholders
on the following [Payment Date or] Distribution Date. See "Certain Information
Regarding the Securities -- Reports to Securityholders" in the Prospectus.
The Interest Rate Cap will be provided by (the "Interest Rate Cap
Provider"). The Interest Rate Cap Provider was incorporated in . The
Interest Rate Cap Provider is engaged in the business of . As of
, 199 , the Interest Rate Cap Provider had total consolidated assets
of $ , total consolidated liabilities of $ and total consolidated
stockholders' equity of $ .
THE INFORMATION SET FORTH IN THE PRECEDING PARAGRAPH HAS BEEN PROVIDED BY
THE INTEREST RATE CAP PROVIDER. THE SELLER MAKES NO REPRESENTATIONS AS TO THE
ACCURACY OR COMPLETENESS OF SUCH INFORMATION.]
[INTEREST RATE SWAP
With respect to the Class A-2 Notes, the Indenture Trustee, on behalf of
the Trust, will enter into one or more Interest Rate Swap Agreements, dated as
of the Closing Date (collectively, the
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"Interest Rate Swap") with the Swap Counterparty. The notional amount of the
Interest Rate Swap on any [Distribution] [Payment] Date (the "Swap Notional
Amount") will equal the outstanding principal amount of the Class A-2 Notes as
of the close of the preceding [Distribution] [Payment] Date. Pursuant to the
terms of the Interest Rate Swap, the Swap Counterparty will pay to the Trust, on
each [Distribution] [Payment] Date, interest at a per annum rate equal to [the
Class A-2 Rate] [LIBOR] on the Swap Notional Amount. In exchange for such
payments, the Trust will pay to the Swap Counterparty, on each [Distribution]
[Payment] Date, interest at a per annum rate equal to [the lesser of] [ %]
[and] [the Prime Rate less %], on the Swap Notional Amount[, which rate will
be reset [on various dates in] each [month] [Interest Period]]. With respect to
each [Distribution] [Payment] Date, any difference between the [monthly]
[quarterly] payment by the Swap Counterparty to the Trust and the [monthly]
[quarterly] payment by the Trust to the Swap Counterparty will be referred to
herein as the "Net Trust Swap Receipt," if such difference is a positive number,
and the "Net Trust Swap Payment," if such difference is a negative number. Net
Trust Swap Receipts, if any, will be deposited in the Collection Account for the
benefit of all Securityholders and Net Trust Swap Payments, if any, will be paid
from the Collection Account in the same manner and priority as accrued and
unpaid interest on the Notes on each [Distribution] [Payment] Date.
The payment obligations of the Swap Counterparty under the Interest Rate
Swap constitute general unsecured obligations of the Swap Counterparty. No
assurance can be given that the Trust will receive the payments due to be
received under the Interest Rate Swap when due. A failure by the Swap
Counterparty to make such payments or to make such payments on a timely basis
would reduce amounts available for distributions to Securityholders, and in such
event Securityholders could incur a loss on their investment. With respect to
each Collection Period, any shortfall between amounts due from the Swap
Counterparty under the Interest Rate Swap and amounts actually received from the
Swap Counterparty during such Collection Period will be reported in the
statement delivered to Securityholders on the following [Payment Date or]
Distribution Date. See "Certain Information Regarding the Securities -- Reports
to Securityholders" in the Prospectus.
The Interest Rate Swap will be provided by (the "Swap
Counterparty"). The Swap Counterparty was incorporated in .
The Swap Counterparty is engaged in the business of . As of
, 199 , the Swap Counterparty had total consolidated assets of
$ , total consolidated liabilities of $ and total consolidated
stockholders' equity of $ .
THE INFORMATION SET FORTH IN THE PRECEDING PARAGRAPH HAS BEEN PROVIDED BY
THE SWAP COUNTERPARTY. THE SELLER MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION.]
[GUARANTEED RATE AGREEMENT
The Seller will enter into an Guaranteed Rate Agreement, dated as of the
Closing Date (the "Guaranteed Rate Agreement") with the Investment Provider.
Pursuant to the Guaranteed Rate Agreement, amounts on deposit in the
[Collection] [Note Payment] Account will be invested from the date of deposit to
the related [Distribution] [Payment] Date by the Indenture Trustee at the
direction of the Investment Provider in certain eligible investments (which are
substantially similar to Permitted Investments). Amounts invested pursuant to
the Guaranteed Rate Agreement will continue to be held in the name of the
Indenture Trustee for the benefit of Securityholders and will remain assets of
the Trust for purposes of bankruptcy, tax and other applicable laws. The
Guaranteed Rate Agreement provides that the Investment Provider will guarantee a
rate of return on such amounts equal to the weighted average of the Note
Interest Rates [and the Certificate Rate] and will be entitled to receive any
Investment Earnings in excess of such guaranteed return.
If the commercial paper rating or certificate of deposit rating of the
Investment Provider is at any time reduced below A-1+ or P1 by the applicable
Rating Agency, within 60 days of receiving notice
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of such decline, the Servicer will either (i) with the prior written assurance
of each Rating Agency that such action will not result in a reduction of the
rating of any of the Notes or the Certificates, cause the Investment Provider to
pledge securities, in a manner conferring on the Indenture Trustee a perfected
first lien in such securities, securing the Investment Provider's performance of
its obligations under the Guaranteed Rate Agreement, (ii) direct the Indenture
Trustee to terminate the Guaranteed Rate Agreement and to obtain a Replacement
Guaranteed Rate Agreement or (iii) establish any other arrangement satisfactory
to each Rating Agency such that such Rating Agency will not reduce the rating of
any of the Notes or the Certificates. A "Replacement Guaranteed Rate Agreement"
means an agreement (i) which is substantially similar to the original Guaranteed
Rate Agreement, (ii) the obligor of which is an insurance company, trust
company, commercial bank or other entity which has a commercial paper or
certificate of deposit rating of no less than A-1+ or P1 by the applicable
Rating Agency and (iii) which provides for either the payment of interest on
funds invested pursuant thereto at a rate per annum at least equal to the
weighted average of the Note Interest Rates [and the Certificate Rate]. If the
Servicer is unable to obtain a Replacement Guaranteed Rate Agreement or a pledge
of securities or otherwise satisfy the applicable Rating Agency within such
60-day period, then each following Distribution Date will constitute a Payment
Date and distributions in respect of the Notes and the Certificates will be made
monthly. See "Description of the Notes--Payments of Interest" herein.
The payment obligations of the Investment Provider under the Guaranteed
Rate Agreement constitute general unsecured obligations of the Investment
Provider. No assurance can be given that the Trust will receive the payments due
to be received under the Guaranteed Rate Agreement when due. A failure by the
Investment Provider to make such payments or to make such payments on a timely
basis would reduce amounts available for distributions to Securityholders, and
in such event Securityholders could incur a loss on their investment. With
respect to each Collection Period, any shortfall between amounts due from the
Investment Provider under the Guaranteed Rate Agreement and amounts actually
received from the Investment Provider during such Collection Period will be
reported in the statement delivered to Securityholders on the following [Payment
Date or] Distribution Date. See "Certain Information Regarding the Securities --
Reports to Securityholders" in the Prospectus.
The Guaranteed Rate Agreement will be provided by (the
"Investment Provider"). The Investment Provider was incorporated in .
The Investment Provider is engaged in the business of . As
of , 199 , the Investment Provider had total consolidated assets of
$ , total consolidated liabilities of $ and total consolidated
stockholders' equity of $ . The Investment Provider is currently rated
/ .
THE INFORMATION SET FORTH IN THE PRECEDING PARAGRAPH HAS BEEN PROVIDED BY
THE INVESTMENT PROVIDER. THE SELLER MAKES NO REPRESENTATIONS AS TO THE ACCURACY
OR COMPLETENESS OF SUCH INFORMATION.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS") rulings on similar transactions involving both
debt instruments and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
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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
It is expected that Special Tax Counsel, will, upon issuance of the Notes
and Certificates 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. Further, with respect to the Notes, Special Tax
Counsel will advise the Trust that the Notes will be classified as debt for
federal income tax purposes.
In addition, Special Tax Counsel has prepared or reviewed the statements
under the heading "Summary -- Tax Status" as they relate to federal income tax
matters and under the heading "Certain Federal Income Tax Consequences" herein
and in the Prospectus and is of the opinion that such statements are correct in
all material respects. Such statements are intended as an explanatory discussion
of the possible effects of the classification of the Trust as a partnership for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to the investor's specific tax
circumstances that would be provided by an investor's own tax adviser.
Accordingly, each investor is advised to consult its own tax advisers with
regard to the tax consequences to it of investing in the Notes and the
Certificates.
TAX CHARACTERIZATION OF THE TRUST
As set forth above, it is expected that 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.
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 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 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 Notes
is correct.
Original Issue Discount. A Note 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.
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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 that relates
to a period prior to the Closing Date. Under applicable Treasury regulations
governing the accrual of OID (the "OID Regulations"), the stated redemption
price at maturity is the sum of all payments on the Note other than any
"qualified stated interest" payments. Qualified stated interest is defined as
any one of a series of payments equal to the product of the outstanding
principal amount of the Note and a single fixed rate or certain variable rates
of interest that is unconditionally payable at least annually.
The holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period(s). In the case of an obligation the principal on which
is subject to prepayment as a result of prepayments on the underlying collateral
(a "Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). The Prepayment Assumption that will be
used in determining the rate of accrual of OID, premium and market discount, if
any, is % 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
[Payment] [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 Notes for an amount that is less than its
stated redemption price will be required to include OID in
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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 may
elect to include all income that accrues on the Note using the constant yield
method. If a Noteholder makes this election, income on a Note will be calculated
as though (i) the issue price of the Note were equal to the Noteholder's
adjusted basis in the Note immediately after its acquisition by the Noteholder;
(ii) the Note were issued on the Noteholder's acquisition date; and (iii) none
of the interest payments on the Note were "qualified stated interest." A
Noteholder may make such an election for a Note that has premium or market
discount, respectively, only if the Noteholder makes, or has previously made, an
election to amortize bond premium or to include market discount in income
currently. See "-- Market Discount" and "-- Amortizable Bond Premium" below.
Market Discount. The Notes, whether or not issued with OID , will be
subject to the "market discount rules" of section 1276 of the Code. In general,
these rules provide that if the Note Owner acquires a Note at a market discount
(that is, a discount from its stated redemption price at maturity or, if the
Notes were issued with OID, its original issue price plus any accrued OID that
exceeds a de minimis amount specified in the Code) and thereafter (a) recognizes
gain upon a disposition, or (b) receives payments of principal, the lesser of
(i) such gain or principal payment or (ii) the accrued market discount will be
taxed as ordinary interest income. Generally, the accrued market discount will
be the total market discount on the Note multiplied by a fraction, the numerator
of which is the number of days the Note Owner held the Note and the denominator
of which is the number of days from the date the Note Owner acquired the Note
until its maturity date. The Note Owner may elect, however, to determine accrued
market discount under the constant yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at a
premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
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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.
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 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. Note Owners. In general, 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 Certificate Owner. To qualify for
the exemption from taxation, the 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 foreign person 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 foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct taxpayer identification number and a statement that the holder is not
subject to backup withholding. Should a nonexempt Noteholder fail to provide the
required certification, the Trust will
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be required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Special Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation 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 foreign holders generally
would be subject to U.S. federal tax and U.S. federal tax return filing and
withholding requirements, individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses, and
taxpayers such as regulated investment companies and real estate investment
trusts could be adversely affected..
TAX CONSEQUENCES TO HOLDERS OF OFFERED CERTIFICATES
Treatment of the Trust as a Partnership. The Seller and the Servicer will
agree, and the Certificateholders will agree by their purchase of Certificates,
to treat the Trust as a partnership for purposes of federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the Trust, the
partners of the partnership being the Certificateholders (including the Seller),
and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Seller and the Servicer is not clear because there is no authority on
transactions closely comparable to those contemplated herein.
A variety of alternative characterizations of the Certificates are
possible. For example, because the Certificates generally will have certain
features characteristic of debt, the Certificates might be considered debt of
the Seller or the Trust. Any such characterization would not result in
materially adverse tax consequences to Certificateholders as compared to the
consequences from treatment of the Certificates as equity in a partnership,
described below. The following discussion assumes that the Certificates
represent equity interests in a partnership.
Partnership Taxation. Assuming that the Trust is classified as a
partnership, the Trust will not be subject to federal income tax, but each
Certificateholder will be required to take into account separately such holder's
allocated share of income, gains, losses, deductions and credits of the Trust.
The Trust's income will consist primarily of interest accrued on the Receivables
(including appropriate adjustments for market discount (as discussed below), and
any OID and bond premium), investment income from investments of collections
held between Distribution Dates, any gain upon, or with respect to, collection
or disposition of the Receivables and any income earned on any notional
principal contracts. The Trust's deductions will consist primarily of interest
accruing on the Notes, servicing and other fees and losses or deductions upon,
or with respect to, collection or the disposition of the Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. In the Trust
Agreement, the Certificateholders will agree that the yield on a Certificate is
intended to qualify as a "guaranteed payment" and not as a distributive share of
partnership income. A guaranteed payment would be treated by a Certificateholder
as ordinary income, but may well not be treated as interest income. The Trust
Agreement will provide that, to the extent that such treatment is not respected,
the Certificateholders will be allocated ordinary gross income of the Trust for
each interest period equal to the sum of (i) the amount of interest that accrues
on the Certificates for such interest period based on the Certificate
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Rate; (ii) an amount equivalent to interest that accrues during such interest
period on amounts previously due on the Certificates but not yet distributed;
and (iii) any Trust income attributable to discount on the Receivables that
corresponds to any excess of the principal balance of the 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 such losses could be characterized as capital losses, and the
Certificateholders generally would only be able to deduct such losses against
capital gain income. Accordingly, a Certificateholder's taxable income from the
Trust could exceed the cash it receives from the Trust.
Although the allocation of gross income to Certificateholders described
above if the Certificateholders are not treated as receiving a "guaranteed
payment" is intended to comply with applicable Treasury regulations and other
authorities, no assurance can be given that the IRS would not instead require
that Certificateholders be allocated a distributive share of partnership net
income or loss. Moreover, if losses or deductions were allocated to
Certificateholders, such losses or deductions would, to the extent that funds
were available therefor, later be reimbursed through allocations of ordinary
income.
It is believed that allocating partnership income on the foregoing basis
should comport with the partners' economic interests in the partnership,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to Certificateholders. Moreover, under the
foregoing method of allocation, Certificateholders may be allocated income equal
to the amount of interest accruing on the Certificates based on the Certificate
Rate even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis Certificateholders will in effect
be required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes. In addition, because tax
allocation and tax reporting will be done on a uniform basis for all
Certificateholders of the Trust but Certificateholders of the Trust 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
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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 they exceed two percent of the individual'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 actually
distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables were not issued
with OID or imputed interest, and, therefore, the Trust should not have OID or
imputed interest income. However, the purchase price paid by the Trust for the
Receivables may be greater or less than the remaining principal balance of the
Receivables at the time of purchase. If so, the Receivables will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
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
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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.
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 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
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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 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.
TAX CONSEQUENCES TO NON-U.S. CERTIFICATEHOLDERS
The Certificates may not be purchased by persons other than U.S. persons
and non-U.S. persons who will satisfy the Seller and the Trustee of the Trust
that such non-U.S. person will be taxed with respect to its ownership of
Certificates as if it were a U.S. person. However, in the case of such a
non-U.S. person, the Trust will withhold U.S. income tax at the highest marginal
rate.
CERTAIN STATE TAX CONSEQUENCES
Because of the variation in each state's and locality's tax laws, it is
impossible to predict the tax classification of the Trust or the tax
consequences to the Trust or to holders of Notes and Certificates in all of the
state and local taxing jurisdictions in which they may be subject to tax.
Noteholders and Certificateholders are urged to consult their own tax advisors
with respect to state
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and local taxation of the Trust and state and local tax consequences of the
purchase, ownership and disposition of Notes and Certificates.
MICHIGAN TAX CONSEQUENCES
The State of Michigan imposes a state individual income tax and a Single
Business Tax which is based partially upon the net income of corporations,
partnerships and other entities doing business in the State of Michigan. This
discussion is based upon present provisions of Michigan statutes and the
regulations promulgated thereunder, and applicable judicial or ruling authority,
all of which are subject to change, which change may be retroactive. No ruling
on any of the issues discussed below will be sought from the Michigan Department
of Treasury.
MICHIGAN TAX CONSEQUENCES WITH RESPECT TO THE NOTES
It is expected that 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.
MICHIGAN TAX CONSEQUENCES WITH RESPECT TO THE CERTIFICATES
If the arrangement created by the Trust Agreement is treated as a
partnership (not taxable as a corporation) for federal income tax purposes, it
is expected that Michigan Tax Counsel will deliver his opinion that the same
treatment should also apply for Michigan tax purposes. In such case, the
partnership should have no Michigan Single Business Tax liability (which could
otherwise result in reduced distributions to Certificateholders). The
Certificateholders also should not be subject to the Michigan Single Business
Tax on income received through the partnership.
Individual Certificateholders including nonresident individuals who are not
otherwise subject to Michigan taxes may be subject to Michigan Individual Income
Tax on the income from the partnership. Michigan law is not clear with respect
to this issue. Other states, with similar laws, do take the position that
individual partners are subject to personal income tax on income from a
partnership when a partnership is doing business in their state. A
Certificateholder not otherwise subject to taxation in Michigan would not be
subject to Michigan Individual Income Tax on income beyond that derived from the
Certificates.
If the Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, then the hypothetical entity would be subject to the Michigan
Single Business Tax (which would result in reduced distributions to
Certificateholders). A Certificateholder not otherwise subject to tax in
Michigan would not become subject to Michigan tax as a result of its mere
ownership of such an interest.
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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<PAGE> 72
LEGAL INVESTMENT
The [Class A-1] Notes will be eligible securities for purchase by money
market funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended.
ERISA CONSIDERATIONS
THE NOTES
The 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"). However, the
acquisition and holding of Notes by or on behalf of a Plan could be considered
to give rise to a prohibited transaction under ERISA and the Code if the Trust,
the Owner Trustee, the Indenture Trustee, any holder of the Certificates or any
of their respective affiliates, is or becomes a "party in interest" or a
"disqualified person" (as defined in ERISA and the Code, respectively) with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable to such acquisition and holding by a Plan
depending on the type and circumstances of the Plan fiduciary making the
decision to acquire a Note. For additional information regarding treatment of
the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
THE CERTIFICATES
The Certificates may not be acquired by a Plan or a person investing "plan
assets" of 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 Certificates or any of their respective affiliates, is or becomes a party in
interest or a disqualified person with respect to any Plan that acquires and
holds the Notes without such Plan being covered by one or more exemptions from
the prohibited transaction rules. For additional information regarding treatment
of the Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Note Underwriting Agreement"), the Seller has agreed to cause the Trust to
sell to each of the Note Underwriters named below (collectively, the "Note
Underwriters"), and each of the Note Underwriters has severally agreed to
purchase, the initial principal amount of Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
[PRINCIPAL AMOUNT [PRINCIPAL AMOUNT
PRINCIPAL AMOUNT OF OF CLASS A-2 OF CLASS A-3
NOTE UNDERWRITERS [CLASS A-1] NOTES NOTES] NOTES]
----------------- ------------------- ----------------- -----------------
<S> <C> <C> <C>
....................................... $ $ [] $ []
....................................... [] []
....................................... [] []
....................................... [] []
Total............................. $ $ [] $ []
</TABLE>
The Seller has been advised by the Note Underwriters that they propose
initially to offer the 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
% per [Class A-1] Note[, % per Class A-2 Note and % per Class A-3
Note]. The Note Underwriters may allow, and such dealers may reallow, a
concession not
S-70
<PAGE> 73
in excess of % per [Class A-1] Note[, % per Class A-2 Note and %
per Class A-3 Note] to certain other dealers. After the initial public offering
of the Notes, the public offering price and such concessions may be changed.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Certificate Underwriting Agreement"), the Seller has agreed to cause the
Trust to sell to each of the Certificate Underwriters named below (the
"Certificate Underwriters" and, together with the Note Underwriters, the
"Underwriters"), and each of the Certificate Underwriters has severally agreed
to purchase, the initial Certificate Balance of Certificates set forth opposite
its name below:
<TABLE>
<CAPTION>
CERTIFICATE BALANCE
CERTIFICATE UNDERWRITERS OF CERTIFICATES
------------------------ -------------------
<S> <C>
............................................................ $
............................................................
Total.................................................. $
</TABLE>
The Seller has been advised by the Certificate Underwriters that they
propose initially to offer the Certificates to the public at the price set forth
herein, and to certain dealers at such price less the initial concession not in
excess of % per Certificate. The Certificate Underwriters may allow, and such
dealers may reallow, a concession not in excess of % per Certificate to
certain other dealers. After the initial public offering of the 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 Certificates in 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.
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.
[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
S-71
<PAGE> 74
Class A-2 Notes] and any such market-making may be discontinued at any time
without notice, in its sole discretion.]
Any distribution of [the Class Notes] [and Class Certificates]
originally purchased by Ford Credit or other affiliates of the Seller may be
effected from time to time in one or more of the following transactions: (a) to
underwriters who will acquire such Notes or Certificates for their own account
and resell such Notes and Certificates in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale (any public offering price and any discount or
concession allowed or reallowed or paid to dealers may be changed from time to
time); (b) through brokers, acting as principal or agent, in transactions (which
may involve block transactions), at market prices, at negotiated prices or at
fixed prices; (c) through the issuance by Ford Credit or others of derivative
securities, including without limitation, warrants, exchangeable securities,
forward delivery contracts and the writings of options; or (d) by any other
legally available means.
Ford Credit, any such underwriters, brokers, dealers, pledgees or agents,
upon effecting the sale of such Notes and Certificates, may be deemed
"underwriters" as such term is defined under the Securities Act.
Underwriters participating in any sale of Notes or Certificates by Ford
Credit or another affiliate of the Seller made pursuant to this Prospectus
Supplement (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, and discounts may be allowed or
reallowed or paid to dealers, brokers or agents participating in such
transactions.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates will be passed upon for
the Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by [ ] [ may from time to time render legal
services to Ford and its affiliates.]
S-72
<PAGE> 75
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-27
ABS Table................................................... S-28
Accrued Certificate Interest................................ S-44
Accrued Note Interest....................................... S-43
[Additional Yield Supplement Amount......................... S-15]
APR......................................................... S-4
Available Funds............................................. S-41
Available Interest.......................................... S-41
Available Principal......................................... S-41
Available Reserve Amount.................................... S-47
Business Day................................................ S-6
[Cap Notional Amount........................................ S-48]
[Cap Rate................................................... S-48]
Cede........................................................ S-2
Cedel....................................................... I-1
Certificate Balance......................................... S-44
Certificateholders.......................................... S-9
Certificateholders' Distribution Amount..................... S-44
Certificateholders' Interest Carryover Shortfall............ S-44
Certificateholders' Monthly Accrued Interest................ S-44
Certificateholders' Monthly Principal....................... S-44
Certificateholders' Percentage.............................. S-44
Certificateholders' Principal Carryover Shortfall........... S-45
Certificateholders' Principal Distribution Amount........... S-45
[Certificate Interest Reserve Amount........................ S-47]
Certificate Owner........................................... S-4
Certificate Pool Factor..................................... S-33
[Certificate Prepayment Amount.............................. S-11, S-39]
[Certificate Prepayment Premium............................. S-10]
Certificate Rate............................................ S-9
Certificates................................................ S-1, S-3
Certificate Underwriters.................................... S-61
Certificate Underwriting Agreement.......................... S-61
[Class A-1] Final Scheduled [Distribution] [Payment] Date... S-7
[Class A-1] Notes........................................... S-1, S-3
[Class A-1 Rate............................................. S-6]
[Class A-2 Final Scheduled [Distribution] [Payment] Date.... S-8]
[Class A-2 Notes............................................ S-1, S-3]
[Class A-2 Rate............................................. S-6]
[Class A-3 Final Scheduled [Distribution] [Payment] Date.... S-7]
[Class A-3 Notes............................................ S-1, S-3]
[Class A-3 Rate............................................. S-6]
Closing Date................................................ S-4
Code........................................................ S-17, S-51
Collection Account.......................................... S-15
</TABLE>
S-73
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Collection Period........................................... S-7
Commission.................................................. S-2
Cutoff Date................................................. S-24
Determination Date.......................................... S-7, S-36
Distribution Date........................................... S-2, S-9
DTC......................................................... S-2, I-1
ERISA....................................................... S-17
Euroclear................................................... I-1
Exchange Act................................................ S-2
Final Scheduled Distribution Date........................... S-10
Final Scheduled Maturity Date............................... S-5
Ford........................................................ S-20
Ford Credit................................................. S-3
[Funding Period............................................. S-12]
General Partner............................................. S-2
[Global Certificates........................................ I-1]
[Global Notes............................................... I-1]
Global Securities........................................... I-1
[Guaranteed Rate Agreement.................................. S-49]
Indenture................................................... S-3
Indenture Trustee........................................... S-3
[Index Maturity............................................. S-35]
[Initial] Cutoff Date....................................... S-4
Initial Pool Balance........................................ S-8
[Initial] Receivables....................................... S-4
Interest Period............................................. S-6, S-35
[Interest Rate Cap.......................................... S-48]
[Interest Rate Cap Provider................................. S-11, S-48]
[Interest Rate Swap......................................... S-11, S-49]
[Interest Reset Period...................................... S-35]
[Investment Provider........................................ S-16, S-50]
IRS......................................................... S-50
Issuer...................................................... S-3
Liquidated Receivables...................................... S-41
Liquidation Proceeds........................................ S-41
[Mandatory Redemption....................................... S-8, S-37]
[Mandatory Repurchase....................................... S-10, S-38]
[Maximum Initial Yield Supplement Amount.................... S-15, S-48]
[Maximum Subsequent Yield Supplement Amount................. S-15, S-48]
[Maximum Yield Supplement Amount............................ S-15, S-48]
Michigan Tax Counsel........................................ S-17
Net Losses.................................................. S-33
[Net Trust Swap Payment..................................... S-12, S-49]
[Net Trust Swap Receipt..................................... S-12, S-49]
Noteholders................................................. S-6
Noteholders' Accelerated Principal.......................... S-7, S-36
Noteholders' Interest Carryover Shortfall................... S-43
Noteholders' Monthly Accrued Interest....................... S-43
Noteholders' Monthly Principal.............................. S-43
Noteholders' Payment Amount................................. S-43
Noteholders' Percentage..................................... S-43
Noteholders' Principal Carryover Shortfall.................. S-43
</TABLE>
S-74
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Noteholders' Principal Payment Amount....................... S-7, S-44
Note Interest Rate[s]....................................... S-6
Note Owner.................................................. S-3
Note Pool Factor............................................ S-33
[Note Prepayment Amount..................................... S-8, S-37]
[Note Prepayment Premium.................................... S-8]
Notes....................................................... S-1, S-3
Note Underwriters........................................... S-61
Note Underwriting Agreement................................. S-61
OID......................................................... S-51
OID Regulations............................................. S-52
Owner Trustee............................................... S-3
[Payment Date............................................... S-2, S-6]
Plan........................................................ S-60
Plan Investor............................................... S-60
Pool Balance................................................ S-6
[Pool/Pre-Funding Balance................................... S-5]
[Pre-Funded Amount.......................................... S-5]
[Pre-Funded Percentage...................................... S-8]
[Pre-Funding Account........................................ S-2, S-12]
Prepayable Obligation....................................... S-52
Prepayment Assumption....................................... S-52
Prospectus.................................................. S-2
Purchase Agreement.......................................... S-6
Rating Agencies............................................. S-23
Realized Losses............................................. S-5
Receivables................................................. S-1
Receivables Pool............................................ S-24
Record Date................................................. S-6
Redemption Price............................................ S-37
Regular Principal........................................... S-7, S-36
Replacement Guaranteed Rate Agreement....................... S-50
[Required Rate.............................................. S-14]
Reserve Initial Deposit..................................... S-45
Sale and Servicing Agreement................................ S-4
Securities.................................................. S-1, S-3
Securityholders............................................. S-9
Seller...................................................... S-1, S-3
Servicer.................................................... S-3
Servicing Fee Rate.......................................... S-16
Short-Term Notes............................................ S-53
Special Tax Counsel......................................... S-17
Specified Reserve Balance................................... S-13, S-46
[Subsequent Cutoff Date..................................... S-5]
[Subsequent Receivables..................................... S-2, S-5]
[Subsequent Transfer Date................................... S-5]
Supplemental Servicing Fee.................................. S-41
[Swap Counterparty.......................................... S-11, S-49]
[Swap Notional Amount....................................... S-49]
Transfer and Servicing Agreements........................... S-39
Trust....................................................... S-1, S-3
Trust Agreement............................................. S-3
</TABLE>
S-75
<PAGE> 78
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Underwriters................................................ S-61
U.S. Person................................................. I-4
[Yield Supplement Account................................... S-14]
[Yield Supplement Agreement................................. S-15]
[Yield Supplement Amount.................................... S-15, S-48]
[Yield Supplement Deposit Amount............................ S-48]
[Yield Supplement Initial Deposit........................... S-14]
</TABLE>
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<PAGE> 79
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Ford Credit
Auto Owner Trust 199 % [Class A-1] Asset Backed Notes[, Floating Rate Class
A-2 Asset Backed Notes and % Class A-3 Asset Backed Notes] (collectively, [the
"Global Notes") and % Asset Backed Certificates (the "Global Certificates" and
together with the Global Notes,] the "Global Securities") will be available only
in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System ("Euroclear"). The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities 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 Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices 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 Securities 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 Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to 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> 80
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash 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
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to 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
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective 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
Securities 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 Securities 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> 81
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 the intended
value date (i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
[GLOBAL NOTES]
A beneficial owner of Global [Securities] [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
[Securities] [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 [Securities]
[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 [Securities] [Notes] or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
I-3
<PAGE> 82
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global [Security] [Note] or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
Recently enacted Treasury regulations provide that as of January 1, 1999,
the current versions of Form 1001 and Form W-8 will be replaced with a unified
Form W-8. Therefore, at such time, beneficial owners must file the revised Form
W-8 in order to continue to obtain an exemption or reduced tax rate.
[GLOBAL CERTIFICATES
The Global Certificates may not be purchased by persons other than U.S.
Persons and non-U.S. Persons who will have satisfied the Seller and the Owner
Trustee that such non-U.S. Person will be taxed with respect to its beneficial
ownership of Global Certificates as if it were a U.S. Person.]
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust 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.
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> 83
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Securityholders.................. S-3
Summary..................................... S-4
Risk Factors................................ S-24
The Trust................................... S-29
The Receivables Pool........................ S-29
Pool Factors................................ S-38
Maturity and Prepayment Considerations...... S-38
Description of the Certificates............. S-43
Certain Federal Income Tax Consequences..... S-59
Certain State Tax Consequences.............. S-68
ERISA Considerations........................ S-70
Underwriting................................ S-70
Legal Opinions.............................. S-72
Index of Terms.............................. S-73
Annex I -- Global Clearance, Settlement and
Tax Documentation Procedures.............. I-1
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 2
Summary..................................... 3
Risk Factors................................ 12
The Trusts.................................. 16
The Receivables Pools....................... 18
Maturity and Prepayment Considerations...... 20
Pool Factors and Trading Information........ 21
Use of Proceeds............................. 21
The Seller and the General Partner.......... 22
The Servicer................................ 23
Description of the Notes.................... 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.... 54
Certain Federal Income Tax Consequences..... 58
ERISA Considerations........................ 59
Plan of Distribution........................ 64
Legal Opinions.............................. 64
Index of Terms.............................. 65
</TABLE>
UNTIL , 199 (90 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.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
$
FORD CREDIT
AUTO OWNER TRUST
199 -
$
% [ CLASS A-1]
ASSET BACKED NOTES
[$
FLOATING RATE CLASS A-2
ASSET BACKED NOTES]
[$
% CLASS A-3
ASSET BACKED NOTES]
$
% ASSET BACKED CERTIFICATES
FORD CREDIT AUTO
RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 84
The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION DATED , 199
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199
$
FORD CREDIT AUTO GRANTOR TRUST 199 -
$ % ASSET BACKED CERTIFICATES, CLASS A
[$ % ASSET BACKED CERTIFICATES, CLASS B]
FORD LOGO
FORD CREDIT AUTO RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
---------------------------
The Ford Credit Auto Grantor Trust 199 - (the "Trust") will be formed
pursuant to a Pooling and Servicing Agreement, to be dated as of
, 199 , among Ford Credit Auto Receivables Two L.P. (the
"Seller"), Ford Motor Credit Company (the "Servicer") and , as
Trustee, and will issue $ aggregate initial principal balance of % Asset
Backed Certificates, Class A (the "Class A Certificates") and
$ aggregate initial principal balance of % Asset Backed Certificates,
Class B (the "Class B Certificates" and, together with the Class A Certificates,
the "Certificates"). [Only the Class A Certificates are being offered hereby.]
The Class A Certificates will evidence in the aggregate an undivided ownership
interest of approximately % in the Trust. The Class B Certificates[, which
initially will be retained by the Seller,] will evidence in the aggregate an
undivided ownership interest of approximately % in the Trust. The rights of
the Class B Certificateholders to receive distributions with respect to the
Receivables are subordinated to the rights of the Class A Certificateholders to
the extent described herein. The Trust property 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 , 199 , and certain
other property, as more fully described herein. See "Summary -- The Trust
Property" herein. [The Trustee also will hold monies on deposit in a trust
account (the "Pre-Funding Account"). Additional motor vehicle retail installment
sale contracts (the "Subsequent Receivables") will be purchased by the Trust
from the Seller from time to time on or before , 199 out of funds
on deposit in the Pre-Funding Account.]
Principal and interest to the extent of the [applicable] Certificate Rate
generally will be distributed on the day of each month (the "Distribution
Date"), commencing , 199 . The final scheduled Distribution Date
on the [Class A] Certificates will be , 199 (the "Final Scheduled
Distribution Date").
---------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE S-15 HEREIN AND ON PAGE 12 OF THE
ACCOMPANYING PROSPECTUS.
---------------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY,
FORD CREDIT AUTO RECEIVABLES TWO L.P., FORD CREDIT AUTO RECEIVABLES TWO, INC.,
FORD MOTOR CREDIT COMPANY, FORD MOTOR COMPANY OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO THE
TO PUBLIC(1) DISCOUNT SELLER(1)(2)
------------------ ------------- ---------------
<S> <C> <C> <C>
Per Class A Certificate............................. % % %
[Per Class B Certificate............................ % % %
Total............................................... $ $ $ ]
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from , 199 .
(2) Before deducting expenses, estimated to be $ .
---------------------------
The [Class A] Certificates are offered by the Underwriters when, as and
if issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the [Class A]
Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company, or through Cedel Bank,
societe anonyme or the Euroclear System, on or about the Closing Date.
---------------------------
The date of this Prospectus Supplement is , 199 .
<PAGE> 85
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE [CLASS A] 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 [CLASS A] CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE [CLASS A]
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, periodic and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the [Class A] 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-2
<PAGE> 86
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 Grantor Trust 199 - (the
"Trust" or the "Issuer"), a trust to be
formed by the Seller and the Trustee pursuant
to the Agreement.
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....................... , as trustee under the Agreement
(the "Trustee").
THE CERTIFICATES.............. The Trust will issue Asset Backed Certificates
(the "Certificates") in an aggregate initial
balance of $ . The Certificates represent
fractional undivided interests in the Trust
and will be issued pursuant to a Pooling and
Servicing Agreement to be dated as of
, 199 (as amended and
supplemented from time to time, the
"Agreement"), among the Seller, the Servicer
and the Trustee.
The Certificates will consist of $
aggregate initial balance of % Asset
Backed Certificates, Class A (the "Class A
Certificates") and $ aggregate initial
balance of % Asset Backed Certificates,
Class B (the "Class B Certificates"). [Only
the Class A Certificates are being offered
hereby.] Each Certificate will represent a
fractional undivided ownership interest in
the Trust.
The [Class A] Certificates 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 [Class A]
Certificates (a "Certificate Owner") will be
entitled to receive Definitive Certificates,
except in the limited circumstances described
herein. See "Certain Information Regarding
the Securities -- Definitive Securities" in
the Prospectus.
The Class A Certificates will evidence in the
aggregate an undivided ownership interest
(the "Class A Percentage") of approximately
% in the Trust (initially representing
$ ) and the Class B Certificates will
evidence in the aggregate an undivided
ownership interest (the "Class B Percentage")
of approximately % in the Trust (initially
representing $ ). The Class B
Certificates are subordinated to the Class A
Certificates to the extent described herein.
[The Class B Certificates are not being
offered hereby and initially will be retained
by the Seller.]
S-3
<PAGE> 87
THE TRUST PROPERTY............ The property of the Trust will include (i) the
Receivables; (ii) with respect to Precomputed
Receivables, all monies due thereunder on or
after the related Cutoff Date and with
respect to Simple Interest Receivables, all
monies due or received thereunder on or after
the related 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
Agreement, as described herein[, including
the Yield Supplement Account] [and the
Pre-Funding Account]; (viii) certain rights
under the Agreement [and the Yield Supplement
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 property of the Trust does not
include the Payahead Account and the
Subordination Spread Account.
THE RECEIVABLES............... On , 199 (the "Closing Date"),
the Trust will purchase Receivables (the
"[Initial] Receivables") having an aggregate
principal balance of approximately $ as
of , 199 (the "[Initial]
Cutoff Date"), from the Seller pursuant to
the Agreement. As of the [Initial] Cutoff
Date, the weighted average annual percentage
rate ("APR") of the [Initial] Receivables was
approximately %, the weighted average
remaining maturity of the [Initial]
Receivables was approximately months and the
weighted average original maturity of the
[Initial] Receivables was approximately
months.
[On and following the Closing Date, pursuant to
the Agreement, the Seller will be obligated,
subject only to the availability thereof, to
sell, and the Trust will be obligated to
purchase, subject to the satisfaction of
certain conditions set forth therein,
additional Receivables (the "Subsequent
Receivables") from time to time during the
Funding Period having an aggregate principal
balance equal to approximately $ (such
amount being equal to an amount on deposit in
the Pre-Funding Account (the "Pre-Funded
Amount") on the Closing Date). The Seller
will designate as a Cutoff Date (each a
"Subsequent Cutoff Date") the date as of
which particular Subsequent Receivables are
conveyed to the Trust. It is expected that
certain of the Subsequent Receivables arising
between
S-4
<PAGE> 88
the Initial Cutoff Date and the Closing Date
will be conveyed to the Trust on the Closing
Date and that other Subsequent Receivables
will be conveyed to the Trust as frequently
as daily thereafter on dates specified by the
Seller (each date on which Subsequent
Receivables are conveyed to the Trust being
referred to as a "Subsequent Transfer Date")
occurring during the Funding Period. See
"Description of the Certificates -- Sale and
Assignment of Receivables; Subsequent
Receivables" herein.]
The [Initial] Receivables [and the Subsequent
Receivables] 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, the "Purchase Agreement"). The
[Initial] Receivables have been selected[,
and the Subsequent Receivables will be
selected,] from the contracts owned by Ford
Credit based on the criteria specified in the
Agreement and described herein and in the
Prospectus. No Initial Receivable has[, and
no Subsequent Receivable will have,] a
scheduled maturity later than
(the "Final Scheduled Maturity Date").
[Subsequent Receivables may be originated by
Ford Credit at a later date using credit
criteria different from those which were
applied to the Initial Receivables and may be
of a different credit quality and seasoning.
In addition, following the transfer of
Subsequent Receivables to the Trust, the
characteristics of the entire pool of
Receivables included in the Trust may vary
significantly from those of the Initial
Receivables. See "Risk Factors -- The
Subsequent Receivables and the Pre-Funding
Account" and "The Receivables Pool" herein.]
The "Pool[/Pre-Funding] Balance" at any time
[will represent] [is the sum of (i)] the
aggregate principal balance of the
Receivables at the end of the preceding
Collection Period, after giving effect to all
payments (other than Payaheads) received from
Obligors, Liquidation Proceeds, Advances and
Purchase Amounts to be remitted by the
Servicer or the Seller, as the case may be,
all for such Collection Period and all
Realized Losses during such Collection Period
[(such amount, the "Pool Balance") and (ii)
the amount on deposit in the Pre-Funding
Account (excluding any Investment Earnings)].
"Realized Losses" means the excess of the
principal balance of any Liquidated
Receivable over Liquidation Proceeds to the
extent allocable to principal.
DISTRIBUTION DATES............ Distributions with respect to the Certificates
will be made on the 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
, 199 . Distributions will be
made to holders of the [Class A] Certificates
(the "[Class A] Certificateholders") of
record as of the
S-5
<PAGE> 89
day immediately preceding such Distribution
Date or, if Definitive Certificates are
issued, as of the day of the preceding month
(a "Record Date"). A "Business Day" is a day
that in The City of New York or in the city
in which the corporate trust office of the
Trustee is located is neither a legal holiday
nor a day on which banking institutions are
authorized by law, regulation or executive
order to be closed.
[CLASS A] CERTIFICATE RATE.... % per annum (the "[Class A] Certificate
Rate").
[CLASS B CERTIFICATE RATE..... % per annum (the "Class B Certificate
Rate").]
[CLASS A] INTEREST............ On each Distribution Date, the Trustee shall
pass through and distribute pro rata to the
[Class A Certificateholders] [holders of
record of Class A Certificates (the "Class A
Certificateholders")] interest at one-twelfth
of the [Class A] Certificate Rate, calculated
on the basis of a 360-day year consisting of
twelve 30-day months, on the Class A
Certificate Balance as of the last day of the
preceding calendar month to the extent of
funds available, after giving effect to
amounts required to pay the Servicing Fee for
the prior Collection Period and any overdue
Servicing Fees to the Servicer, from (i) the
Class A Percentage of the Available Interest,
(ii) the Subordination Spread Account, and
(iii) the Class B Percentage of the Total
Available Amount. The "Class A Certificate
Balance" shall equal, initially, the Class A
Percentage of the Pool[/ Pre-Funding] Balance
as of the [Initial] Cutoff Date and
thereafter shall equal the initial Class A
Certificate Balance reduced by all principal
distributions on the Class A Certificates.
[CLASS A] PRINCIPAL........... On each Distribution Date, the Trustee shall
pass through and distribute pro rata to
[Class A] Certificateholders principal to the
extent of funds available from (i) the Class
A Percentage of the Available Principal, (ii)
the Subordination Spread Account, and (iii)
the Class B Percentage of the Total Available
Amount. Such principal shall consist of the
Class A Percentage of: (a) the principal
portion of all scheduled payments due with
respect to Precomputed Receivables during the
preceding Collection Period (including
amounts withdrawn from the Payahead Account
but excluding amounts deposited into the
Payahead Account); (b) the principal portion
of all prepayments in full received with
respect to Precomputed Receivables during the
preceding Collection Period (and certain
partial prepayments) (including amounts
withdrawn from the Payahead Account but
excluding amounts deposited into the Payahead
Account); (c) the principal portion of all
payments received with respect to Simple
Interest Receivables during the preceding
Collection Period; (d) the principal balance
of each Receivable that was purchased by the
Servicer or repurchased by the Seller, in
each case, under an obligation that arose
during the
S-6
<PAGE> 90
preceding Collection Period; and (e) the
principal balance of each Receivable
liquidated by the Servicer, during the
preceding Collection Period. A "Collection
Period" with respect to a Distribution Date
will be the calendar month preceding the
month in which such Distribution Date occurs,
or, in the case of the initial Distribution
Date, the period from the [Initial] Cutoff
Date through the last day of the calendar
month preceding the month in which the
initial Distribution Date occurs.
[CLASS B INTEREST............. On each Distribution Date, the Trustee shall
pass through and distribute pro rata to the
holders of record of Class B Certificates
(the "Class B Certificateholders") interest
at one-twelfth of the Class B Certificate
Rate, calculated on the basis of a 360-day
year consisting of twelve 30-day months, on
the Class B Certificate Balance as of the
last day of the preceding calendar month to
the extent of funds available, after giving
effect to (A) any amounts required to be
distributed to the Class A Certificateholders
pursuant to the subordination of the rights
of the Class B Certificateholders, and (B)
amounts required to pay the Servicing Fee for
the prior Collection Period and any overdue
Servicing Fees to the Servicer, from (i) the
Class B Percentage of the Available Interest
and (ii) the Subordination Spread Account.
The "Class B Certificate Balance" shall
equal, initially, the Class B Percentage of
the Pool[/Pre-Funding] Balance as of the
[Initial] Cutoff Date and thereafter shall
equal the initial Class B Certificate Balance
reduced by all principal distributions on the
Class B Certificates.
CLASS B PRINCIPAL............. On each Distribution Date, the Trustee shall
pass through and distribute pro rata to Class
B Certificateholders principal to the extent
of funds available, after giving effect to
(A) any amounts required to be distributed to
the Class A Certificateholders pursuant to
the subordination of the rights of the Class
B Certificateholders, (B) amounts required to
pay the Servicing Fee for the prior
Collection Period and any overdue Servicing
Fees to the Servicer, and (C) the interest
due to the Class B Certificateholders, from
(i) the Class B Percentage of the Available
Principal and (ii) the Subordination Spread
Account. Such principal shall consist of the
Class B Percentage of: (a) the principal
portion of all scheduled payments due with
respect to Precomputed Receivables during the
preceding Collection Period (including
amounts withdrawn from the Payahead Account
but excluding amounts deposited into the
Payahead Account); (b) the principal portion
of all prepayments in full received with
respect to Precomputed Receivables during the
preceding Collection Period (and certain
partial prepayments) (including amounts
withdrawn from the Payahead Account but
excluding amounts deposited into the Payahead
Account); (c) the principal portion of all
payments received with respect to Simple
Interest Receivables during the preceding
Collection
S-7
<PAGE> 91
Period; (d) the principal balance of each
Receivable that was purchased by the Servicer
or repurchased by the Seller, in each case,
under an obligation that arose during the
preceding Collection Period; and (e) the
principal balance of each Receivable
liquidated by the Servicer, during the
preceding Collection Period.]
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 Class A
Certificateholders will receive an amount
equal to the Class A Certificate Balance
together with accrued interest at the [Class
A] Certificate Rate, [the Class B
Certificateholders will receive and amount
equal to the Class B Certificate Balance
together with accrued interest at the Class B
Certificate Rate] and the [Class A]
Certificates will be retired. The "Initial
Pool Balance" will equal [the sum of (i)] the
Pool Balance as of the [Initial] Cutoff Date
[plus (ii) the aggregate principal balances
of all Subsequent Receivables added to the
Trust as of their respective Subsequent
Cutoff Dates]. See "Description of the
Certificates -- Optional Prepayment" herein.
[MANDATORY REPURCHASE FROM
PRE-FUNDING ACCOUNT........... The [Class A] Certificates will be prepaid, in
part, on the Distribution Date on or
immediately following the last day of the
Funding Period in the event that any amount
remains on deposit in the Pre-Funding Account
after giving effect to the purchase of all
Subsequent Receivables, including any such
purchase on such date (a "Mandatory
Repurchase"). The aggregate principal balance
of [Class A] Certificates to be prepaid will
be an amount equal to the amount then on
deposit in the Pre-Funding Account.
[A limited recourse mandatory prepayment
premium (the "Certificate Prepayment
Premium") will be payable by the Trust to the
[Class A] Certificate holders if the
aggregate principal balance of [Class A]
Certificates to be prepaid pursuant to a
Mandatory Repurchase exceeds $ . The
Certificate Prepayment Premium will equal the
excess, if any, discounted as described
below, of (i) the amount of interest that
would accrue on the remaining Pre-Funded
Amount (the "Certificate Prepayment Amount")
at the related Certificate Rate during the
period commencing on and including the
Distribution Date on which such Certificate
Prepayment Amount is required to be
distributed to Certificateholders to but
excluding , over (ii) the
amount of interest that would have accrued on
such Certificate Prepayment Amount over the
same period at a per annum rate of interest
equal to the bond equivalent yield to
maturity on the Determination Date preceding
such Distribution Date on the , in
the case of a Class A Certificate, and on the
, in the case of a Class B
Certificate. Such excess shall be
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discounted to present value to such
Distribution Date at the applicable yield
described in clause (ii) above. Pursuant to
the Agreement, the Seller will be obligated
to pay the Certificate Prepayment Premium to
the Trust as liquidated damages for the
failure to deliver Subsequent Receivables
having an aggregate principal balance equal
to the Pre-Funded Amount. The Trust's
obligation to pay the Certificate Prepayment
Premium will be limited to funds received
from the Seller pursuant to the preceding
sentence. In the event that such funds are
insufficient to pay the aggregate Certificate
Prepayment Premium in full, [Class A]
Certificateholders [of each class of
Certificates] will receive their ratable
share [(based upon the Certificate Prepayment
Premium for each class of Certificates)] of
the aggregate amount available to be
distributed in respect of the Certificate
Prepayment Premium. No other assets of the
Trust will be available for the purpose of
making such payment.]]
[PRE-FUNDING ACCOUNT.......... During the period (the "Funding Period") from
and including the Closing Date until the
earliest of (i) the date on which (a) the
amount on deposit in the Pre-Funding Account
is less than $ , (b) an Event of
Default occurs under the Agreement or (c)
certain events of insolvency occur with
respect to the Seller or the Servicer or (ii)
the close of business on the
Distribution Date, the Pre-Funded Amount will
be maintained as an account in the name of
the Trustee (the "Pre-Funding Account"). The
Pre-Funded Amount will initially equal
approximately $ , and, during the
Funding Period, will be reduced by the amount
thereof used to purchase Subsequent
Receivables in accordance with the Agreement
and the amount thereof deposited in the
Subordination Spread Account in connection
with the purchase of such Subsequent
Receivables. The Seller expects that the Pre-
Funded Amount will be reduced to less than
$ by the Distribution
Date. Any Pre-Funded Amount remaining at the
end of the Funding Period will be payable to
the Certificateholders pro rata in proportion
to their initial principal balances.]
SUBORDINATION................. The rights of the Class B Certificateholders to
receive distributions to which they would
otherwise be entitled with respect to the
Receivables are subordinated to the rights of
the Class A Certificateholders, as described
more fully herein.
SUBORDINATION SPREAD
ACCOUNT....................... An account (the "Subordination Spread Account")
will be created with an initial deposit by
the Seller of cash or Permitted Investments
maturing on or prior to the initial
Distribution Date and having a value of
[$ (the "Subordination Initial
Deposit").] [at least $ plus an
amount attributable to the difference between
the anticipated investment earnings on the
Pre-Funded Amount and
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the weighted average interest expense on the
portion of the Certificates represented by
the Pre-Funded Amount. On each Subsequent
Transfer Date, cash or Permitted Investments
having a value approximately equal to %
of the aggregate principal balance of the
Subsequent Receivables conveyed to the Trust
on such Subsequent Transfer Date will be
withdrawn from the Pre-Funding Account from
amounts otherwise distributable to the Seller
in connection with the sale of Subsequent
Receivables and deposited in the
Subordination Spread Account. The amount
initially deposited in the Subordination
Spread Account by the Seller together with
the aggregate amount transferred from the
Pre-Funding Account to the Subordination
Spread Account on each Subsequent Transfer
Date is referred to as the "Subordination
Initial Deposit."] The Subordination Initial
Deposit will be augmented by the deposit in
the Subordination Spread Account of amounts
otherwise distributable to Class B
Certificateholders until the amount in the
Subordination Spread Account reaches an
amount equal to the Specified Subordination
Spread Account Balance. Thereafter, amounts
otherwise distributable to the Class B
Certificateholders will be deposited in the
Subordination Spread Account to the extent
necessary to maintain the amount in the
Subordination Spread Account at an amount
equal to the Specified Subordination Spread
Account Balance. Amounts in the Subordination
Spread Account on any Distribution Date
(after giving effect to all distributions
made on such Distribution Date) in excess of
the Specified Subordination Spread Account
Balance for such Distribution Date generally
will be released to the Class B
Certificateholders. The "Specified
Subordination Spread Account Balance" with
respect to any Distribution Date will be
equal to $ , except that in the
event that on any Distribution Date (i) the
annualized average for the preceding three
Collection Periods (or such shorter number of
Collection Periods as have elapsed since the
Cutoff Date) of the ratios of net losses
(i.e., the balances of all Receivables which
are determined to be uncollectible in the
Collection Period, less any Liquidation
Proceeds) to the Pool Balance as of the first
day of each such Collection Period exceeds
% or (ii) the average for the preceding
three Collection Periods (or such shorter
number of Collection Periods as have elapsed
since the Cutoff Date) of the ratios of the
number of Financed Vehicles that have been
repossessed but not yet sold or are
delinquent 60 days or more to the outstanding
number of Receivables exceeds %, then
the Specified Subordination Spread Account
Balance for such Distribution Date shall be
an amount equal to the percentage of the Pool
Balance as of the first day of such
Collection Period determined by deducting
from [11] percent the following fraction,
expressed as a percentage: (x) 1 minus (y) a
fraction, the numerator of which is the
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Class A Certificate Balance and the
denominator of which is the Pool Balance both
as of the first day of such Collection
Period, but in no event shall the Specified
Subordination Spread Account Balance be more
than $ , or less than $ .
On any Distribution Date on which the
aggregate balance of the Class A Certificates
is $ or less after giving effect to
distributions on such Distribution Date, the
Specified Subordination Spread Account
Balance shall be the greater of the balance
described above or $ . The
Subordination Spread Account will be
maintained with , as agent for the Class A
Certificateholders as a segregated trust
account, and will not be part of the Trust.
[YIELD SUPPLEMENT ACCOUNT;
YIELD SUPPLEMENT AGREEMENT.... Ford Credit will establish a yield supplement
account with the Trustee for the benefit of
the Certificateholders (the "Yield Supplement
Account"). The Yield Supplement Account is
designed solely to hold funds to be applied
by the Trustee to provide payments to the
Certificateholders in respect of Receivables
the APR of which is less than the sum of (i)
the weighted average of the Class A
Certificate Rate and the Class B Certificate
Rate and (ii the Servicing Fee Rate (the
"Required Rate"). The Yield Supplement
Account will be created with an initial
deposit by Ford Credit (the "Yield Supplement
Initial Deposit") in an amount (which amount
may be discounted at a rate to be specified
in the Agreement) equal to the aggregate
amount by which (i) interest on the principal
balance of each [Initial] Receivable for the
period commencing on the [Initial] Cutoff
Date and ending with the scheduled maturity
of such Receivable, assuming that payments on
such Receivables are made as scheduled and no
prepayments are made, at a rate equal to the
Required Rate, exceeds (ii) interest on such
principal balances at the APR of such
Receivable (the "Yield Supplement Amount"
[and, with respect to all of the [Initial]
Receivables, the "Maximum [Initial] Yield
Supplement Amount")].
[Ford Credit, the Seller and the Trustee will
enter into a Yield Supplement Agreement (as
amended and supplemented from time to time,
the "Yield Supplement Agreement") pursuant to
which, on each Subsequent Transfer Date, Ford
Credit will deposit an amount (which amount
may be discounted at a rate to be specified
in the Agreement), if any, into the Yield
Supplement Account (the "Additional Yield
Supplement Amount") equal to the aggregate
Yield Supplement Amounts in respect of the
related Subsequent Receivables for the period
commencing with the related Subsequent Cutoff
Date and ending with the scheduled maturity
of each such Subsequent Receivable, assuming
that payments on such Receivables are made as
scheduled and no prepayments are made. The
aggregate of the Additional Yield Supplement
Amounts in respect of the
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<PAGE> 95
Subsequent Receivables is referred to herein
as the "Maximum Subsequent Yield Supplement
Amount" and, together with the Maximum
Initial Yield Supplement Amount, the "Maximum
Yield Supplement Amount."] See "Description
of the Certificates -- Yield Supplement
Account; Yield Supplement Agreement" 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 [ ]
Business Day after receipt to one or more
accounts in the name of the Trustee (the
"Collection Account"). Pursuant to the
Agreement, the Servicer will have the power,
revocable at the discretion of the Trustee,
to instruct the Trustee to withdraw funds on
deposit in the Collection Account and to
apply such funds on each 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 Class A
Distributable Amount to the Class A
Certificateholders, (iii) the Class B
Distributable Amount to the Class B
Certificateholders, and (iv) the remaining
balance, if any, to the Subordination Spread
Account.
SERVICER FEE.................. The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of 1.00% (the
"Servicing Fee Rate") and the Pool Balance
outstanding at the beginning of the previous
month, plus (b) any late, prepayment, and
other administrative fees and expenses
collected during such month [plus (c)
reinvestment proceeds on any payments
received in respect of the Receivables].
MATURITY AND PREPAYMENT
CONSIDERATIONS................ As the rate of payment of principal of the
Certificates depends on the rate of payment
(including prepayments) of the principal
balance of the Receivables, the final
distribution in respect of the Certificates
could occur significantly earlier than the
Final Scheduled Distribution Date. It is
expected that the final distribution in
respect of the Certificates will occur on or
prior to the Final Scheduled Distribution
Date. However, if sufficient funds are not
available to reduce the aggregate Certificate
Balance of either class of Certificates to
zero on or prior to the Final Scheduled
Distribution Date, the final distribution in
respect of such class of Certificates could
occur later than such date.
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 the
weighted average life of the Certificates.
Such prepayments, to the extent allocable to
principal, will be included in the Available
Principal and will be distributable to the
Certificateholders as set forth in the
priority of distributions
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<PAGE> 96
herein. See "Description of the Certificates
-- Distributions" herein.
CLEARANCE AND SETTLEMENT...... [Class A] Certificateholders may elect to hold
their [Class A] Certificates 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 ("Special Tax Counsel"), the
Trust will be treated as a grantor trust for
federal income tax purposes and will not be
subject to federal income tax. In the opinion
of ("Michigan Tax
Counsel"), the same treatment will apply for
Michigan income and Single Business Tax
purposes.
Certificate Owners will report their pro rata
share of all income earned on the Receivables
(other than amounts, if any, treated as
"stripped coupons") and, subject to certain
limitations in the case of Certificate Owners
who are individuals, trusts, or estates, may
deduct their pro rata share of reasonable
servicing and other fees paid or incurred by
the Trust. 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
Certificates.
ERISA CONSIDERATIONS.......... The Class A Certificates may, in general, be
purchased by employee benefit plans that are
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
upon satisfaction of certain conditions de
scribed under "ERISA Considerations" herein
and in the Prospectus with respect to the
Underwriters' Exemption. [However, as set
forth in "ERISA Considerations" in the
Prospectus, certain special considerations
may apply with respect to the Pre-Funding
Account.]
[The Underwriters' Exemption does not apply to
the Class B Certificates, which may be
purchased by employee benefit plans subject
to ERISA only if some other statutory or
administrative exemption from the prohibited
transaction rules of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code")
applies to such purchases. These exemptions
may apply with respect to, inter alia,
purchases by certain insurance company
general accounts, insurance company pooled
separate accounts,
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<PAGE> 97
and bank collective investment funds, and on
behalf of employee benefit plans by certain
"in house" asset managers and qualified
professional asset managers.]
Any benefit plan fiduciary considering a
purchase of [Class A] Certificates should,
among other things, consult with legal
counsel in determining whether all required
conditions with respect to the various
exemptions have been satisfied. See "ERISA
Considerations" herein and in the Prospectus.
RATING[S] OF THE
CERTIFICATES.................. It is a condition to the issuance of the Class
A Certificates that they be rated in the
highest investment rating category by at
least two nationally recognized rating
agencies[, and it is a condition to the
issuance of the Class B Certificates that
they be rated by at least two nationally
recognized rating agencies [at least]
" " or its equivalent]. [However, the
rating agencies do not evaluate, and the
ratings do not address, the likelihood that
the Certificate Prepayment Premium will be
paid.] There can be no assurance that a
rating will not be lowered or withdrawn by a
rating agency if circumstances so warrant.
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<PAGE> 98
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the [Class A] Certificates. The
Underwriters currently intend to make a market in the [Class A] Certificates,
but they are 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 [Class A] Certificateholders with liquidity of investment or
that it will continue for the life of the [Class A] Certificates.
[THE SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT
On the Closing Date, the Seller will transfer to the Trust the
approximately $ of Initial Receivables and the approximately
$ Pre-Funded Amount on deposit in the Pre-Funding Account. If the
principal balance of eligible Receivables originated by Ford Credit during the
Funding Period is less than the Pre-Funded Amount, the Seller will have
insufficient Receivables to sell to the Trust on the Subsequent Transfer Dates,
thereby resulting in a prepayment of principal to the Certificateholders as
described in the following paragraph. See "-- Trust's Relationship to Ford and
Ford Credit" below. In addition, any conveyance of Subsequent Receivables is
subject to the satisfaction, on or before the related Subsequent Transfer Date,
of the following conditions precedent, among others: (i) each such Subsequent
Receivable must satisfy the eligibility criteria specified in the Agreement;
(ii) the Seller will not select such Subsequent Receivables in a manner that it
believes is adverse to the interests of the Certificateholders; (iii) as of the
related Subsequent Cutoff Date, the Receivables in the Trust at that time,
including the Subsequent Receivables to be conveyed by the Seller as of such
Subsequent Cutoff Date, will satisfy the parameters described under "The
Receivables Pool" herein and under "The Receivables Pools" in the Prospectus;
(iv) the applicable Subordination Initial Deposit for such Subsequent Transfer
Date shall have been made; and (v) the Seller shall have executed and delivered
to the Trustee a written assignment conveying such Subsequent Receivables to the
Trustee (including a schedule identifying such Subsequent Receivables).
Moreover, any such conveyance of Subsequent Receivables made during any given
Collection Period will also be subject to the satisfaction, on or about the
fifteenth day of the month following the end of such Collection Period, of the
following conditions subsequent, among others: (a) the Seller will deliver
certain opinions of counsel to the Trustee and the Rating Agencies with respect
to the validity of the conveyance of all such Subsequent Receivables conveyed
during such Collection Period; (b) the Trustee shall have received written
confirmation from a firm of independent certified public accountants that, as of
the end of the preceding Collection Period, the Receivables in the Trust at that
time, including the Subsequent Receivables conveyed by the Seller during such
Collection Period, satisfied the parameters described under "The Receivables
Pool" herein and under "The Receivables Pools" in the Prospectus; and (c) the
Rating Agencies shall have each notified the Seller in writing that, following
the addition of all such Subsequent Receivables, the Certificates will be rated
by the Rating Agencies in the same respective rating categories in which they
were rated on the Closing Date. The Seller will immediately repurchase any
Subsequent Receivable, at a price equal to the Purchase Amount thereof, upon the
failure of the Seller to satisfy any of the foregoing conditions subsequent with
respect thereto. Such confirmation of the ratings of the Certificates may depend
on factors other than the characteristics of the Subsequent Receivables,
including the delinquency, repossession and net loss experience on the
automobile and light truck receivables in the portfolio serviced by Ford Credit.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the conveyance of Subsequent Receivables to the Trust by
the end of the Funding Period, the Certificateholders will receive, on the
Distribution Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to the Pre-Funded Amount
remaining in the Pre-Funding Account following the purchase of any Subsequent
Receivables on such Distribution Date. It is anticipated that the principal
balance of Subsequent Receivables sold to
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<PAGE> 99
the Trust will not be exactly equal to the amount on deposit in the Pre-Funding
Account and that therefore there will be at least a nominal amount of principal
prepaid to the Certificateholders.
Each Subsequent Receivable must satisfy the eligibility criteria specified
in the Agreement and any additional criteria specified by the Rating Agencies at
the time of its addition. However, Subsequent Receivables may have been
originated by Ford Credit at a later date using credit criteria different from
those which were applied to the Initial Receivables and may be of a different
credit quality and seasoning. In addition, an increasing percentage of the
Subsequent Receivables may be Final Payment Receivables. Therefore, following
the transfer of Subsequent Receivables to the Trust, the characteristics of the
entire Receivables Pool included in the Trust may vary significantly from those
of the Initial Receivables. See "The Receivables Pool" herein and "The
Receivables Pools" in the Prospectus. The ability of Ford Credit to generate
Subsequent Receivables is largely dependent upon the level of retail sales of
automobiles and light trucks. The level of retail sales of automobiles and light
trucks may change as a result of a variety of social and economic factors.
Economic factors include interest rates, unemployment levels, the rate of
inflation and consumer perceptions of economic conditions generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the level of vehicle sales.]
[TRUST'S RELATIONSHIP TO FORD AND FORD CREDIT
Neither the Seller nor Ford Credit is obligated to make any payments in
respect of the Certificates or the Receivables. However, the ability of the
Seller to convey Subsequent Receivables on Subsequent Transfer Dates is
completely dependent upon the generation of additional receivables by Ford
Credit. The ability of Ford Credit to generate receivables is, in turn,
dependent to a large extent on the sales of automobiles and light trucks
manufactured or distributed by Ford Motor Company and its consolidated
subsidiaries ("Ford"). If, during the Funding Period, Ford were temporarily or
permanently no longer manufacturing or distributing vehicles, the rate of sales
of automobiles and light trucks manufactured by Ford would decrease, adversely
affecting the ability of the Seller to sell Subsequent Receivables to the Trust.
The use of incentive programs (e.g., manufacturers' rebate programs) also may
affect retail sales. There can be no assurance, therefore, that Ford Credit will
continue to generate receivables at the same rate as in prior years. In
addition, 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 Certificateholders.
Ford and Ford Credit are subject to the informational requirements of the
Exchange Act and in accordance therewith file reports and other information with
the Commission. For further information regarding Ford and Ford Credit,
reference is made to such reports and other information which are available as
described under "Available Information" in the Prospectus.]
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables[, the
Pre-Funding Account] [, the Yield Supplement Account] and the Subordination
Spread Account. Holders of the Certificates must rely for repayment upon
payments on the Receivables and, if and to the extent available, amounts on
deposit in the [Pre-Funding Account[, the Yield Supplement Account] and the]
Subordination Spread Account. [The Pre-Funding Account will be available only
during the Funding Period and is designed solely to cover obligations of the
Trust relating to a portion of its funds not invested in Receivables and is not
designed to cover losses on the Receivables.] [The Yield Supplement Account is
designed solely to hold funds to be applied to provide payments to the
Securityholders in respect of Receivables the APR of which is less than the
Required Rate.] Funds in the Subordination Spread Account will be available on
each Distribution Date to cover shortfalls in distributions of interest and
principal on the Certificates. However, amounts to be deposited in the
[Pre-Funding Account[, the Yield
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<PAGE> 100
Supplement Account] and the] Subordination Spread Account are limited in amount.
If the [Pre-Funding Account[, the Yield Supplement Account] and the]
Subordination Spread Account is [are] exhausted, the Trust will depend solely on
current distributions on the Receivables to make distributions on the
Certificates.
SUBORDINATION OF THE CLASS B CERTIFICATES
Distributions of interest and principal on the Class B Certificates will be
subordinated in priority of payment to interest and principal due on the Class A
Certificates. No distributions with respect to a Collection Period will be made
on the Class B Certificates until the full amount of interest on and principal
of the Class A Certificates on the related Distribution Date has been
distributed to the Class A Certificateholders. Any amounts released from the
Subordination Spread Account to the Seller will not be available to the
Certificateholders.
MATURITY AND PREPAYMENT CONSIDERATIONS
As the rate of payment of principal of [each class of] the Certificates
depends on the rate of payment (including prepayments) of the principal balance
of the Receivables, the final distribution in respect of [each class of] the
Certificates could occur significantly earlier than the Final Scheduled
Distribution Date. It is expected that the final distribution in respect of the
Certificates will occur on or prior to the Final Scheduled Distribution Date.
However, if sufficient funds are not available to reduce the aggregate
Certificate Balance of either class of Certificates to zero on or prior to the
Final Scheduled Distribution Date, the final distribution in respect of such
class of Certificates could occur later than such date. See "Maturity and
Prepayment Considerations" herein and in the Prospectus.
RATINGS
It is a condition to the issuance of the [Class A] Certificates that the
Class A Certificates be rated in the highest rating category [and the Class B
Certificates be rated [at least] " " 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 Certificates, inasmuch as such rating
does not comment as to market price or suitability for a particular investor.
The ratings of the Certificates address the likelihood of the payment of
principal and interest on the Certificates pursuant to their terms. [However,
the Rating Agencies do not evaluate, and the ratings of the Certificates do not
address, the likelihood that the Certificate Prepayment Premium will be paid.]
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.
THE TRUST
GENERAL
The Seller will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Certificates.
The Servicer will service the Receivables pursuant to the Agreement and will be
compensated for acting as the Servicer. See "Description of the Certificates --
Servicing Compensation and Expenses" herein. To facilitate servicing and to
minimize administrative burden and expense the Servicer will retain physical
possession of the Receivables held by the Trust and documents relating thereto
as custodian for the Trust. Due to the administrative burden and expense, the
certificates of title to the Financed Vehicles will not be amended to reflect
the assignment of the security interest in the Financed Vehicles to the Trust.
In the absence of such amendment, the Trust may not have a perfected security
interest in the Financed Vehicles in all states. See "Certain Legal Aspects of
the Receivables" in the Prospectus.
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<PAGE> 101
If the protection provided to the [Class A] Certificateholders by the
[Yield Supplement Account and the] Subordination Spread Account and[, in the
case of the Class A Certificateholders,] the subordination of the Class B
Certificates is insufficient, the Trust would have to look to the Obligors on
the Receivables, the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables and the proceeds from any recourse
against Dealers with respect to the Receivables [and from the Pre-Funding
Account]. 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
Certificateholders. See "Description of the Certificates -- Distributions" [,
"-- Yield Supplement Account; Yield Supplement Agreement"] and "--Subordination
of the Class B Certificates; Subordination Spread Account" herein and "Certain
Legal Aspects of the Receivables" in the Prospectus.
Each [Class A] Certificate represents a fractional undivided ownership
interest in the Trust. The Trust property will include retail installment sale
contracts between Dealers and Obligors, all payments due thereunder on or after
the related Cutoff Date with respect to the Precomputed Receivables and all
payments due or received thereunder on or after the related Cutoff Date with
respect to the Simple Interest Receivables. The Trust property 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 Agreement, as described herein[, including the Yield Supplement Account]
[and the Pre-Funding Account]; (vi) certain rights under the Agreement [and the
Yield Supplement Agreement]; (vii) certain rights under the Purchase Agreement,
including the right of the Seller to cause Ford Credit to repurchase Receivables
from the Seller; (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
the Trust does not include the Payahead Account and the Subordination Spread
Account.
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include the [Initial]
Receivables purchased as of the [Initial] Cutoff Date [and will include any
Subsequent Receivables purchased as of any Subsequent Cutoff Date (the Initial
Cutoff Date or any Subsequent Cutoff Date being individually referred to herein
as a "Cutoff Date")].
The [Initial] Receivables were purchased[, and the Subsequent Receivables
were or will be purchased,] by Ford Credit from Dealers in the ordinary course
of business in accordance with Ford Credit's underwriting standards, and were
[or will be] 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 the
APR and fully amortize the amount financed over an original term no greater than
months, (ii) is not more than days past due as of the [applicable] Cutoff
Date and has never been extended and (iii) was originated on or after
. As of the [applicable] Cutoff Date, no Obligor on any
Receivable was [or will have been] noted in the related records of the Servicer
as being the subject of a bankruptcy proceeding. No selection procedures
believed by the Seller to be adverse to the Certificateholders were [or will be]
used in selecting the Receivables.
[The obligation of the Trust to purchase the Subsequent Receivables on a
Subsequent Transfer Date will be subject to the Receivables in the Trust,
including the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, meeting the following criteria: (i) not
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<PAGE> 102
more than % of the principal balances of the Receivables in the Trust will
represent vehicles financed at Ford Credit's used vehicle rates; and (ii) the
weighted average APR of the Receivables in the Trust will not be less than %,
unless the Seller increases the Subordination Initial Deposit by the amounts, if
any, specified by the Rating Agencies to maintain the ratings of the
Certificates. In addition, such obligation will be subject to the Receivables,
including the Subsequent Receivables to be transferred to the Trust on such
Subsequent Transfer Date, having a weighted average remaining term not greater
than months. Such criteria will be based on the characteristics of the
Initial Receivables on the Initial Cutoff Date and any Subsequent Receivables on
the related Subsequent Cutoff Dates.]
[The Initial Receivables will represent approximately % of the aggregate
initial principal balance of the Certificates. However, except for the criteria
described in the preceding paragraphs and the criteria, if any, specified by the
Rating Agencies to maintain the ratings of the Certificates, there will be no
required characteristics of the Subsequent Receivables. Therefore, following the
transfer of Subsequent Receivables to the Trust, the aggregate characteristics
of the entire Receivables Pool, including the composition of the Receivables,
the distribution by APR and the geographic distribution described in the
following tables, may vary significantly from those of the Initial Receivables.]
Neither Ford Credit nor any of its affiliates maintains records adequate to
provide quantitative data regarding its prepayment experience on its portfolio
of U.S. retail installment sale contracts for either new or used vehicles.
However, Ford Credit (i) believes that the actual rate of prepayments will
result in a substantially shorter weighted average life than the scheduled
weighted average life and (ii) estimates that the actual weighted average life
of its portfolio of U.S. retail installment contracts for new and used
automobiles and light trucks ranges between 60% and 70% of their scheduled
weighted average life. See "Maturity and Prepayment Considerations" herein and
in the Prospectus.
The composition, geographical distribution, and distribution by annual
percentage rate of the [Initial] Receivables as of the [Initial] Cutoff Date are
set forth in the following tables.
COMPOSITION OF THE [INITIAL] RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $
Number of Receivables
Average Principal Balance................................... $
(Range)................................................... $ to $
Average Original Amount Financed............................ $
(Range)................................................... $ to $
Weighted Average APR........................................ %
(Range)................................................... % to %
Weighted Average Original Term.............................. months
(Range)................................................... to months
Weighted Average Remaining Term............................. months
(Range)................................................... to months
Scheduled Weighted Average Life(1).......................... months
</TABLE>
- -------------------------
(1) Based on payments due on or after the [Initial] Cutoff Date, assuming that
no prepayments on the [Initial] Receivables are made after the [Initial]
Cutoff Date and that all payments on Simple Interest Receivables are
received on their respective due dates.
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<PAGE> 103
GEOGRAPHIC DISTRIBUTION OF THE [INITIAL] RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1) BALANCE(2)
-------- -------------------
<S> <C>
Alabama[(3)]................ %
Alaska......................
Arizona.....................
Arkansas....................
California..................
Colorado....................
Connecticut.................
Delaware....................
District of Columbia........
Florida.....................
Georgia.....................
Hawaii......................
Idaho.......................
Illinois....................
Indiana.....................
Iowa........................
Kansas......................
Kentucky....................
Louisiana...................
Maine.......................
Maryland....................
Massachusetts...............
Michigan....................
Minnesota...................
Mississippi.................
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1) BALANCE(2)
-------- -------------------
<S> <C>
Missouri.................... %
Montana.....................
Nebraska....................
Nevada......................
New Hampshire...............
New Jersey..................
New Mexico..................
New York....................
North Carolina..............
North Dakota................
Ohio........................
Oklahoma....................
Oregon......................
Pennsylvania[(3)]...........
Rhode Island................
South Carolina..............
South Dakota................
Tennessee...................
Texas.......................
Utah........................
Vermont.....................
Washington..................
West Virginia...............
Wisconsin...................
Wyoming.....................
</TABLE>
- -------------------------
(1) Based on the billing addresses of the Obligors on the [Initial] Receivables
as of the [Initial] Cutoff Date.
(2) Percentages may not add to 100.00% due to rounding. States showing 0.0% each
represent less than 0.05%.
[(3) Alabama and Pennsylvania were excluded for administrative reasons.]
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<PAGE> 104
DISTRIBUTION BY APR OF THE [INITIAL] RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE RECEIVABLES BALANCE BALANCE(L)
--------- ----------- --------- ----------
<S> <C> <C> <C>
0.00% to 1.00%............................................. $ %
1.01 to 2.00...............................................
2.01 to 3.00...............................................
3.01 to 4.00...............................................
4.01 to 5.00...............................................
5.01 to 6.00...............................................
6.01 to 7.00...............................................
7.01 to 8.00...............................................
8.01 to 9.00...............................................
9.01 to 10.00..............................................
10.01 to 11.00.............................................
11.01 to 12.00.............................................
12.01 to 13.00.............................................
13.01 to 14.00.............................................
14.01 to 15.00.............................................
15.01 to 16.00.............................................
16.01 to 17.00.............................................
17.01 to 18.00.............................................
18.01 to 19.00.............................................
19.01 to 20.00.............................................
-------- -------- ------
Totals................................................ $ 100.00%
======== ======== ======
</TABLE>
- -------------------------
(1) Percentages may not add to 100.00% due to rounding.
Approximately % of the aggregate principal balance of the [Initial]
Receivables, constituting % of the number of [Initial] Receivables, as of the
[Initial] Cutoff Date, represent vehicles financed at new vehicle rates, and the
remainder of the [Initial] Receivables represent vehicles financed at used
vehicle rates.
By aggregate principal balance, approximately % of the [Initial]
Receivables constitute Precomputed Receivables, % of the [Initial] Receivables
constitute Simple Interest Receivables and % constitute Final Payment
Receivables. In addition, % of the [Initial] Receivables that are Precomputed
Receivables and % that are Simple Interest Receivables constitute Final
Payment Receivables. See "The Receivables Pools" in the Prospectus for a further
description of the characteristics of Precomputed Receivables, Simple Interest
Receivables and Final Payment Receivables.
Based on principal balance, less than % of the [Initial] 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.
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).
[Ford Credit began originating Final Payment Receivables in 19 .] There is no
assurance that the
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<PAGE> 105
behavior of the Receivables will be comparable to Ford Credit's experience shown
in the following tables or that the trend in losses and delinquencies will
continue into the future.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Number of Contracts
Outstanding During the
Period........................ 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)................. % % 2.85% 2.54% 2.21% 2.03% 2.02%
61-90 Days(2)................. % % 0.32% 0.26% 0.17% 0.15% 0.15%
Over 90 Days(3)............... % % 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>
SIX MONTHS ENDED
JUNE 30, 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................................ $ $ $41,186 $40,269 $35,699 $33,703 $31,205
Net.................................. $ $ $34,715 $33,647 $30,015 $28,526 $26,152
Percent of Average Gross Portfolio
Outstanding During the Period
without Recourse to Dealers........ % % 99.5% 99.4% 99.1% 98.6% 97.7%
Repossessions as a Percent of Average
Number of Contracts Outstanding.... %(2) %(2) 3.01% 3.01% 2.38% 2.15% 2.27%
Net Losses as a Percent of Gross
Liquidations(3).................... % % 2.46% 2.21% 1.43% 1.06% 1.16%
Net Losses as a Percent of Average
Gross Portfolio Outstanding(3)..... %(2) %(2) 1.38% 1.28% 0.82% 0.62% 0.69%
Net Losses as a Percent of Average
Net Portfolio Outstanding(3)....... %(2) %(2) 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) Annualized rate.
(3) "Net Losses" are equal to the aggregate balance of all contracts which are
determined to be uncollectible in the period less any recoveries on
contracts charged-off in the period or any prior periods. Effective January
1, 1993, net losses include expenses associated with outside collection
agencies. Other expenses associated with collection, repossession, and
disposition of the vehicle continue to be excluded. These other expenses are
not material to the data presented.
[As shown above, credit losses have increased since the beginning of 1995
reversing a general trend of improvement that had begun in 1989. The increase
reflects an increase in losses per repossession and an increase in repossession
rates.] See "Description of the Transfer and Servicing Agreements -- Servicing
Procedures" in the Prospectus.
POOL FACTORS
The "Certificate Pool Factor" for [the Class A] [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
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<PAGE> 106
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. [The] [Each] Certificate Pool Factor will
initially be 1.0000000 and thereafter will decline to reflect reductions of the
Certificate Balance of the [Class A] [applicable class of] Certificates 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)]. [[The] [Each] Certificate Pool Factor will not change as
a result of the addition of Subsequent Receivables.] A Certificateholder's
portion of the aggregate outstanding Certificate Balance for the [Class A]
[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 Certificates is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. As the rate of payment of principal of [the]
[each class of] Certificates depends on the rate of payment (including
prepayments and liquidations due to default) of the principal balance of the
Receivables, the final distribution in respect of the Certificates could occur
significantly earlier than the Final Scheduled Distribution Date. It is expected
that the final distribution in respect of the Certificates will occur on or
prior to the Final Scheduled Distribution Date. However, if sufficient funds are
not available to reduce the aggregate Certificate Balance of either class of
Certificates to zero on or prior to the Final Scheduled Distribution Date, the
final distribution in respect of such class of Certificates could occur later
than such date.
The rate of prepayments of the Receivables may be influenced by a variety
of economic, social and other factors, and under certain circumstances relating
to breaches of representations, warranties or covenants, the Seller and/or the
Servicer will be obligated to repurchase Receivables from the Trust. See "The
Receivables Pool" herein and "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the Prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal balance
of the Receivables more quickly than expected and thereby reduce anticipated
aggregate distributions of interest on the Certificates. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne entirely by 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.
Holders of Certificates should consider, in the case of Certificates
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 Certificates 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 CERTIFICATES
The [Class A] Certificates will be issued pursuant to the terms of the
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Agreement will be filed with the Commission following
the issuance of the [Class A] Certificates. The following summary describes
certain terms of the [Class A] Certificates and the 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 [Class A] Certificates and the
Agreement. The following summary supplements the description of the general
terms and provisions of the [Class A] Certificates of any given series and the
related Agreement set forth in the Prospectus, to which description reference is
hereby made.
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<PAGE> 107
GENERAL
The Certificates will evidence interests in the Trust created pursuant to
the Agreement. The Class A Certificates will evidence in the aggregate an
undivided ownership interest (the "Class A Percentage") of approximately % in
the Trust and the Class B Certificates will evidence in the aggregate an
undivided ownership interest (the "Class B Percentage") of approximately % in
the Trust. [The Class B Certificates, which are not being offered hereby,
initially will be retained by the Seller.]
In general, it is intended that Class A Certificateholders receive, on each
Distribution Date, the Class A Percentage of the Available Principal plus
interest at the [Class A] Certificate Rate on the Class A Certificate Balance.
[Subject to the prior rights of the Class A Certificateholders, it is intended
that the Class B Certificateholders receive, on each Distribution Date, the
Class B Percentage of the Available Principal plus interest at the Class B
Certificate Rate on the Class B Certificate Balance.]
[MANDATORY REPURCHASE
Cash distributions to Certificateholders will be made, on a pro rata basis,
on the Distribution Date on or immediately following the last day of the Funding
Period in the event that the amount on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such date, exceeds $ (a "Mandatory Repurchase").
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders pursuant to a Mandatory Repurchase if the amount on deposit
in the Pre-Funding Account exceeds $ . The Certificate Prepayment
Premium will equal the excess, if any, discounted as described below, of (i) the
amount of interest that would accrue on the remaining Pre-Funded Amount (the
"Certificate Prepayment Amount") at the Class A Certificate Rate or Class B
Certificate Rate, as applicable, during the period commencing on and including
the Distribution Date on which such Certificate Prepayment Amount is required to
be distributed to Certificateholders to but excluding over (ii)
the amount of interest that would have accrued on such Certificate Prepayment
Amount over the same period at a per annum rate of interest equal to the bond
equivalent yield to maturity on the Determination Date preceding such
Distribution Date on the , in the case of a Class A Certificate,
and on the , in the case of a Class B Certificate. Such excess
shall be discounted to present value to such Distribution Date at the applicable
yield described in clause (ii) above. Pursuant to the Agreement, the Seller will
be obligated to pay the Certificate Prepayment Premium to the Trust as
liquidated damages for the failure to deliver Subsequent Receivables having an
aggregate principal balance equal to the Pre-Funded Amount. The Trust's
obligation to pay the Certificate Prepayment Premium will be limited to funds
received from the Seller pursuant to the preceding sentence. In the event that
such funds are insufficient to pay the aggregate Certificate Prepayment Premium
in full, [Class A] Certificateholders [of each class of Certificates] will
receive their ratable share [(based upon the Certificate Prepayment Premium for
each class of Certificates)] of the aggregate amount available to be distributed
in respect of the Certificate Prepayment Premium. No other assets of the Trust
will be available for the purpose of making such payment.]]
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, the Class A
Certificateholders will receive an amount in respect of the Class A Certificates
equal to the outstanding Class A Certificate Balance together with accrued
interest at the [Class A] Certificate Rate, [the Class B Certificateholders will
receive an amount in respect of the Class B Certificates equal to the
outstanding Class B Certificate Balance together with accrued interest at the
Class B Certificate Rate,] which distributions shall effect early
S-24
<PAGE> 108
retirement of the Certificates. See "Description of the Transfer and Servicing
Agreements -- Termination" in the Prospectus.
[SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the conveyance of the Initial
Receivables from the Seller to the Trust on the Closing Date pursuant to the
Agreement is set forth under "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the Prospectus. In
addition, during the Funding Period, pursuant to the Agreement, the Seller will
be obligated to sell to the Trust Subsequent Receivables having an aggregate
principal balance equal to approximately $ (such amount being equal to
the initial Pre-Funded Amount) to the extent that such Subsequent Receivables
are available.
During the Funding Period on each Subsequent Transfer Date, subject to the
conditions described below, the Seller will sell and assign to the Trust,
without recourse, the Seller's entire interest in the Subsequent Receivables
designated by the Seller as of the related Subsequent Cutoff Date and identified
in a schedule attached to a subsequent transfer assignment relating to such
Subsequent Receivables executed on such date by the Seller. It is expected that
on the Closing Date, subject to the conditions described below, certain of the
Subsequent Receivables designated by the Seller and arising between the Initial
Cutoff Date and the Closing Date will be conveyed to the Trust. Upon the
conveyance of Subsequent Receivables to the Trust on a Subsequent Transfer Date,
(i) the Pool Balance will increase in an amount equal to the aggregate principal
balance of the Subsequent Receivables, (ii) an amount equal to % of the
aggregate principal balance of such Subsequent Receivables will be withdrawn
from the Pre-Funding Account and will be deposited in the Subordination Spread
Account and (iii) an amount equal to the excess of the aggregate principal
balance of such Subsequent Receivables over the amount described in clause (ii)
will be withdrawn from the Pre-Funding Account and paid to the Seller.
[Coincident with each such transfer of Subsequent Receivables, the Yield
Supplement Agreement will require Ford Credit to deposit into the Yield
Supplement Account an amount equal to the Additional Yield Supplement Amount, if
any, in respect of such Subsequent Receivables. See "-- Yield Supplement
Account; Yield Supplement Agreement" below.]
[Any conveyance of Subsequent Receivables is subject to the satisfaction,
on or before the related Subsequent Transfer Date, of the following conditions
precedent, among others: (i) each such Subsequent Receivable must satisfy the
eligibility criteria specified in the Agreement; (ii) the Seller will not have
selected such Subsequent Receivables in a manner that it believes is adverse to
the interests of the Certificateholders; (iii) as of the related Subsequent
Cutoff Date, the Receivables, including any Subsequent Receivables conveyed by
the Seller as of such Subsequent Cutoff Date, satisfy the criteria described
under "The Receivables Pool" herein and "The Receivables Pools" in the
Prospectus; (iv) the applicable Subordination Initial Deposit for such
Subsequent Transfer Date shall have been made; and (v) the Seller shall have
executed and delivered to the Trustee a written assignment conveying such
Subsequent Receivables to the Trust (including a schedule identifying such
Subsequent Receivables). Moreover, any such conveyance of Subsequent Receivables
made during any Collection Period will also be subject to the satisfaction, on
or about the fifteenth day of the month following the end of such Collection
Period, of the following conditions subsequent, among others: (i) the Seller
will have delivered certain opinions of counsel to the Trustee and the Rating
Agencies with respect to the validity of the conveyance of all such Subsequent
Receivables conveyed during such Collection Period; (ii) the Trustee shall have
received written confirmation from a firm of independent certified public
accountants that, as of each applicable Subsequent Cutoff Date, the Receivables
in the Trust at that time, including the Subsequent Receivables conveyed by the
Seller as of such Subsequent Cutoff Date, satisfied the parameters described
under "The Receivables Pool" herein and under "The Receivables Pools" in the
Prospectus; and (iii) the Rating Agencies shall have each notified the Seller in
writing that, following the addition of all such Subsequent Receivables, the
[Class A] Certificates are rated in the
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<PAGE> 109
same rating categories in which they were rated at the Closing Date. The Seller
will immediately repurchase any Subsequent Receivable, at a price equal to the
Purchase Amount thereof, upon the failure of the Seller to satisfy any of the
foregoing conditions subsequent with respect thereto.
[Subsequent Receivables may have been originated by Ford Credit at a later
date using credit criteria different from those which were applied to the
Initial Receivables. See "Risk Factors -- The Subsequent Receivables and the
Pre-Funding Account" and "The Receivables Pool" herein.]]
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Servicer will also
establish and will maintain with the Trustee [the Pre-Funding Account] [the
Yield Supplement Account] [and] the Subordination Spread Account, in the name of
the Trustee on behalf of the Certificateholders, and the Payahead Account, in
the name of the Trustee on behalf of the Obligors. The Subordination Spread
Account and the Payahead Account will not be part of the Trust.
SERVICING COMPENSATION AND EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the Servicer
will be 1.00% per annum of the Pool Balance as of the first day of the
Collection Period (after giving effect to distributions to be made on the
following Distribution Date). 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 solely to the extent of the Available Interest.
The Servicer is also 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 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.
DISTRIBUTIONS
On or about the calendar day of each month (the "Determination Date"), the
Servicer will inform the Trustee of the amount of aggregate collections on the
Receivables; the aggregate Advances to be made by the Servicer, the aggregate
Purchase Amount of Receivables to be purchased by the Seller or the Servicer,
all with respect to the preceding Collection Period.
On each Distribution Date, the Servicer, or the Trustee, as the case may
be, shall transfer the portion of Payaheads constituting all or a portion of
scheduled payments for that Collection Period or, which together with that
month's payment by an Obligor constitute prepayments in full on the Receivables
to the Collection Account. On the Distribution Date, the Trustee shall cause
collections made during the Collection Period which constitute Payaheads to be
transferred from the Collection Account to the Servicer, or to the Payahead
Account if required.
The Servicer shall determine prior to each Distribution Date the Total
Available Amount, the Available Interest, the Available Principal, the Class A
Distributable Amount and the Class B Distributable Amount and, based on the
Total Available Amount and the other distributions to be made on such
Distribution Date, as described below, determine the amount to be distributed to
Certificateholders of each class.
Determination of Available Amounts. The "Total Available Amount" for a
Distribution Date (being the funds available for distribution to
Certificateholders of each Class with respect to such Distribution Date in
accordance with the priorities described below) shall be the sum of the
Available Interest and the Available Principal.
The "Available Interest" for a Distribution Date shall be the sum of the
following amounts with respect to the preceding Collection Period: (i) all
scheduled payments of interest and the interest
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<PAGE> 110
portion of 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
the interest portion of 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, received
in connection with such liquidation and any amounts required by law to be
remitted to the Obligor on such Liquidated Receivable ("Liquidation Proceeds")
to the extent attributable to interest due thereon in accordance with the
Servicer's customary servicing procedures; (iii) all Advances made by the
Servicer of interest due on Receivables; [(iv) all advances, if any, of interest
made by the Servicer in respect of Receivables which were prepaid in full;]
[and] (v) the Purchase Amount of each Receivable that was purchased by the
Seller or Servicer under an obligation which arose during the related Collection
Period, to the extent attributable to accrued interest thereon[; and (vi) the
Yield Supplement Deposit Amount for such Distribution Date]. The Available
Interest shall be determined on the related Determination Date based on the
methodology described under "Description of the Transfer and Servicing
Agreements -- Distributions -- Allocations of Collections on Receivables" in the
Prospectus.
The "Available Principal" for a Distribution Date shall be the sum of the
following amounts with respect to the preceding Collection Period: (i) all
scheduled payments of principal and the principal portion of 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 the principal portion of all
payments collected with respect to Simple Interest Receivables; (ii) all
Liquidation Proceeds attributable to principal in accordance with the Servicer's
customary servicing procedures; (iii) all Precomputed Advances made by the
Servicer of principal due on the Precomputed Receivables; (iv) to the extent
attributable to principal, the Purchase Amount received with respect to each
Receivable purchased by the Seller or the Servicer under an obligation which
arose during such Collection Period; and (v) 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 Principal shall be determined on the related
Determination Date based on the methodology described under "Description of the
Transfer and Servicing Agreements -- Distributions -- Allocations of Collections
on Receivables" in the Prospectus.
The Available Interest and the Available Principal 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 Total Available Amount in
a prior Collection Period; (iv) amounts received in respect of interest on
Simple Interest Receivables during the preceding Collection Period in excess of
the amount of interest that would have been due during the Collection Period on
Simple Interest Receivables at their respective APRs (assuming that a payment is
received on each Simple Interest Receivable on the due date thereof); [and] (v)
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 (vi) amounts released from the Pre-Funding Account.]
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Calculation of Distributable Amounts. The "Class A Distributable Amount"
with respect to a Distribution Date shall be an amount equal to the sum of:
(i) the "Class A Principal Distributable Amount," consisting of the
Class A Percentage of:
(a) the principal portion of all scheduled payments due with
respect to Precomputed Receivables during the preceding Collection
Period;
(b) the principal portion of all prepayments in full received
during the preceding Collection Period (and certain partial prepayments)
(except to the extent included in (a) above);
(c) the principal portion of all payments received with respect to
Simple Interest Receivables during the preceding Collection Period;
(d) the principal balance of each Receivable that was purchased by
the Seller or the Servicer under an obligation that arose during the
preceding Collection Period (except to the extent included in (a)
through (c) above); and
(e) the principal balance of each Receivable liquidated by the
Servicer during the preceding Collection Period; plus
(ii) the "Class A Interest Distributable Amount," consisting of thirty
(30) days' interest at the [Class A] Certificate Rate on the Class A
Certificate Balance as of the last day of the preceding Collection Period.
The "Class A Certificate Balance" shall equal, initially, the Class A
Percentage of the Pool[/Pre-Funding] Balance as of the Cutoff Date and,
thereafter shall equal the initial Class A Certificate Balance, reduced by all
amounts previously distributed to Class A Certificateholders and allocable to
principal.
The "Class B Distributable Amount" with respect to a Distribution Date
shall be an amount equal to the sum of:
(i) the "Class B Principal Distributable Amount," consisting of the
Class B Percentage of the amounts set forth under (i)(a) through (i)(e)
above with respect to the Class A Principal Distributable Amount; plus
(ii) the "Class B Interest Distributable Amount," consisting of thirty
(30) days' interest at the Class B Certificate Rate on the Class B
Certificate Balance as of the last day of the preceding Collection Period
[plus the excess, for each Receivable having an APR greater than the sum of
the weighted average of the Class A Certificate Rate and the Class B
Certificate Rate and the Servicing Fee Rate, of the interest portion of the
scheduled payment over the portion of such interest equal to interest at
the sum of the weighted average of the Class A Certificate Rate and the
Class B Certificate Rate and the Servicing Fee Rate].
The "Class B Certificate Balance" shall equal, initially, the Class B
Percentage of the Pool Balance as of the [Initial] Cutoff Date and, thereafter
shall equal the initial Class B Certificate Balance, reduced by all amounts
previously distributed to Class B Certificateholders (or deposited in the
Subordination Spread Account not including the Subordination Initial Deposit)
and allocable to principal and by the Class A Principal Carryover Shortfall and
the Class B Principal Carryover Shortfall.
Calculation of Amounts to be Distributed. Prior to each Distribution Date,
the Servicer will calculate the amounts to be distributed to the
Certificateholders.
The holders of the Class A Certificates will receive on any Distribution
Date, to the extent of available funds, an amount equal to the sum of the Class
A Distributable Amount and any outstanding Class A Interest Carryover Shortfall
and Class A Principal Carryover Shortfall (as defined below). On each
Distribution Date on which the sum of the Class A Interest Distributable Amount
and any outstanding Class A Interest Carryover Shortfall (plus interest on such
Class A
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Interest Carryover Shortfall at the Class A Certificate Rate from such preceding
Distribution Date to the current Distribution Date, to the extent permitted by
law) exceeds the Class A Percentage of the Available Interest (after payment of
the Servicing Fee including any unpaid Servicing Fees with respect to prior
Collection Periods) on such Distribution Date, the Class A Certificateholders
shall be entitled to receive such shortfall first, from the Class B Percentage
of the Available Interest (after payment of the Servicing Fee including any
unpaid Servicing Fees with respect to prior Collection Periods); second, if such
amounts are insufficient, from amounts available in the Subordination Spread
Account; and third, if such amounts are insufficient, from the Class B
Percentage of the Available Principal; provided, however, that if the Servicer
shall fail to make an advance of interest in respect of a Receivable prepaid in
full, the portion of such shortfall attributable thereto shall be paid only from
amounts available in the Subordination Spread Account. The "Class A Interest
Carryover Shortfall" as of the close of any Distribution Date means the excess
of the Class A Interest Distributable Amount for such Distribution Date plus any
outstanding Class A Interest Carryover Shortfall from the preceding Distribution
Date, plus interest on such outstanding Class A Interest Carryover Shortfall, to
the extent permitted by law, at the Class A Certificate Rate from such preceding
Distribution Date through the current Distribution Date, over the amount of
interest that the holders of the Class A Certificates actually received on such
current Distribution Date.
On each Distribution Date on which the sum of the Class A Principal
Distributable Amount and any outstanding Class A Principal Carryover Shortfall
from the preceding Distribution Date exceeds the Class A Percentage of the
Available Principal on such Distribution Date, the Class A Certificateholders
shall be entitled to receive such shortfall first, from the Class B Percentage
of the Available Principal; second, if such amounts are insufficient, from
amounts available in the Subordination Spread Account; and third, if such
amounts are insufficient, from the Class B Percentage of the Available Interest.
The "Class A Principal Carryover Shortfall" as of the close of any Distribution
Date means the excess of the Class A Principal Distributable Amount plus any
outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class A
Certificates actually received on such current Distribution Date.
[The holders of the Class B Certificates will receive on any Distribution
Date, to the extent of available funds, an amount equal to the sum of the Class
B Distributable Amount and any outstanding Class B Interest Carryover Shortfall
and Class B Principal Carryover Shortfall (as defined below). On each
Distribution Date on which the sum of the Class B Interest Distributable Amount
and any outstanding Class B Interest Carryover Shortfall (plus interest on such
Class B Interest Carryover Shortfall at the Class B Certificate Rate from such
preceding Distribution Date to the current Distribution Date, to the extent
permitted by law) exceeds the Class B Percentage of the Available Interest
(after giving effect to (A) any amounts required to be distributed to the
holders of Class A Certificates pursuant to the subordination of the rights of
the holders of Class B Certificates, and (B) amounts required to pay the
Servicing Fee (including any unpaid Servicing Fees with respect to prior
Collection Periods) payable to the Servicer) on such Distribution Date, the
Class B Certificateholders shall be entitled to receive such shortfall from
amounts available in the Subordination Spread Account. The "Class B Interest
Carryover Shortfall" as of the close of any Distribution Date means the excess
of the Class B Interest Distributable Amount for such Distribution Date plus any
outstanding Class B Interest Carryover Shortfall from the preceding Distribution
Date, plus interest on such outstanding Class B Interest Carryover Shortfall, to
the extent permitted by law, at the Class B Certificate Rate from such preceding
Distribution Date through the current Distribution Date, over the amount of
interest that the holders of the Class B Certificates actually received on such
current Distribution Date.
On each Distribution Date on which the sum of the Class B Principal
Distributable Amount and any outstanding Class B Principal Carryover Shortfall
from the preceding Distribution Date exceeds the Class B Percentage of the
Available Principal (after giving effect to (A) any amounts required to be
distributed to the holders of Class A Certificates pursuant to the subordination
of the rights of the holders of Class B Certificates, (B) amounts required to
pay the Servicing Fee (including any
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unpaid Servicing Fees with respect to prior Collection Periods) payable to the
Servicer and (C) the interest due to the Class B Certificateholders) on such
Distribution Date, the Class B Certificateholders shall be entitled to receive
such shortfall from amounts available in the Subordination Spread Account. The
"Class B Principal Carryover Shortfall" as of the close of any Distribution Date
means the excess of the Class B Principal Distributable Amount plus any
outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class B
Certificates actually received on such current Distribution Date.]
[The holders of the Class B Certificates are entitled to receive on any
Distribution Date an amount equal to the sum of the Class B Interest
Distributable Amount, the Class B Principal Distributable Amount (and any
shortfalls from prior Distribution Dates in payments to the Class B
Certificateholders), after giving effect to (A) any amounts required to be
distributed to the holders of Class A Certificates pursuant to the subordination
of the rights of the holders of Class B Certificates, and (B) amounts required
to pay the Servicing Fee (including any unpaid Servicing Fees with respect to
prior Collection Periods) payable to the Servicer on such Distribution Date.]
SUBORDINATION OF THE CLASS B CERTIFICATES; SUBORDINATION SPREAD ACCOUNT
The rights of the Class B Certificateholders to receive distributions with
respect to the Receivables will be subordinated to the rights of the Class A
Certificateholders in the event of defaults and delinquencies on the Receivables
as provided in the Agreement. The protection afforded to the Class A
Certificateholders will be effected both by the preferential right of the Class
A Certificateholders to receive current distributions with respect to the
Receivables and by the establishment of the Subordination Spread Account. The
Subordination Spread Account will be created with an initial deposit by the
Seller of the Subordination Initial Deposit and will be augmented by deposit
therein of amounts otherwise distributable to Class B Certificateholders until
the amount in the Subordination Spread Account reaches an amount equal to the
Specified Subordination Spread Account Balance. Thereafter, amounts otherwise
distributable to the Class B Certificateholders or the Servicer will be
deposited in the Subordination Spread Account to the extent necessary to
maintain the amount in the Subordination Spread Account at the Specified
Subordination Spread Account Balance.
The Subordination Spread Account will not be a part of or otherwise
includible in the Trust and will be a segregated trust account held by as agent
for the [Class A] Certificateholders (the "[Class A] Agent"). On each
Distribution Date, (i) if the amounts on deposit in the Subordination Spread
Account are less than the Specified Subordination Spread Account Balance, the
Trustee will, after payment of any amounts required to be distributed to holders
of the Class A Certificates and the payment of the Servicing Fee due with
respect to the related Collection Period (including any unpaid Servicing Fees
with respect to prior Collection Periods), withdraw from the Collection Account
and deposit in the Subordination Spread Account the amount remaining in the
Collection Account that would otherwise be distributed to the holders of the
Class B Certificates, or such lesser portion thereof as is sufficient to restore
the amount in the Subordination Spread Account to such Specified Subordination
Spread Account Balance and (ii) if the amount on deposit in the Subordination
Spread Account on such Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Distribution Date) is greater than the Specified
Subordination Spread Account Balance for such Distribution Date, the [Class A]
Agent will release and distribute any such excess to the [Servicer] [holders of
the Class B Certificates]. Upon any such distribution, the [Class A]
Certificateholders will have no rights in, or claims to, such amounts.
Amounts held from time to time in the Subordination Spread Account will
continue to be held for the benefit of holders of the Class A Certificates,
holders of the Class B Certificates and the Seller, as their respective
interests may appear. Funds in the Subordination Spread Account shall be
invested as provided in the Agreement in Permitted Investments. The [Servicer]
[holders of the Class B Certificates] shall be entitled to receive all
investment earnings on amounts in the Subordination Spread Account. Investment
income on amounts in the Subordination Spread
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Account will not be available for distribution to the holders of the [Class A]
Certificates or otherwise subject to any claims or rights of the holders of the
[Class A] Certificates.
The time necessary for the Subordination Spread Account to reach and
maintain the Specified Subordination Spread Account Balance at any time after
the date of issuance of the Certificates will be affected by the delinquency,
credit loss and repossession and prepayment experience of the Receivables and,
therefore, cannot be accurately predicted.
If on any Distribution Date the holders of the Class A Certificates do not
receive the sum of the Class A Distributable Amount, the Class A Interest
Carryover Shortfall and the Class A Principal Carryover Shortfall for such
Distribution Date (after giving effect to any amounts withdrawn from the
Subordination Spread Account and the Class B Distributable Amount and applied to
such deficiency, as described above), the holders of the Class B Certificates
will not receive any portion of the Total Available Amount.
The subordination of the Class B Certificates and the Subordination Spread
Account described above are intended to enhance the likelihood of receipt by
Class A Certificateholders of the full amount of principal and interest on the
Receivables due them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain circumstances,
the Subordination Spread Account could be depleted and shortfalls could result.
[YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
The Yield Supplement Account will be created with an initial deposit by
Ford Credit of the Yield Supplement Initial Deposit. The Yield Supplement
Initial Deposit will equal an amount (which amount may be discounted at a rate
to be specified in the Agreement) equal to the aggregate amount by which (i)
interest on the principal balance of each [Initial] Receivable for the period
commencing on the [Initial] Cutoff Date and ending with the scheduled maturity
of such Receivable, assuming that payments on such Receivables are made as
scheduled and no prepayments are made) at a rate equal to the Required Rate,
exceeds (ii) interest on such principal balances at the APR of such Receivable
(the "Yield Supplement Amount" [and, with respect to all of the [Initial]
Receivables, the "Maximum [Initial] Yield Supplement Amount"]).
On each Distribution Date, the Trustee will transfer to the Collection
Account from monies on deposit in the Yield Supplement Account an amount equal
to the Yield Supplement Deposit Amount in respect of the Receivables for such
Distribution Date. The "Yield Supplement Deposit Amount" with respect to a
Distribution Date is the aggregate Yield Supplement Amount, if any, in respect
of the Receivables for the related Collection Period. Amounts on deposit on any
Distribution Date in the Yield Supplement Account in excess of the Maximum Yield
Supplement Amount, after giving effect to all distributions to be made on such
Distribution Date, will be paid to the Seller. Monies on deposit in the Yield
Supplement Account may be invested in Permitted Investments under the
circumstances and in the manner described in the Agreement. Any monies remaining
on deposit in the Yield Supplement Account upon the termination of the Trust
will be paid to the Seller.
[Pursuant to the Yield Supplement Agreement, on each Subsequent Transfer
Date, Ford Credit will deposit into the Yield Supplement Account an amount equal
to the Additional Yield Supplement Amount. The aggregate of the Additional Yield
Supplement Amounts in respect of Subsequent Receivables, if any, is referred to
herein as the "Maximum Subsequent Yield Supplement Amount" and, together with
the Maximum Initial Yield Supplement Amount, the "Maximum Yield Supplement
Amount."]]
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 Certificates. The
summary does not purport to deal with federal income tax consequences applicable
to all categories of holders, some of which may be
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subject to special rules. For example, it does not discuss the tax treatment of
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 interests issued by a
trust with terms similar to those of the Offered Certificates (as defined
below). As a result, the IRS may disagree with all or a part of the discussion
below. Prospective investors are urged to consult their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences to
them of the purchase, ownership and disposition of the 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
It is expected that Special Tax Counsel will, upon issuance of the Offered
Certificates, deliver its opinion that the Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code and 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 has prepared or reviewed the statements
herein and in the Prospectus 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
grantor trust 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 Certificates.
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
As set forth above, it is expected that Special Tax Counsel will deliver
its opinion that the Trust will be classified as a grantor trust under subpart
E, Part I of subchapter J of the Code and will not be classified as an
association taxable as a corporation. Owners of Certificates (referred to herein
as "Offered Certificateholders"), subject to the discussion of stripped coupons
below under "-- Tax Consequences to Holders of Offered Certificates --
Characterization of Fees," will be treated for federal income tax purposes as
owners of a portion of the Trust's assets as described below. The Certificates
issued by the Trust and offered pursuant to this Prospectus Supplement and the
Prospectus are referred to herein as "Offered Certificates."
TAX CONSEQUENCES TO HOLDERS OF OFFERED CERTIFICATES
Income on the Receivables. If the Receivables are not characterized as
"stripped bonds" or otherwise recharacterized, each Offered Certificateholder
will be required to report on its federal income tax return its pro rata share
of the entire income of the Trust for the period during which it owns an Offered
Certificate, including interest or finance charges earned on the Receivables,
and any gain or loss upon collection or disposition of the Receivables. Because
the Receivables, when originally issued by the Obligors to the Dealers from whom
Ford Credit acquired the Receivables, are believed to have had adequate stated
interest, the original issue discount ("OID") and imputed interest rules should
not apply to the Receivables except to the extent that a Receivable is treated
as a "stripped bond," as discussed below. The portion of each monthly payment to
an Offered
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Certificateholder that is allocable to principal on the Receivables will
represent a recovery of capital, which will reduce the tax basis of such Offered
Certificateholder's undivided interest in the Receivables. In computing its
federal income tax liability, an Offered Certificateholder will be entitled to
deduct, consistent with its method of accounting, its pro rata share of
reasonable servicing fees, and other fees paid or incurred by the Trust as
provided in Section 162 or 212 of the Code. If an Offered Certificateholder is
an individual, estate or trust the deduction for his pro rata share of such fees
will be allowed only to the extent that all of his miscellaneous itemized
deductions, including his share of such fees, exceed 2% of his adjusted gross
income. In addition, in the case of Offered Certificateholders who are
individuals, otherwise allowable itemized deductions will be reduced, but not
more than 80%, by an amount equal to 3% of the Offered Certificateholder's
adjusted gross income in excess of a statutorily defined threshold ($117,950 in
the case of a married couple filing jointly for taxable years beginning in 1996,
which amount will be adjusted for inflation). Because the Servicer will not
report to Offered Certificateholders the amount of income or deductions
attributable to the Supplemental Servicing Fee, such an Offered
Certificateholder may effectively underreport his net taxable income. To the
extent that the Receivables are characterized as "stripped bonds," as discussed
below, the portion of interest treated as retained by the Seller or the Servicer
would not be included in the income of Offered Certificateholders. See "--
Characterization of Fees" below.
To the extent that the purchase price of an Offered Certificate allocated
to an Offered Certificateholder's undivided interest in a Receivable is greater
than or less than the portion of the principal balance of the Receivable
allocable to the Offered Certificate, such interest in the Receivable will have
been acquired at a premium or discount, as the case may be. In determining
whether an Offered Certificateholder has purchased its interest in the
Receivables (or any Receivable) at a discount, a portion of the purchase price
for an Offered Certificate may be allocated to accrued interest on each
Receivable and to amounts held in the Collection Account pending distribution to
Certificateholders at the time of purchase as though such accrued interest and
collections on the Receivables were separate assets purchased by the Offered
Certificateholder, thus reducing the portion of the purchase price allocable to
an Offered Certificateholder's undivided interest in each Receivable (the
"Purchase Price") and increasing the potential discount on the Receivables.
Characterization of Fees. The Servicer intends to report income to Offered
Certificateholders on the assumption that the Offered Certificateholders own an
interest (equal to the applicable Class Percentage) in all of the principal and
interest derived from the Receivables. However, to the extent that the amounts
paid to the Servicer or the Seller exceed reasonable fees for services rendered,
by reason of the extent to which either the weighted average APR of the
Receivables, or the individual stated APRs of some of the Receivables, exceed
the Certificate Rate, such amounts will be treated as an interest in the
Receivables retained by the Seller or the Servicer. There are no authoritative
pronouncements for federal income tax purposes as to either the maximum amount
of compensation that may be considered reasonable for servicing Receivables or
performing other services in the context of transactions involving receivables
such as the Receivables, although the IRS has issued such guidelines in the
context of mortgage loans. To the extent that amounts paid to the Servicer or
the Seller exceed reasonable compensation for services provided, they would be
viewed as having retained for federal income tax purposes an ownership interest
in a portion of each interest payment with respect to certain Receivables (each
such payment, a "stripped coupon"). As a result, such Receivables would be
treated as "stripped bonds" within the meaning of the Code.
To the extent that the Receivables are characterized as "stripped bonds,"
the income and deductions of the Trust allocable to Offered Certificateholders
will not include the portion of the interest on the Receivables treated as
having been retained by the Seller (or other Offered Certificateholder) and the
Trust's deductions will be limited to reasonable servicing and other fees. In
addition, an Offered Certificateholder will not be subject to the market
discount rules discussed below with respect to the stripped Receivables, but
instead will be subject to the OID rules. However, if the price at which such a
Certificateholder were deemed to have acquired a stripped
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Receivable is less than the remaining principal balance of such Receivable by an
amount which is less than a statutorily defined de minimis amount, such
Receivable would not be treated as having OID. In general, the amount of OID on
a Receivable treated as a "stripped bond" will be de minimis if it is less than
1/4 of one percent for each remaining full year of weighted average life of the
Receivable (probably based on a prepayment assumption) remaining after the
purchase date until the final maturity of the Receivable. If the amount of OID
is de minimis under this rule, the actual amount of OID on such a Receivable
would be includible in income proportionately as principal payments are received
on the Receivable in the proportion that the amount of the principal payment
made bears to the total principal balance of the Receivable.
If the OID on a Receivable, which may differ for each Receivable, based on
the Purchase Price paid by an Offered Certificateholder, is not treated as being
de minimis, such a Certificateholder will be required to include any OID on a
Receivable in income as it accrues, regardless of when cash payments are
received, using a method reflecting a constant yield to maturity on the
Receivable. It is possible that the IRS could require use of a prepayment
assumption in computing the yield of a stripped Receivable. If a stripped
Receivable is deemed to be acquired by an Offered Certificateholder at a greater
than de minimis OID, such treatment would accelerate the accrual of income by
such holder. Prospective investors are advised to consult their own tax advisors
regarding the extent to which a portion of the amounts paid to the Servicer (or
other Offered Certificateholder) could be characterized other than as
compensation for services rendered for federal income tax purposes and the
calculation of OID on the Receivables.
It is also possible that any fees deemed to be excessive could be
characterized as deferred purchase price payable to the Seller by Offered
Certificateholders in exchange for the Receivables. The likely effect of such
recharacterization would be to accelerate realization of taxable income by such
a holder.
Rule of 78's Receivables. The annual statement regularly furnished to
Certificateholders for federal income tax purposes will include information
based on the actuarial method of accounting for interest and principal on the
Receivables, and the amount of the fees paid to the Servicer and others. Offered
Certificateholders should generally be permitted to account for interest on the
Receivables using the actuarial method (the method used to compute the
Certificate Pool Factor and the Certificate Rate). However, the Rule of 78's
Receivables provide that, upon a prepayment in full, the amount payable by the
Obligor will be determined under the Rule of 78's. Prospective investors should
consult their tax advisors as to whether they may be required or permitted to
use the Rule of 78's method to account for interest on the Rule of 78's
Receivables. An Offered Certificateholder will be furnished information for
federal income tax purposes enabling him to report interest on the Receivables
under the Rule of 78's method of accounting only upon written request to the
Trustee, and payment of the actual costs of producing the same.
If a Rule of 78's Receivable is prepaid, any amount received by the Trust
upon prepayment in excess of the account balance using the actuarial method
would constitute income to an Offered Certificateholder who had reported income
with respect to such Rule of 78's Receivable on the actuarial method, and an
amount equal to such excess would be paid to the Servicer as part of its
Supplemental Servicing Fee and be deductible to the extent described above.
Market Discount. If the Receivables are not treated as "stripped bonds,"
the interest of an Offered Certificateholder in each Receivable whose Purchase
Price is less than the original issue price (plus OID, if any, previously
includible in the income of any holder) of the Receivable will be treated as
having been purchased at a "market discount." The market discount on a
Receivable will be considered to be zero if it is less than a statutorily
defined de minimis amount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable or upon the sale or other
disposition of an Offered Certificate by a holder thereof, will be taxable as
ordinary income to the extent of accrued market discount, and a portion of the
interest deductions
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attributable to indebtedness treated as incurred or continued to purchase or
carry a Receivable or an Offered Certificate must be deferred. The ordinary
income treatment on dispositions and deferral of interest deductions described
in the preceding sentence will not apply if an Offered Certificateholder elects
to include market discount in income currently as it accrues for each taxable
year during which it holds the Offered Certificate. Market discount will accrue
in the manner to be provided in Treasury regulations, but the Conference Report
accompanying the Tax Reform Act of 1986 states that, until such regulations are
issued, it is intended that taxpayers may elect to accrue market discount either
(i) under a constant yield (economic accrual) method or (ii) at the election of
the taxpayer, in the proportion that the stated interest paid on the obligation
for the current period bears to total remaining interest on the obligation. As
described above, if the Offered Certificates are characterized as "stripped
bonds," any discount would be treated as OID, the amount and timing of which
should be comparable to the amount and timing of market discount if an election
is made to include market discount in income currently on the constant yield
method. See "-- Characterization of Fees" above. Due to the complexity of the
market discount rules, the Offered Certificateholders are urged to consult their
tax advisors as to whether market discount will result from the acquisition of
Offered Certificates, and as to the tax treatment of any such discount.
Premium. In the event that a Receivable is treated as purchased at a
premium (i.e., the Purchase Price exceeds the sum of principal payments to be
made thereon), such premium will be amortizable by an Offered Certificateholder
as an offset to interest income (with a corresponding reduction in such holder's
basis) under a constant yield method over the remaining term of the Receivable
if an election under Section 171 of the Code is made (or previously in effect in
accordance with the provisions of the Tax Reform Act of 1986) with respect to
the Offered Certificates. Any such election will also apply to debt instruments
held by the taxpayer during the year in which the election is made and all debt
instruments acquired thereafter.
Sale of an Offered Certificate or a Receivable. If an Offered Certificate
is sold, gain or loss will be recognized equal to the difference between the
amount realized on the sale and the adjusted basis of the Offered
Certificateholder in the Receivables and any other assets held by the Trust. An
Offered Certificateholder's adjusted basis will equal such holder's cost for the
Offered Certificate, increased by any discount previously included in income,
and decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received on the Receivables. Any gain or
loss will be capital gain or loss if the Offered Certificate was held as a
capital asset, except that gain will be treated in whole or in part as ordinary
interest income to the extent of the seller's interest in accrued market
discount not previously taken into income on Receivables having a fixed maturity
date of more than one year from the date of origination.
Under proposed Treasury regulations, the grant of an extension of the
maturity of a Receivable to the Obligor thereon could be treated as an exchange
if it changes the yield on the Receivable by more than a de minimis amount,
potentially resulting in taxable gain or loss to Certificateholders. Reports to
Certificateholders will not include information sufficient to calculate any such
gain or loss and accordingly, in the event that an extension were to result in a
deemed exchange, a Certificateholder could underreport its taxable income. No
assurance can be given as to whether the proposed regulations will be adopted as
final regulations in their present form or whether, if adopted, they will apply
to the Receivables.
Foreign Offered Certificateholders. Interest attributable to Receivables
which is received by a foreign Offered Certificateholder will generally not be
subject to the 30% withholding tax imposed with respect to payments of interest,
provided that such foreign holder is not engaged in a trade or business in the
United States and that such foreign holder fulfills certain certification
requirements. Under such requirements, the holder must certify, under penalties
of perjury, that it is not a "United States person" and provide its name and
address. For this purpose, "United States person" means a citizen or resident of
the U.S., a corporation, partnership, or other entity created or organized in or
S-35
<PAGE> 119
under the laws of the U.S. or any political subdivision thereof, or an estate or
trust the income of which is includible in gross income for U.S. federal income
tax purposes, regardless of its source.
Backup Withholding. Payments made on the Offered Certificates and proceeds
from the sale of the Offered Certificates will not be subject to a "backup"
withholding tax of 31% unless, in general, an Offered Certificateholder fails to
comply with certain reporting procedures and is not an exempt recipient under
applicable provisions of the Code.
CERTAIN STATE TAX CONSEQUENCES
The State of Michigan imposes an 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.
Because of the variation in each state's and locality's tax laws based in
whole or in part upon income, it is impossible to predict tax consequences to
holders of Certificates in all of the state and local taxing jurisdictions in
which they may be subject to tax. Certificateholders are urged to consult their
own tax advisors with respect to state and local tax consequences arising out of
the purchase, ownership and disposition of the Certificates.
TAX CONSEQUENCES WITH RESPECT TO THE OFFERED CERTIFICATES
If the arrangement created by the Trust Agreement is a grantor trust for
federal income tax purposes, it is expected that Michigan Tax Counsel will
deliver his opinion that the same treatment will also apply for Michigan
Individual Income Tax and Single Business Tax purposes and that the Trust will
not be subject to such taxes. Rather, a corporate Offered Certificateholder
whose commercial domicile is in Michigan, as well as an individual Offered
Certificateholder who is a resident of Michigan, should be subject to Michigan
Single Business Tax and the Individual Income Tax, respectively, on income
received through the Trust. On the other hand, a corporate Offered
Certificateholder whose commercial domicile is not in Michigan, and an
individual Offered Certificateholder who is not a resident of Michigan, should
not be subject to such taxes on income received through the Trust.
If the Offered 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 should be viewed as a
passive holder of investments and should not be subject to the Michigan Single
Business Tax (which, if applicable, could result in reduced distributions to
Certificateholders). The hypothetical entity, however, may be subject to
Michigan Intangibles Tax on income from loans secured by Michigan property. The
Michigan Intangibles Tax, however, has been repealed effective January 1, 1998.
In any event, an Offered 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
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 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.
S-36
<PAGE> 120
ERISA CONSIDERATIONS
[THE CLASS A CERTIFICATES]
The Class A Certificates 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"),
provided that certain conditions are met with respect to an individual
administrative exemption issued by the United States Department of Labor
to , , (the "Underwriters' Exemption"). The Seller
believes that the Underwriters' Exemption will apply to the acquisition and
holding of the Class A 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. Any Plan fiduciary considering whether to purchase a
Class A Certificate on behalf of a Plan should consult with its counsel
regarding the applicability of the Underwriters' Exemption and other relevant
issues. For additional information regarding treatment of the Class A
Certificates under ERISA, [including certain special considerations that apply
with respect to the Pre-Funding Account,] see "ERISA Considerations" in the
Prospectus.
[THE CLASS B CERTIFICATES
Because the Class B Certificates are subordinated to the Class A
Certificates in certain respects, the Underwriters' Exemption will not apply to
the purchase of Class B Certificates by or on behalf of a Plan. However, other
prohibited transaction exemptions may be applicable. These exemptions may apply
with respect to, inter alia, purchases by certain insurance company general
accounts, insurance company pooled separate accounts and bank collective
investment funds, and on behalf of employee benefit plans by certain "in house"
asset managers and qualified professional asset managers. Any Plan fiduciary
considering whether to purchase a Class B Certificate on behalf of a Plan should
consult with its counsel regarding the applicability of one or more of such
exemptions to such purchase. For additional information regarding treatment of
the Class B Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.]
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), the Seller has agreed to cause the Trust to sell
to each of the Underwriters named below (the "Underwriters"), and each of the
Underwriters has severally agreed to purchase, the principal balance of the
Class A Certificates [and Class B Certificates] set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OF CLASS A
UNDERWRITERS CERTIFICATES
------------ -----------------
<S> <C>
............................................................ $
............................................................
---------------
Total.................................................. $
===============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OF CLASS B
[UNDERWRITERS CERTIFICATES
------------- -----------------
<S> <C>
............................................................ $
............................................................
---------------
Total.................................................. $
---------------
Total.................................................. $ ]
===============
</TABLE>
S-37
<PAGE> 121
The Seller has been advised by the Underwriters that they propose initially
to offer the Class A Certificates to the public at the prices set forth herein,
and to certain dealers at such price less the initial concession not in excess
of % per Class A Certificate. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of % per Class A Certificate to
certain other dealers. After the initial public offering of the Class A
Certificates, the public offering prices and such concessions may be changed.
[The Seller has been advised by the Underwriters that they propose
initially to offer the Class B Certificates to the public at the prices set
forth herein, and to certain dealers at such price less the initial concession
not in excess of % per Class B Certificate. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % per Class B
Certificate to certain other dealers. After the initial public offering of the
Class B Certificates, the public offering prices and such concessions may be
changed.]
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Certificates will be passed upon for the
Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by [ ]. [ may from time to time
render legal services to Ford and its affiliates.]
S-38
<PAGE> 122
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>
[Additional Yield Supplement Amount......................... S-10]
Agreement................................................... S-3
[APR........................................................ S-4]
Available Interest.......................................... S-25
Available Principal......................................... S-25
Business Day................................................ S-5
Cede........................................................ S-2
Cedel....................................................... I-1
Certificate Owner........................................... S-3
Certificate Pool Factor..................................... S-21
[Certificate Prepayment Amount.............................. S-8, S-23]
[Certificate Prepayment Premium............................. S-7
[Certificateholders......................................... S-5]
Certificates................................................ S-1, S-3
[Class A] Agent............................................. S-28
Class A Certificate Balance................................. S-6, S-26
Class A Certificateholders.................................. S-5
[Class A] Certificate Rate.................................. S-5
Class A Certificates........................................ S-1, S-3
Class A Distributable Amount................................ S-26
Class A Interest Carryover Shortfall........................ S-27
Class A Interest Distributable Amount....................... S-26
Class A Percentage.......................................... S-3, S-22
Class A Principal Carryover Shortfall....................... S-27
Class A Principal Distributable Amount...................... S-26
Class B Certificate Balance................................. S-6, S-27
Class B Certificateholders.................................. S-6
Class B Certificate Rate.................................... S-5
Class B Certificates........................................ S-1, S-3
Class B Distributable Amount................................ S-26
[Class B Interest Carryover Shortfall....................... S-28]
Class B Interest Distributable Amount....................... S-27
Class B Percentage.......................................... S-3, S-22
[Class B Principal Carryover Shortfall...................... S-28]
Class B Principal Distributable Amount...................... S-26
Closing Date................................................ S-4
Code........................................................ [S-12,] S-30
Collection Account.......................................... S-10
Collection Period........................................... S-6
Commission.................................................. S-2
Cutoff Date................................................. S-4, S-16
Determination Date.......................................... S-25
Distribution Date........................................... S-1, S-5
DTC......................................................... S-2, I-1
ERISA....................................................... S-12
</TABLE>
S-39
<PAGE> 123
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Euroclear................................................... I-1
Exchange Act................................................ S-2
Final Scheduled Distribution Date........................... S-1
Final Scheduled Maturity Date............................... S-5
[Ford....................................................... S-14]
Ford Credit................................................. S-3
[Funding Period............................................. S-8]
Global Securities........................................... I-1
[Initial] Cutoff Date....................................... S-4
Initial Pool Balance........................................ S-7
[Initial] Receivables....................................... S-4
Issuer...................................................... S-3
IRS......................................................... S-30
Liquidated Receivables...................................... S-25
Liquidation Proceeds........................................ S-25
[Mandatory Repurchase....................................... S-7, S-23]
[Maximum Initial Yield Supplement Amount.................... S-10, S-29]
[Maximum Subsequent Yield Supplement Amount................. S-10, S-30]
[Maximum Yield Supplement Amount............................ S-10, S-30]
Michigan Tax Counsel........................................ S-11
Net Losses.................................................. S-21
Offered Certificateholders.................................. S-30
Offered Certificates........................................ S-30
OID......................................................... S-31
Plan........................................................ S-35
Pool Balance................................................ S-5
[Pool/Pre-Funding Balance................................... S-5]
[Pre-Funded Amount.......................................... S-4]
[Pre-Funding Account........................................ S-1, S-8]
Prospectus.................................................. S-2
Purchase Agreement.......................................... S-5
Purchase Price.............................................. S-31
Rating Agencies............................................. S-15
Realized Losses............................................. S-5
Receivables................................................. S-1
Receivables Pool............................................ S-16
Record Date................................................. S-5
[Required Rate.............................................. S-10]
Seller...................................................... S-1, S-3
Servicer.................................................... S-1, S-3
Servicing Fee Rate.......................................... S-11
Special Tax Counsel......................................... S-11
Specified Subordination Spread Account Balance.............. S-9
Subordination Initial Deposit............................... S-9
Subordination Spread Account................................ S-9
[Subsequent Cutoff Date..................................... S-4]
[Subsequent Receivables..................................... S-1, S-4]
[Subsequent Transfer Date................................... S-4]
Supplemental Servicing Fee.................................. S-24
Total Available Amount...................................... S-25
Trust....................................................... S-1, S-3
Trustee..................................................... S-3
</TABLE>
S-40
<PAGE> 124
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Underwriters................................................ S-35
Underwriters' Exemption..................................... S-35
Underwriting Agreement...................................... S-35
United States Person........................................ S-33
[Yield Supplement Account................................... S-10]
[Yield Supplement Agreement................................. S-10]
[Yield Supplement Amount.................................... S-10, S-29]
[Yield Supplement Deposit Amount............................ S-29]
[Yield Supplement Initial Deposit........................... S-10]
</TABLE>
S-41
<PAGE> 125
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Ford Credit
Auto Grantor Trust 199 % Asset Backed Certificates, Class A [and % Asset
Backed Certificates, Class B] ([collectively,] the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear"). The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities 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 Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices 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 Securities 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 Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to 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.
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.
<PAGE> 126
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash 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
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to 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
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective 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
Securities 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 Securities 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 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
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<PAGE> 127
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities 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
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
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 Securities or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on
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<PAGE> 128
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, or (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.
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> 129
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Certificateholders............... S-2
Summary..................................... S-3
Risk Factors................................ S-15
The Trust................................... S-17
The Receivables Pool........................ S-18
Pool Factors................................ S-22
Maturity and Prepayment Considerations...... S-23
Description of the Certificates............. S-23
Certain Federal Income Tax Consequences..... S-31
Certain State Tax Consequences.............. S-36
ERISA Considerations........................ S-37
Underwriting................................ S-37
Legal Opinions.............................. S-38
Index of Terms.............................. S-39
Annex I -- Global Clearance, Settlement and
Tax Documentation Procedures.............. I-1
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 2
Summary..................................... 3
Risk Factors................................ 12
The Trusts.................................. 16
The Receivables Pools....................... 18
Maturity and Prepayment Considerations...... 20
Pool Factors and Trading Information........ 21
Use of Proceeds............................. 21
The Seller and the General Partner.......... 22
The Servicer................................ 23
Description of the Notes.................... 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.... 54
Certain Federal Income Tax Consequences..... 58
ERISA Considerations........................ 59
Plan of Distribution........................ 64
Legal Opinions.............................. 64
Index of Terms.............................. 65
</TABLE>
UNTIL , 199 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN 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.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
$
FORD CREDIT
AUTO GRANTOR TRUST
199 -
$
% ASSET BACKED CERTIFICATES,
CLASS A
[$
% ASSET BACKED NOTES,
CLASS B]
FORD CREDIT AUTO
RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 130
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED , 199
(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. The property of each Trust with
respect to a series will include a pool of motor vehicle retail installment sale
contracts secured by new or used automobiles and light trucks (the
"Receivables"), certain monies due or received thereunder on or after the
applicable Cutoff Date set forth in the related Prospectus Supplement, security
interests in the vehicles financed thereby and certain other property, all as
described herein and in the related Prospectus Supplement. In addition, if so
specified in the related Prospectus Supplement, the property of the Trust, will
include monies on deposit in a trust account (the "Pre-Funding Account") to be
established with the Indenture Trustee or the applicable Trustee, as the case
may be, which will be used to purchase additional motor vehicle retail
installment sale contracts (the "Subsequent Receivables") from the Seller from
time to time during the Funding Period specified in the related Prospectus
Supplement.
Each class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Receivables, at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. If a series includes multiple classes of
Securities, the rights of one or more classes of Securities to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of such series. Distributions on Certificates of a series may be subordinated in
priority to payments due on any related Notes to the extent described herein and
in the related Prospectus Supplement. A series may include one or more classes
of Notes and/or Certificates which differ as to the timing and priority of
payment, interest rate or amount of distributions in respect of principal or
interest or both. A series may include one or more classes of Notes or
Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. The rate of payment in respect of principal of any class of Notes and
distributions in respect of the Certificate Balance of the Certificates of any
class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, defaults, liquidations and
repurchases of Receivables) on the related Receivables. A rate of payment lower
or higher than that anticipated may affect the weighted average life of each
class of Securities in the manner described herein and in the related Prospectus
Supplement.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" BEGINNING 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 ,1998.
<PAGE> 131
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement, Registration
No. 333-63551 (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> 132
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms."
ISSUER........................ With respect to each series of Securities, the
Trust to be formed pursuant to either a Trust
Agreement (as amended and supplemented from
time to time, a "Trust Agreement") between
the Seller and the Trustee for such Trust
(the "Trust" or the "Issuer") or a Pooling
and Servicing Agreement (as amended and
supplemented from time to time, the "Pooling
and Servicing Agreement") among the Trustee,
the Seller and Ford Motor Credit Company, as
Servicer.
SELLER........................ Ford Credit Auto Receivables Two L.P., a
Delaware limited partnership (the "Seller").
SERVICER...................... Ford Motor Credit Company, a Delaware
corporation (the "Servicer" or "Ford
Credit").
TRUSTEE....................... With respect to each series of Securities, the
Trustee specified in the related Prospectus
Supplement.
INDENTURE TRUSTEE............. With respect to any applicable series of
Securities, the Indenture Trustee specified
in the related Prospectus Supplement.
THE NOTES..................... A series of Securities may include one or more
classes of Notes, which will be issued
pursuant to an Indenture between the Trust
and the Indenture Trustee (as amended and
supplemented from time to time, an
"Indenture"). The related Prospectus
Supplement will specify which class or
classes, if any, of Notes of the related
series are being offered thereby.
Notes will be available for purchase in the
denominations specified in the related
Prospectus Supplement and may 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
3
<PAGE> 133
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 after making all other
distributions required on each Distribution
Date.
If the Servicer exercises its option to
purchase the Receivables of a 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.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account (as
such term is defined in the related
Prospectus Supplement, the "Pre-Funding
Account"), one or more classes of the
outstanding Notes will be subject to partial
redemption on or immediately following the
end of the Funding Period (as such term is
defined in the related Prospectus Supplement,
the "Funding Period") in an amount and manner
specified in the related Prospectus
Supplement. In the event of such partial
redemption, the Noteholders may be entitled
to receive a prepayment premium from the
Trust, in the amount and to the extent
provided in the related Prospectus
Supplement.
4
<PAGE> 134
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 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 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.
5
<PAGE> 135
If the Servicer exercises its option to
purchase the Receivables of a 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 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 will include a pool of motor vehicle
retail installment sale contracts secured by
new or used automobiles or light trucks (the
"Receivables"), including rights to receive
certain payments made with respect to such
Receivables, security interests in the
vehicles financed thereby (the "Financed
Vehicles"), certain accounts and the proceeds
thereof and any proceeds from claims on
certain related insurance policies.
On the Closing Date (the "Closing Date")
specified in the related Prospectus
Supplement with respect to a series, 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 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.
6
<PAGE> 136
To the extent provided in the related
Prospectus Supplement, the Seller will be
obligated (subject only to the availability
thereof) to sell, and the related Trust will
be obligated to purchase (subject to the
satisfaction of certain conditions described
in the applicable Sale and Servicing
Agreement or Pooling and Servicing
Agreement), additional Receivables (the
"Subsequent Receivables") from time to time
(as frequently as daily) during the Funding
Period specified in the related Prospectus
Supplement having an aggregate principal
balance approximately equal to the amount on
deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on the Closing Date.
The Receivables arise or will arise from loans
originated by motor vehicle dealers (the
"Dealers") and purchased by Ford Credit
pursuant to agreements with the Dealers for
subsequent sale to the Seller. The
Receivables for any given Receivables Pool
will be purchased by the Seller from Ford
Credit pursuant to a Purchase Agreement
between the Seller and Ford Credit (as
amended and supplemented from time to time, a
"Purchase Agreement") and will be selected
from the contracts owned by Ford Credit based
on the criteria specified in the Sale and
Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and described
herein and in the related Prospectus
Supplement. The purchase price for the
Receivables purchased by the Trust from the
Seller and by the Seller from Ford Credit may
be more or less than the aggregate principal
balance thereof.
CREDIT AND CASH FLOW
ENHANCEMENT................... If and to the extent specified in the related
Prospectus Supplement, credit enhancement
with respect to any class or classes of
Securities may include any one or more of the
following: subordination of one or more other
classes of Securities, a Reserve Account,
overcollateralization, letters of credit,
credit or liquidity facilities, surety bonds,
guaranteed investment contracts, guaranteed
rate agreements, swaps or other interest rate
protection agreements, repurchase
obligations, yield supplement agreements,
other agreements with respect to third party
payments or other support, cash deposits or
other arrangements. Any form of credit
enhancement may have certain limitations and
exclusions from coverage thereunder, which
will be described in the related Prospectus
Supplement.
RESERVE ACCOUNT............... If so specified in the related Prospectus
Supplement, a Reserve Account will be created
for the related Trust with an initial deposit
by the Seller of cash or certain investments
having a value equal to the amount specified
in the related Prospectus Supplement. To the
extent specified in the related Prospectus
Supplement, funds in the Reserve Account will
thereafter be supplemented by the deposit of
amounts remaining on any Distribution Date
after making all other distributions required
on such date and any
7
<PAGE> 137
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 may
include monies on deposit in a Pre-Funding
Account, which monies will be used to
purchase Subsequent Receivables from the
Seller from time to time during the Funding
Period specified in the related Prospectus
Supplement. The amount that may be initially
deposited into a Pre-Funding Account may be
up to 100% of the net proceeds from the sale
of the Securities issued by a Trust and the
length of the Funding Period may be up to one
year. The amount that may be initially
deposited into a Pre-Funding Account, and the
length of a Funding Period, will be specified
in the related Prospectus Supplement.
TRANSFER AND SERVICING
AGREEMENTS.................... With respect to each Trust, the Seller will
sell the related Receivables to such Trust
pursuant to a Sale and Servicing Agreement or
a Pooling and Servicing Agreement. The rights
and benefits of any Trust under a Sale and
Servicing Agreement will be assigned to the
Indenture Trustee as collateral for the Notes
of the related series. The Servicer will
agree with such Trust to be responsible for
servicing, managing, maintaining custody of
and making collections on the Receivables.
Ford Credit will undertake certain
administrative duties under an Administration
Agreement with respect to any Trust that has
issued Notes.
To the extent provided in the related
Prospectus Supplement, the Servicer will
advance scheduled payments under each
Precomputed Receivable which shall not have
been timely made (a "Precomputed Advance"),
to the extent that the Servicer, in its sole
discretion, expects to recoup the Precomputed
Advance from subsequent payments on or with
respect to such Receivable. With respect to
Simple Interest Receivables, to the extent
provided in the related Prospectus
Supplement, the Servicer shall advance any
interest shortfall (a "Simple Interest
Advance" and, together with a Precomputed
Advance, an "Advance"). The Servicer shall be
entitled to reimbursement of Advances from
subsequent payments on or with respect to the
8
<PAGE> 138
Receivables to the extent described herein
and in the related Prospectus Supplement.
The Seller will be obligated to repurchase any
Receivable if the interest of the applicable
Trust in such Receivable is materially
adversely affected by a breach of any
representation or warranty made by the Seller
with respect to the 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.
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES; REPURCHASE
OBLIGATIONS................... In connection with the sale of Receivables to a
Trust, security interests in the Financed
Vehicles securing such Receivables will be
assigned by the Seller to such Trust. Due to
the administrative burden and expense, the
certificates of title to the Financed
Vehicles will not be amended to reflect the
assignment to such Trust. In the absence of
such an amendment, such Trust may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states. The Seller will be obligated to
repurchase any Receivable sold to a Trust, as
to which a first perfected security interest
in the name of the Seller in the Financed
Vehicle securing such Receivable shall not
exist as of the date such Receivable is
purchased by such Trust, if such breach shall
materially adversely affect the interest of
such Trust in such Receivable and if such
failure or breach shall not have been cured
by the last day of the second (or, if the
Seller elects, the first) month following
9
<PAGE> 139
the discovery by or notice to the Seller of
such breach. If such Trust does not have a
perfected security interest in a Financed
Vehicle, its ability to realize on such
Financed Vehicle in the event of a default
may be adversely affected. To the extent the
security interest is perfected, such Trust
will have a prior claim over subsequent
purchasers of such Financed Vehicles and
holders of subsequently perfected security
interests. However, as against subsequent
purchasers who were to obtain physical
possession of the Receivables without
knowledge of their assignment to the Trust,
or holders of liens for repairs of Financed
Vehicles or for taxes unpaid by an Obligor
under a Receivable, or because of fraud or
negligence, such Trust could lose the
priority of its security interest 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
losing 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
losing the priority of its security interest
or its security interest in such Financed
Vehicle after the Closing Date with respect
to an Initial Receivable or after the
applicable Subsequent Transfer Date with
respect to a Subsequent Receivable.
Federal and state consumer protection laws
impose requirements upon creditors in
connection with extensions of credit and
collections of retail installment loans, and
certain of these laws make an assignee of
such a loan liable to the obligor thereon for
any violation by the lender. The Seller will
be obligated to repurchase any Receivable
which fails to comply with such requirements.
TAX STATUS.................... Unless the Prospectus Supplement specifies that
the related Trust will be treated as a
grantor trust, upon the issuance of the
related series of Securities (a) Special Tax
Counsel to such Trust expects to deliver an
opinion to the effect that, for federal
income tax purposes, each of such Trust will
not be characterized as an association (or a
publicly traded partnership) taxable as a
corporation and (b) Michigan Tax Counsel to
such Trust expects to deliver an opinion to
the effect that the same characterizations
would apply for Michigan income and Single
Business Tax purposes as for federal income
tax purposes.
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
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Business Tax purposes as for federal income
tax purposes.
See "Certain Federal Income Tax Consequences"
herein and in the related Prospectus
Supplement and "Certain State Tax
Consequences" in the related Prospectus
Supplement. "Special Tax Counsel" and
"Michigan Tax Counsel" will each be
identified by name in the related Prospectus
Supplement.
ERISA CONSIDERATIONS.......... A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as
amended (the "Code"), should carefully review
with its legal advisors whether the purchase
or holding of Notes or Certificates of any
series could give rise to a transaction
prohibited or not otherwise permissible under
ERISA or Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
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RISK FACTORS
CERTAIN LEGAL ASPECTS -- THE RECEIVABLES
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Servicer will service and administer the Receivables held by each
Trust and, as custodian on behalf of such Trust will maintain possession of the
retail installment sale contracts and any other documents relating to such
Receivables. To assure uniform quality in servicing both the Receivables and the
Servicer's own portfolio of receivables, as well as to facilitate servicing and
save administrative costs, the installment sale contracts and other documents
relating thereto will not be physically segregated from other similar documents
that are in the Servicer's possession or otherwise stamped or marked to reflect
the transfer to a Trust so long as Ford Credit is servicing the related
Receivables. However, Uniform Commercial Code financing statements reflecting
the sale and assignment of such Receivables by Ford Credit to the Seller and by
the Seller to such Trust will be filed, and the Servicer's accounting records
and computer systems will be marked to reflect such sale and assignment. Because
such Receivables will remain in the Servicer's possession and will not be
stamped or otherwise marked to reflect the assignment to such Trust if a
subsequent purchaser were to obtain physical possession of such Receivables
without knowledge of the assignment, the Trust's interest in the Receivables
could be defeated.
In most states, assignments such as those under the Purchase Agreement and
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, relating to each Trust together with a perfected security interest
in the chattel paper are an effective conveyance of a security interest in the
vehicles subject to the chattel paper without amendment of any lien noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. In the absence of fraud or forgery by the
vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of Ford Credit's lien on the certificates of title will
be sufficient to protect such Trust against the rights of subsequent purchasers
of a Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which Ford Credit
failed to obtain a perfected security interest, its security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles and
holders of perfected security interests. Such a failure would constitute a
breach of Ford Credit's warranties under the related Purchase Agreement and of
the Seller's warranties under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, and would create an obligation
of Ford Credit under such Purchase Agreement and of the Seller under such Sale
and Servicing Agreement or Pooling and Servicing Agreement to purchase the
related Receivable unless the breach is cured. See "Description of the Transfer
and Servicing Agreements Sale and Assignment of Receivables." By not identifying
the Trust as the secured party on the certificate of title, the Trust's interest
in the chattel paper may not have the benefit of the security interest in the
Financed Vehicle in all states or such security interest could be defeated
through fraud or negligence. The Seller will assign its rights under each
Purchase Agreement to the related Trust. See "Certain Legal Aspects of the
Receivables -- Security Interests in Vehicles."
CERTAIN LEGAL ASPECTS -- BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
herein and in the related Prospectus Supplement that are intended to ensure that
the voluntary or involuntary application for relief by Ford Credit under the
United States Bankruptcy Code or similar applicable state laws ("Insolvency
Laws") will not result in consolidation of the assets and liabilities of either
of the Seller or Ford Credit Auto Receivables Two, Inc., the general partner of
the Seller (the "General Partner"), with those of Ford Credit. These steps
include the creation of the Seller as a separate, limited-purpose limited
partnership pursuant to a limited partnership agreement containing certain
limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law
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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 in a commercially reasonable manner on commercially reasonable
terms, unless the related Trustee shall have received written instructions from
(i) the Noteholders (other than the Seller) of each class of Notes of such
series representing not less than a majority of the aggregate unpaid principal
amount of such class of Notes and the right to receive interest thereon, (ii)
the Certificateholders (other than the Seller) of Certificates of such series
representing not less than a majority of the aggregate Certificate Balance of
all such Certificates and the right to receive interest thereon, (iii) not less
than a majority of the holders (other than the Seller) of certain interests, if
any, in the Reserve Account with respect to such Trust, (iv) not less than a
majority of the holders (other than the Seller) of Final Payment Securities, if
any, of such series and the right to receive interest thereon and (v) any other
person specified in the related Prospectus Supplement, to the effect that each
such party disapproves of the liquidation of such Receivables and termination of
such Trust and in connection therewith, the related Trustee (x) appoints an
entity acceptable to Ford Credit to acquire an interest in such Trust and to act
as a substitute "general partner" for federal income tax purposes and (y)
obtains an opinion of counsel as to certain tax matters. The proceeds from any
such sale, disposition or liquidation of Receivables will be treated as
collections on the Receivables and deposited in the Collection Account with
respect to such series. If the proceeds from the liquidation of the Receivables
and any amounts on deposit in the Reserve Account, the Note Payment Account, if
any, and the Certificate Distribution Account with respect to any such series
and any amounts available from any credit enhancement are not sufficient to pay
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any Notes and/or 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 Trust or the Receivables of a Trust.
However, in connection with the sale of Receivables by the Seller to a
Trust, the Seller will make representations and warranties with respect to the
characteristics of such Receivables and, in certain circumstances, the Seller
may be required to repurchase Receivables with respect to which such
representations and warranties have been breached. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables." In
addition, under certain circumstances, the Servicer may be required to purchase
Receivables. See "Description of the Transfer and Servicing Agreements --
Servicing Procedures." Moreover, if Ford Credit were to cease acting as
Servicer, delays in processing payments on the Receivables and information in
respect thereof could occur and result in delays in payments to the
Securityholders.
The related Prospectus Supplement may set forth certain additional
information regarding the Seller, the General Partner, Ford Credit and Ford. In
addition, Ford Credit and Ford are subject to the information requirements of
the Exchange Act and in accordance therewith file reports and other information
with the Commission. For further information regarding Ford Credit and Ford,
reference is made to such reports and other information, which are available as
described under "Available Information."
SUBORDINATION; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and/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 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 and, if and to the
extent available, amounts on deposit in the Pre-Funding Account (if any), the
Yield Supplement Account (if any), the Reserve Account (if any) and any other
credit or cash flow enhancement, all as specified in the related Prospectus
Supplement. Amounts to be deposited in any such Reserve Account with respect to
any Trust will be limited in amount, and the amount required to be on deposit in
such Reserve Account will be reduced as the Pool Balance is reduced. In
addition, funds in any such Reserve Account will be available on each
Distribution Date to cover shortfalls in distributions of interest and principal
on the related Securities. If any such Reserve Account is depleted, the related
Trust will depend solely on current payments on its Receivables to make payments
on the related Securities.
If so directed by the holders of the requisite percentage of outstanding
Notes of a series, following an acceleration of the Notes upon an Event of
Default the applicable Indenture Trustee may sell the Receivables 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
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- -- Events of Default; Rights upon Event of Default." However, there is no
assurance that the market value of such Receivables will at any time be equal to
or greater than the aggregate principal amount of such outstanding Notes.
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 or Pooling and Servicing Agreement as a result of breaches of
representations and warranties and, under certain circumstances, the Servicer
will be obligated to purchase Receivables pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of certain
covenants. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Receivables." Consistent with its normal servicing practices and
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with Obligors to extend or modify the terms of the related Receivables.
Some of such arrangements (including any extension beyond the Final Scheduled
Maturity Date set forth in the related Prospectus Supplement) 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 Trust will be borne entirely by the Securityholders of the
related series of Securities. See also "Description of the Transfer and
Servicing Agreements -- Termination" regarding the Servicer's option to purchase
the Receivables of a given Receivables Pool and "-- Insolvency Event or
Dissolution" regarding the sale of the Receivables owned by a Trust that is not
a grantor trust if an Insolvency Event or a dissolution with respect to the
Seller or the General Partner occurs.
RISK OF COMMINGLING
With respect to each 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
or Pooling and Servicing Agreement is satisfied, the Servicer may retain such
amounts until the business day preceding the applicable Distribution Date. The
Servicer or the Seller, as the case may be, will remit the aggregate Purchase
Amount of any Receivables to be purchased from a Trust to the related Collection
Account on or before the business day preceding the applicable Distribution
Date. Pending deposit into the Collection Account, collections may be employed
by the Servicer at its own risk and for its own benefit and will not be
segregated from its own funds. If the Servicer were unable to remit such funds,
the applicable Securityholders might incur a loss. To the extent set forth in
the related
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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."
THE TRUSTS
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. The property of each Trust with respect to a
series will include a pool (a "Receivables Pool") of motor vehicle retail
installment sale contracts (and, with respect to Final Payment Receivables (as
defined below), if any, the right to certain payments on retail installment sale
contracts) between dealers (the "Dealers") and purchasers (the "Obligors") of
new and used automobiles or light trucks and all payments due thereunder on or
after the applicable Cutoff Date (as such term is defined in the related
Prospectus Supplement, a "Cutoff Date") in the case of Precomputed Receivables
and all payments received thereunder on or after the applicable Cutoff Date in
the case of Simple Interest Receivables. The Receivables of each Receivables
Pool were or will be originated by the Dealers in accordance with Ford Credit's
requirements and purchased by Ford Credit pursuant to agreements with Dealers
("Dealer Agreements") for subsequent sale to the Seller. Pursuant to the Dealer
Agreements, the Dealers are obligated to repurchase from Ford Credit Receivables
which do not meet certain representations made by the Dealers, as well as those
covered by recourse plans ("Dealer Recourse"). The Receivables of each
Receivables Pool will continue to be serviced by the Servicer and evidence
indirect financing made available by the Seller to the Obligors.
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On the applicable Closing Date, the Seller will sell the Initial
Receivables of the applicable Receivables Pool to the Trust to the extent, if
any, specified in the related Prospectus Supplement. To the extent so provided
in the related Prospectus Supplement, Subsequent Receivables will be conveyed to
the Trust as frequently as daily during the Funding Period. Any Subsequent
Receivables so conveyed will also be assets of the applicable Trust subject to
the prior rights of the related Indenture Trustee and the Noteholders, if any,
therein. The property of each Trust with respect to a series 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. With 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 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 Trust and
may be held by the Trustee or an Indenture Trustee for the benefit of holders of
the related Securities. Additionally, pursuant to contracts between the Servicer
and the Dealers, the Dealers have an obligation after origination to repurchase
Receivables as to which Dealers have made certain misrepresentations.
The Servicer will continue to service the Receivables held by each Trust
and will receive fees for such services. See "Description of the Transfer and
Servicing Agreements -- Servicing Compensation and Expenses" herein and in the
related Prospectus Supplement. To facilitate servicing and to minimize
administrative burden and expense the Servicer will retain physical possession
of the Receivables held by each Trust and documents relating thereto as
custodian for each such Trust. Due to the administrative burden and expense, the
certificates of title to the Financed Vehicles will not be amended to reflect
the assignment of the security interest in the Financed Vehicles to each Trust.
In the absence of such amendment, any Trust may not have a perfected security
interest in the Financed Vehicles in all states. See "Certain Legal Aspects of
the Receivables Security Interests in Vehicles." Neither the Trustee nor any
Indenture Trustee will be responsible for the legality, validity, or
enforceability of any security interest in any Financed Vehicle. See "Certain
Legal Aspects of the Receivables" and "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables."
If the protection provided to any Noteholders of a given series by the
subordination of the related Certificates and by the Reserve Account, if any, or
other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, would
have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such circumstances, certain factors, such as the
applicable Trust 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,
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and thus may reduce the proceeds to be distributed to the holders of the
Securities of such series. See "Description of the Transfer and Servicing
Agreements -- Distributions," "-- Credit and Cash Flow Enhancement" and "Certain
Legal Aspects of the Receivables."
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement, the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable. A Trustee may
resign at any time, in which event the Servicer, or its successor, will be
obligated to appoint a successor trustee. The Administrator in respect of a
Trust that is not a grantor trust and the Servicer in respect of a Trust that is
a grantor trust may also remove the Trustee if the Trustee ceases to be eligible
to continue as Trustee under the related Trust Agreement or Pooling and
Servicing Agreement, as applicable, or if the Trustee becomes insolvent. In such
circumstances, the Administrator or the Servicer, as the case may be, will be
obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool have been or will be purchased by
Ford Credit in the ordinary course of business in accordance with Ford Credit's
underwriting standards, which emphasize the Obligor's ability to pay and
creditworthiness, as well as the asset value of the Financed Vehicle. Ford
Credit generally does not finance more than 100% of the purchase price of a
vehicle plus related amounts financed in connection therewith, if any (such as
taxes, insurance, etc.), which amount generally is less than or equal to the
manufacturer's suggested retail price ("MSRP") of a new vehicle or published
prices for used vehicles. New vehicles generally can be purchased at a discount
from MSRP.
The Receivables to be held by each Trust will be selected from the Seller's
portfolio for inclusion in a Receivables Pool by several criteria, including
that each Receivable (i) is secured by a new or used vehicle, (ii) was
originated in the United States, (iii) provides for level monthly payments
(except for the last payment, which may be minimally different from the level
payments or which, in the case of Final Payment Receivables, may be a larger
final scheduled payment) that fully amortize the amount financed over its
original term to maturity, (iv) is a Precomputed Receivable or a Simple Interest
Receivable (either of which may be a Final Payment Receivable) and (v) satisfies
the other criteria, if any, set forth in the related Prospectus Supplement. No
selection procedures believed by the Seller to be adverse to the Noteholders or
the Certificateholders of any series were or will be used in selecting the
related Receivables. All terms of the retail installment sale contracts
constituting such Receivables which are material to investors are described
herein and in the related Prospectus Supplement.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the APR of
the loan multiplied by the unpaid principal balance of the loan, and an amount
of principal equal to the remainder of the monthly installment. A Rule of 78's
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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 receivable multiplied by the stated APR and further multiplied by the
period elapsed (as a fraction of a calendar year) since the preceding payment of
interest was made. As payments are received under a Simple Interest Receivable,
the amount received is applied first to interest accrued to the date of payment
and the balance is applied to reduce the unpaid principal balance. Accordingly,
if an obligor pays a fixed monthly installment before its scheduled due date,
the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. Conversely, if an
obligor pays a fixed monthly installment after its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be greater than it would have been had the payment been
made as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In either case, the obligor pays
a fixed monthly installment until the final scheduled payment date, at which
time the amount of the final installment is increased or decreased as necessary
to repay the then outstanding principal balance.
"Final Payment Receivables" are monthly payment receivables secured by new
or used automobiles or light trucks with a final scheduled payment which is
greater than the scheduled monthly payments. A Final Payment Receivable provides
for amortization of the loan over a series of fixed level payment monthly
installments like an Actuarial Receivable or a Simple Interest Receivable, but
also requires a final scheduled payment due after payment of such monthly
installments which may be satisfied by (i) payment in full in cash of such
amount, (ii) transfer of the vehicle to Ford Credit provided certain conditions
are satisfied or (iii) refinancing the final scheduled payment in accordance
with certain conditions. With respect to Final Payment Receivables, if so
provided in the related Prospectus Supplement, only the principal and interest
payments due prior to the final scheduled payment and not the final scheduled
payment will be included in such Trust; the final scheduled payment will be
retained by the Seller. However, in the case of a Trust that is not a grantor
trust, the Seller will have the option to transfer the final scheduled payments
with respect to the related Final Payment Receivables retained by the Seller to
such Trust and to cause such Trust to issue certificates representing interests
in such final scheduled payments or indebtedness secured by such final scheduled
payments.
If so specified in the related Prospectus Supplement, some of the
Receivables to be included in a Receivables Pool may provide for recourse to the
Dealer which originated the Receivable. Dealers are generally obligated under
these recourse plans for payment of the unpaid principal balance of a defaulted
contract, unless Ford Credit fails to repossess the vehicle and deliver it to
the Dealer within 90 days after default. The Dealer's obligation generally
terminates after the first 24 monthly payments are made under the related
contract.
In the event of the prepayment in full (voluntarily or by acceleration) of
a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If an Actuarial Receivable is prepaid in full, with minor variations based upon
state law, the Actuarial Receivable requires that the rebate be calculated on
the basis of a constant interest rate. If a Simple
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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 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 Trust 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 Trust pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement as a result of breaches of representations and
warranties and the Servicer will be obligated to purchase Receivables from such
Trust pursuant to such Sale and Servicing Agreement or Pooling and Servicing
Agreement as a result of breaches of certain covenants. Consistent with its
normal servicing practices and procedures, the Servicer may, in its discretion
and on a case-by-case basis, arrange with Obligors to extend or modify the terms
of the related Receivables. Some of such arrangements (including any extension
beyond the Final Scheduled Maturity Date set forth in the related Prospectus
Supplement) 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
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Procedures." See also "Description of the Transfer and Servicing
Agreements -- Termination" regarding the Servicer's option to purchase the
Receivables from a Trust and "-- Insolvency Event or Dissolution" regarding the
sale of the Receivables owned by a Trust that is not a grantor trust if an
Insolvency Event or a dissolution with respect to the Seller or the General
Partner occurs.
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) to the purchase of the Receivables from the
Seller, (ii) to the deposit of the Pre-Funded Amount into the Pre-Funding
Account, if any, and (iii) to make the initial deposit into the Reserve Account,
if any. The Seller will use that portion of such net proceeds paid to it with
respect to any such Trust to purchase the related Receivables from Ford Credit.
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The net proceeds from the sale of any Securities purchased from the Seller
by Ford Credit or another affiliate of the Seller will be for the account of
Ford Credit or such affiliate. The Seller will not receive any of such proceeds.
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.
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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. 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 also conducts insurance operations through the
American Road Insurance Company and its subsidiaries ("American Road") in the
United States and Canada. American Road's business consists 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.
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YEAR 2000 CONVERSION
An issue affecting Ford Credit and others is the inability of many computer
systems and applications to process the year 2000 and beyond ("Y2K"). To address
this problem, in 1996, Ford Credit initiated a global Y2K program to manage Ford
Credit's overall Y2K compliance effort. As part of this program, Ford Credit
established a global Y2K Program Office to coordinate Ford Credit's compliance
efforts. Ford Credit participates closely with Ford's Y2K Central Program Office
and the Ford Y2K Steering Committee. Ford's Y2K program has been certified by
the Information Technology Association of America as meeting its Y2K best
practices standards.
STATE OF READINESS
Ford Credit has identified the following six distinct areas for its Y2K
compliance efforts:
Business Computer Systems: These include computer systems and applications
relating to operations such as retail and lease financing, commercial lending,
customer account processing, collections, insurance operations, treasury, and
financial reporting. A compliance plan has been developed for each business
system, with particular attention given to critical systems. Critical business
systems are being verified independently for compliance.
External Alliances (Banks, Credit Bureaus, Trustees, Underwriters,
Financial Institutions): Ford Credit has deployed, in conjunction with an
industry trade association (the Automotive Industry Action Group), a process to
pursue a common Y2K compliance approach with the financial institutions in North
America. Similar actions are underway in Europe and the rest of the world.
Follow-up actions to explore the Y2K preparedness and plan integration testing
are being conducted with each highly critical financial institution.
Affiliates: All affiliates have developed plans to address Y2K compliance
and Ford Credit is monitoring their progress.
End-User Computing: Ford Credit's plan to ensure Y2K compliance of desktop
computers throughout the company includes the replacement or repair of all
non-compliant computers and related software.
Technical Infrastructure: All critical infrastructure hardware has been
inventoried and assessed. Ford's dedicated test facility will be used to test
selected critical systems infrastructure.
Physical Properties and Infrastructures: Ford Credit, in conjunction with
Ford, is assessing the Y2K compliance of its significant building systems,
including energy and security systems. Actions are being taken to determine
energy and other utility supplier preparedness.
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Set forth below is a timetable showing Ford Credit's internal target dates
for compliance and the present status of compliance (at September 30, 1998) for
each of the areas mentioned above. Ford Credit has established these target
dates well before December 31, 1999 to allow sufficient time to perform
enterprise-wide testing and further validation of Ford Credit's Y2K compliance.
Present status as of September 30, 1998:
<TABLE>
<CAPTION>
Y2K PROGRAM TIMING
--------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C>
Critical Business Computer Systems............. -- Plan: 100% compliant by 12/98 --
Present Status: 75%
Critical External Alliances.................... -- Plan: 100% ready* by 6/99 --
Present Status: 95%
Affiliates..................................... -- Plan: 100% ready* by 6/99 --
Present Status: 100%
Critical End-User Computing.................... -- Plan: 100% compliant by 6/99 --
Present Status: 60%
Technical Infrastructure....................... -- Plan: 100% compliant by 6/99 --
Present Status: 50%
Physical Properties and Infrastructure......... -- Plan: 100% ready* by 6/99 --
Present Status: 70%
</TABLE>
- -------------------------
* "Ready" means having a comprehensive Y2K program in place and a plan that will
achieve compliance before January 1, 2000.
Y2K COSTS
Ford Credit is sharing many of Ford's Y2K compliance tools. Ford Credit
estimates that its incremental costs will be about $20 million for Y2K
compliance efforts. This amount will be incurred over a three-year period that
commenced mid-1997 and will end mid-2000. Y2K compliance costs incurred through
September 30, 1998 are estimated at $12 million. Ford Credit's annual Y2K costs
relating to information technology have represented and are expected in the
future to represent less than 10% of Ford Credit's annual information technology
budget.
Y2K RISKS
The most reasonably likely worst case scenario for Ford Credit with respect
to the Y2K problem is the failure of an external alliance, particularly another
financial institution or energy supplier to that financial institution, to be
Y2K compliant. This could result in Ford Credit not being able to conduct
financial transfers such as payment of debt, selling commercial paper, or
collecting receivables, which in turn could result in lost revenue.
Y2K CONTINGENCY PLANS
Ford Credit has established a Y2K business resumption planning committee to
evaluate business disruption scenarios, coordinate the establishment of Y2K
contingency plans, and identify and implement preemptive strategies. Detailed
contingency plans for critical business processes will be developed by March
1999. In addition, Ford Credit is participating with the Ford business
resumption steering committee.
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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 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
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
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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 installment of principal of or interest on
any such Note or reduce the principal amount thereof, the interest rate thereon
or the redemption price with respect thereto or change any place of payment
where, or the coin or currency in which, any such Note or any interest thereon
is payable; (ii) impair the right to institute suit for the enforcement of
certain provisions of the related Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such series, the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Indenture Trustee to sell or liquidate the Receivables, if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such series; (vi)
decrease the percentage of the aggregate principal amount of such Notes required
to amend the sections of the related Indenture which specify the applicable
percentage of aggregate principal amount of the Notes of such series necessary
to amend such Indenture or certain other related agreements; or (vii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
related Indenture with respect to any of the collateral for such Notes or,
except as otherwise permitted or contemplated in
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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.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding. Any such rescission could be treated, for
federal income tax purposes, as a constructive exchange of such Notes by the
related Noteholders for deemed new Notes upon which gain or loss would be
recognized.
If the Notes of any series have been declared due and payable following an
Event of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust property,
exercise remedies as a secured party, sell the related Receivables or elect to
have the applicable Trust maintain possession of such Receivables and continue
to apply collections on such Receivables as if there had been no declaration of
acceleration. However, such Indenture Trustee is prohibited from selling the
related Receivables following an Event of Default, other than a default in the
payment of any principal of or a default for five days or more in the payment of
any interest on any Note of such series, unless (i) the holders of all
outstanding Notes of such series consent to such sale, (ii) the proceeds of such
sale are sufficient to pay in full the principal of and the accrued interest on
the outstanding Notes of such series at the date of such sale or (iii) such
Indenture Trustee determines that the proceeds of Receivables would not be
sufficient on an ongoing basis to make all payments on the Notes of such series
as such payments would have become due if such obligations had not been declared
due and payable, and such Indenture
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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.
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.
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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 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
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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, 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
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related Receivables 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 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
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(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.
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
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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 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
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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.
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
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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 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.
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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
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
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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.
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
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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.
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
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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
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
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applicable, and each such statement to be delivered to Certificateholders will
include (to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the
Certificates of such series with respect to such Distribution Date or the period
since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such series;
(iii) the amount of the distribution allocable to draws from the
Reserve Account (if any), the Yield Supplement Deposit Amount (if any) (as
defined in the related Prospectus Supplement) or payments in respect of any
other credit or cash flow enhancement arrangement;
(iv) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(v) the aggregate outstanding principal amount and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period or Collection Periods, as the case may be;
(vii) the amount of the aggregate Realized Losses (as defined in the
related Prospectus Supplement), if any, for such Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the related Prospectus Supplement), if any, in each case as
applicable to each class of Securities, and the change in such amounts from
the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that were
repurchased in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date, after
giving effect to changes therein on such date;
(xi) the balance of the Yield Supplement Account (if any) on such
date, after giving effect to changes therein on such date;
(xii) the amount of Advances on such date;
(xiii) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xiv) for the first such date that is on or immediately following the
end of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities of such series; and
(xv) the amount of any cumulative shortfall between payments due in
respect of any credit or cash flow enhancement arrangement and payments
received in respect of such credit or cash flow enhancement arrangement,
and the change in any such shortfall from the preceding statement.
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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) 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 and (ii) each Trust Agreement (in the case of a grantor trust,
the Pooling and Servicing Agreement) pursuant to which a Trust will be created
and Certificates will be issued and each Administration Agreement pursuant to
which Ford Credit will undertake certain administrative duties with respect to a
Trust that issues Notes (collectively, the "Transfer and Servicing Agreements").
Forms of the Transfer and Servicing Agreements have been filed as exhibits to
the Registration Statement of which this Prospectus forms a part. This summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
Sale and Assignment by Ford Credit. Prior to the time of issuance of the
Securities of a 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. 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.
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 Trust will
specify whether, and the terms, conditions and manner under which, Subsequent
Receivables will be sold by the Seller to the applicable Trust from time to time
during any Funding Period on each date specified as a transfer date in the
related Prospectus Supplement (each, a "Subsequent Transfer Date").
The proceeds from the Receivables purchased by the Trust from the Seller
and by the Seller from Ford Credit may be more or less than the aggregate
principal balance thereof. If any Receivables are purchased for a purchase price
less than their respective principal balances, a portion of the collections or
proceeds in respect of principal from such Receivables may be deemed collections
or proceeds in respect of interest on such Receivables for the purposes of
making payments on the Securities.
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In each Purchase Agreement, Ford Credit will represent and warrant to the
Seller, and in each Sale and Servicing Agreement or Pooling and Servicing
Agreement the Seller will represent and warrant to the applicable Trust among
other things, that (i) the information provided with respect to the related
Receivables is correct in all material respects; (ii) the Obligor on each
related Receivable has obtained or agreed to obtain physical damage insurance in
accordance with Ford Credit's normal requirements; (iii) at the date of issuance
of the related Notes and/or Certificates or at the applicable Subsequent
Transfer Date, if any, the related Receivables are free and clear of all
security interests, liens, charges, and encumbrances (such representation and
warranty will be made to the best of its knowledge with respect to mechanic's
liens and the like relating to each Financed Vehicle) and no setoffs, defenses,
or counterclaims against it have been asserted or threatened; (iv) at the date
of issuance of the related Notes and/or Certificates or at the applicable
Subsequent Transfer Date, if any, each of the related Receivables is or will be
secured by a first perfected security interest in the Financed Vehicle in favor
of Ford Credit; and (v) each related Receivable, at the time it was originated,
complied, and at the date of issuance of the related Notes and/or Certificates
or at the applicable Subsequent Transfer Date, if any, complies in all material
respects with applicable federal and state laws, including consumer credit,
truth in lending, equal credit opportunity, and disclosure laws.
As of the last day of the second (or, if the Seller elects, the first)
month following the discovery by or notice to the Seller of a breach of any
representation or warranty of the Seller which materially and adversely affects
the interests of the related Trust in any Receivable, the Seller, unless it
cures the breach, will purchase such Receivable from such Trust and Ford Credit
will purchase such Receivable from the Seller, at a price equal to the amount
required to be paid by the related Obligor to prepay such Receivable (including
one month's interest thereon, in the month of payment, at the APR), after giving
effect to the receipt of any monies collected (from whatever source) on such
Receivable, if any (such price, the "Purchase Amount"). The purchase obligation
will constitute the sole remedy available to the Certificateholders or the
Trustee and any Noteholders or Indenture Trustee in respect of the related
series for any such uncured breach.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Servicer will service and administer the Receivables held by each
Trust and, as custodian on behalf of such Trust, will maintain possession as the
Trustee's agent of the retail installment sale contracts 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 Trust so long as Ford Credit is
servicing the related Receivables. However, Uniform Commercial Code financing
statements reflecting the sale and assignment of such Receivables by Ford Credit
to the Seller and by the Seller to such Trust, will be filed, and the Servicer's
accounting records and computer systems will be marked to reflect such sale and
assignment. Because such Receivables will remain in the Servicer's possession
and will not be stamped or otherwise marked to reflect the assignment to such
Trust if a subsequent purchaser were to obtain physical possession of such
Receivables without knowledge of the assignment, the Trust's interest in the
Receivables could be defeated. See "Certain Legal Aspects of the
Receivables -- Security Interests in Vehicles."
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
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 and any
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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 into which, to the
extent required by the Sale and Servicing Agreement, early payments by or on
behalf of Obligors on Precomputed Receivables which do not constitute scheduled
payments, full prepayments, nor certain partial prepayments that result in a
reduction of the Obligor's periodic payment below the scheduled payment as of
the applicable Cutoff Date ("Payaheads") will be deposited until such time as
the payment falls due. Until such time as payments are transferred from the
Payahead Account to the Collection Account, they will not constitute collected
interest or collected principal 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 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 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 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
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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 and will continue such collection
procedures as it follows with respect to its own automotive retail installment
sale contracts, in a manner consistent with the related Sale and Servicing
Agreement or Pooling and Servicing Agreement. Consistent with its normal
procedures, the Servicer may, in its discretion, arrange with the Obligor on a
Receivable to defer or modify the payment schedule. Some of such arrangements
may cause the Servicer to purchase the Receivable while others may result in the
Servicer making Advances with respect to 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 to the related Collection
Account on or prior to the business day preceding the applicable Distribution
Date. Pending deposit into the Collection Account, collections may be employed
by the Servicer at its own risk and for its own benefit and will not be
segregated from its own funds. To the extent set forth in the related Prospectus
Supplement, the Servicer may, in order to satisfy the requirements described
above, obtain a letter of credit or
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other security for the benefit of the related Trust to secure timely remittances
of collections 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, generally the Servicer will advance the
amount of such interest. The Servicer will not be entitled to recoup any such
advance.
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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. 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 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 to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a given series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such series
may be subordinate to payments in respect of Notes, if any, of such series or
other classes of Certificates of such series.
Allocation of Collections on Receivables. Distributions of principal on the
Securities of a series may be based on the amount of principal collected or due,
or the amount of Realized Losses incurred, in a Collection Period. On the
Business Day immediately preceding each Distribution Date (a "Determination
Date"), the Indenture Trustee, if any, or, otherwise, the Trustee shall
determine the amount in the Collection Account available 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
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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.
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 or Pooling and Servicing
Agreement, the Seller will establish for a series or class of Securities an
account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. If so provided in the related Prospectus Supplement, the
Reserve Account will be funded by an initial deposit by the Seller on the
Closing Date in the amount set forth in the related Prospectus Supplement and,
if the related series has a Funding Period, will also be funded on each
Subsequent Transfer Date to the extent described in the related Prospectus
Supplement. As further described in the related Prospectus Supplement, the
amount on deposit in the Reserve Account will be increased on each Distribution
Date thereafter up to the Specified Reserve Balance (as defined in the related
Prospectus Supplement) by the deposit therein of the amount of collections on
the related Receivables remaining on each such Distribution Date after the
payment of all other required payments and distributions on such date. The
related Prospectus Supplement will describe the circumstances and manner under
which distributions may be made out of the Reserve Account, either to holders of
the Securities covered thereby or to the Seller.
The Seller may at any time, without consent of the Securityholders, sell,
transfer, convey or assign in any manner its rights to and interests in
distributions from the Reserve Account provided
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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 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 and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and Indenture Trustee or Trustee,
as applicable, substantially simultaneously with the delivery of such
accountants' statement referred to above, of a certificate signed by an officer
of the Servicer stating that the Servicer has fulfilled its obligations under
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (or, in the case of the first
such certificate, from the Closing Date) or, if there has been a default in the
fulfillment of any such obligation, describing each such default. The Servicer
has agreed to give each Indenture Trustee and each Trustee notice of certain
Events of Servicing Termination under the related Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that Ford Credit may not resign from its obligations and duties as
Servicer thereunder, except upon
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determination that Ford Credit's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the related Indenture Trustee or Trustee, as applicable, or a successor
servicer has assumed Ford Credit's servicing obligations and duties under such
Sale and Servicing Agreement or Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Sale and Servicing Agreement
or Pooling and Servicing Agreement or for errors in judgment; except that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of the Servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder. In addition,
each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer is under no obligation to appear in, prosecute or
defend any legal action that is not incidental to the Servicer's servicing
responsibilities under such Sale and Servicing Agreement or Pooling and
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability. The Servicer may, however, undertake any reasonable action that it
may deem necessary or desirable in respect of a particular Sale and Servicing
Agreement or Pooling and Servicing Agreement, the rights and duties of the
parties thereto, and the interests of the related Securityholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs, and liabilities of the Servicer,
and the Servicer will not be entitled to be reimbursed therefor.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the business of
the Servicer or, with respect to its obligations as Servicer, any corporation
50% or more of the voting stock of which is owned, directly or indirectly, by
Ford, which corporation or other entity in each of the foregoing cases assumes
the obligations of the Servicer, will be the successor of the Servicer under
such Sale and Servicing Agreement or Pooling and Servicing Agreement. For as
long as Ford Credit is the Servicer, it may at any time subcontract
substantially all of its duties as servicer under a particular Sale and
Servicing Agreement or Pooling and Servicing Agreement to any corporation more
than 50% of the voting stock of which is owned, directly or indirectly, by Ford
and the Servicer may at any time perform certain specific duties as servicer
through other subcontractors.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" under each Sale and Servicing Agreement
and Pooling and Servicing Agreement will consist of (i) any failure by the
Servicer or the Seller, as the case may be, to deliver to the Applicable Trustee
for distribution to the Securityholders of the related series or for deposit in
any of the Trust Accounts or the Certificate Distribution Account any required
payment, which failure continues unremedied for three business days after
written notice from the Applicable Trustee is received by the Servicer or the
Seller, as the case may be, or after discovery by an officer of the Servicer or
the Seller, as the case may be; (ii) any failure by the Servicer or the Seller,
as the case may be, duly to observe or perform in any material respect any other
covenant or agreement in such Sale and Servicing Agreement or Pooling and
Servicing Agreement, which failure materially and adversely affects the rights
of the Noteholders or the Certificateholders of the related series and which
continues unremedied for 90 days after the giving of written notice of such
failure (A) to the Servicer or the Seller, as the case may be, by the Applicable
Trustee or (B) to the Servicer or the Seller, as the case may be, and to the
Applicable Trustee by holders of Notes or Certificates of such series, as
applicable, evidencing not less than 25% in principal amount of such outstanding
Notes or of such Certificate Balance; (iii) the occurrence of an Insolvency
Event with respect to the Servicer or the Seller; and (iv) such other events, if
any, set forth in the related Prospectus Supplement.
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"Insolvency Event" means, with respect to any entity, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such entity and certain actions by such entity indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON EVENT OF SERVICING TERMINATION
In the case of any Trust that has issued Notes, as long as an Event of
Servicing Termination under a Sale and Servicing Agreement remains unremedied,
the related Indenture Trustee or holders of Notes of the related series
evidencing not less than a majority of the principal amount of such Notes then
outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement, whereupon such Indenture Trustee or a
successor servicer appointed by such Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Sale and
Servicing Agreement and will be entitled to similar compensation arrangements.
In the case of any Trust that has not issued Notes, as long as an Event of
Servicing Termination under the related Sale and Servicing Agreement or Pooling
and Servicing Agreement remains unremedied, the related Trustee or holders of
Certificates of the related series evidencing not less than a majority of the
Certificate Balance of such Certificates then outstanding may terminate all the
rights and obligations of the Servicer under such Sale and Servicing Agreement
or Pooling and Servicing Agreement, whereupon such Trustee or a successor
servicer appointed by such Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Sale and Servicing Agreement
or Pooling and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Event of Servicing Termination other than
such appointment has occurred, such trustee or official may have the power to
prevent such Indenture Trustee, such Noteholders, such Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $100,000,000 and whose regular business
includes the servicing of motor vehicle receivables. Such Indenture Trustee or
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation to the Servicer under such
Sale and Servicing Agreement or Pooling and Servicing Agreement.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
With respect to each Trust that has issued Notes, the holders of Notes
evidencing not less than a majority of the principal amount of the then
outstanding Notes of the related series (or the holders of the Certificates of
such series evidencing not less than a majority of the outstanding Certificate
Balance, in the case of any Event of Servicing Termination which does not
adversely affect the related Indenture Trustee or such Noteholders) may, on
behalf of all such Noteholders and Certificateholders, waive any Event of
Servicing Termination under the related Sale and Servicing Agreement and its
consequences, except an Event of Servicing Termination consisting of a failure
to make any required deposits to or payments from any of the Trust Accounts or
to the Certificate Distribution Account in accordance with such Sale and
Servicing Agreement. With respect to each Trust that has not issued Notes,
holders of Certificates of such series evidencing not less than a majority of
the Certificate Balance of such Certificates then outstanding may, on behalf of
all such Certificateholders, waive any Event of Servicing Termination under the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, except
an Event of Servicing Termination consisting of a failure to make any required
deposits to or payments from the Certificate Distribution Account or the related
Trust Accounts in accordance with such Sale and Servicing Agreement or Pooling
and Servicing Agreement. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
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AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder and
provided that an opinion of counsel as to certain tax matters is delivered if
required. The Transfer and Servicing Agreements may also be amended by the
Seller, the Servicer, the related Trustee and any related Indenture Trustee with
the consent of the holders of Notes evidencing not less than a majority in
principal amount of the then outstanding Notes, if any, of the related series
and the holders of the Certificates of such series evidencing not less than a
majority of the Certificate Balance of such Certificates then outstanding, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements or of modifying
in any manner the rights of such Noteholders or Certificateholders; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related Receivables or distributions that are required to be made for the
benefit of such Noteholders or Certificateholders or change any Note Interest
Rate or Certificate Rate or the amount required to be on deposit in the Reserve
Account, if any, or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series; and provided that an opinion of counsel as
to certain tax matters is delivered if required.
INSOLVENCY EVENT OR DISSOLUTION
With respect to a Trust that is not a grantor trust, if an Insolvency Event
or a dissolution occurs with respect to the Seller or the General Partner, the
related Receivables will be liquidated and the Trust will be terminated 90 days
after the date of such Insolvency Event or dissolution, unless, before the end
of such 90-day period, the related Trustee shall have received written
instructions from (i) the Noteholders (other than the Seller) of each class of
Notes of such series representing not less than a majority of the aggregate
unpaid principal amount of such class of Notes and the right to receive interest
thereon, (ii) the Certificateholders (other than the Seller) of Certificates of
such series representing not less than a majority of the aggregate Certificate
Balance of all such Certificates and the right to receive interest thereon,
(iii) not less than a majority of the holders (other than the Seller) of certain
interests, if any, in the Reserve Account with respect to such Trust, (iv) not
less than a majority of the holders (other than the Seller) of certificates
representing interests in, or indebtedness secured by, final scheduled payments
with respect to the Final Payment Receivables, if any, initially retained by the
Seller and subsequently added to such Trust (such certificates or indebtedness
being referred to herein as "Final Payment Securities") and the right to receive
interest thereon and (v) any other person specified in the related Prospectus
Supplement, to the effect that each such party disapproves of the liquidation of
such Receivables and termination of such Trust and in connection therewith, the
related Trustee (x) appoints an entity acceptable to Ford Credit to acquire an
interest in such Trust and to act as a substitute "general partner' for federal
income tax purposes and (y) obtains an opinion of counsel that each of such
Trust will thereafter not be classified as an association taxable as a
corporation for federal income tax and applicable state tax purposes. Promptly
after the occurrence of an Insolvency Event or a dissolution with respect to the
Seller or the General Partner, notice thereof is required to be given to such
Noteholders, Certificateholders, holders of interests in the Reserve Account,
holders of Final Payment Securities and any such other person; provided that any
failure to give such required notice will not prevent or delay termination of
such Trust. Upon termination of any Trust, the related Trustee shall, or shall
direct the related Indenture Trustee to, promptly sell the assets of such Trust
(other than the Trust Accounts and the Certificate Distribution Account) in a
commercially
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reasonable manner and on commercially reasonable terms. The proceeds from any
such sale, disposition or liquidation of the Receivables of such Trust will be
treated as collections on such Receivables and deposited in the related
Collection Account. With respect to any series, if the proceeds from the
liquidation of the related Receivables and any amounts on deposit in the Reserve
Account (if any), the Payahead Account (if any), the Note Payment Account (if
any) and the Certificate Distribution Account are not sufficient to pay the
Notes, if any, and the Certificates of 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 will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Seller, the Servicer or their affiliates) of such Trust and the
delivery to such Trustee by each such Certificateholder (including the Seller,
the Servicer or their affiliates) of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such series will succeed to all the rights of the Noteholders of such series,
under the related Sale and Servicing Agreement, except as otherwise provided
therein.
SELLER LIABILITY
Under each Trust Agreement, the Seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to such Trust) arising out of or based
on the arrangement created by such Trust Agreement as though such arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which the Seller was a general partner.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Seller,
the related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables, (ii)
the payment to Noteholders, if any, and Certificateholders of the related series
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iii) the occurrence of either event described below.
In order to avoid excessive administrative expense, the Servicer will be
permitted at its option to purchase from each Trust as of the end of any
applicable Collection Period, if the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 10% or less of the Initial Pool Balance
(as defined in the related Prospectus Supplement, the "Initial Pool Balance"),
all remaining related Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of the end of such Collection Period.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date as of which the Pool Balance is equal to or less than the
percentage of the Initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If the Applicable Trustee receives satisfactory bids as
described in such Prospectus Supplement, then the Receivables remaining in such
Trust will be sold to the highest bidder.
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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.
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. 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. However, because of the administrative burden and expense, the
Servicer, the Seller and the Trust will not amend any certificate of title to
identify the Trust as the new secured party on the certificates of title
relating to the Financed Vehicles. Also, the Servicer will continue to hold any
certificates of title relating to the Financed Vehicles in its possession as
custodian for the Trust pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables."
In most states, assignments such as those under the Purchase Agreement and
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, relating to each Trust together with a perfected security interest
in the chattel paper are an effective conveyance of a security interest in the
vehicles subject to the chattel paper without amendment of any lien noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. In the absence of fraud or forgery by the
vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of Ford Credit's lien on the certificates of title will
be sufficient to protect such Trust against the rights of subsequent purchasers
of a Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which Ford Credit
failed to obtain a perfected security interest, its security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles and
holders of perfected security interests. Such a failure would constitute a
breach of Ford Credit's
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warranties under the related Purchase Agreement and of the Seller's warranties
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and would create an obligation of Ford Credit under
such Purchase Agreement and of the Seller under such Sale and Servicing
Agreement or Pooling and Servicing Agreement to purchase the related Receivable
unless the breach is cured. See "Description of the Transfer and Servicing
Agreements Sale and Assignment of Receivables." By not identifying the Trust as
the secured party on the certificate of title, the Trust's interest in the
chattel paper may not have the benefit of the security interest in the Financed
Vehicle in all states or such security interest could be defeated through fraud
or negligence. The Seller will assign its rights under each Purchase Agreement
to the related Trust.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle;
accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle, or, in the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing receivables, Ford Credit
takes steps to effect re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly, when an obligor sells
a vehicle, Ford Credit must surrender possession of the certificate of title or
will receive notice as a result of its lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related receivable before
release of the lien. Under each Sale and Servicing Agreement or Pooling and
Servicing Agreement, the Servicer will be obligated to take appropriate steps,
at the Servicer's expense, to maintain perfection of security interests in the
Financed Vehicles.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Financed Vehicle. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the lien of a
secured party. Federal law and the laws of certain states permit the
confiscation of motor vehicles under certain circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in the confiscated motor vehicle. With respect to each Trust, Ford
Credit will represent to the Seller and the Seller will represent to the Trust
that each security interest in a Financed Vehicle is or will be prior to all
other present liens (other than tax liens and liens that arise by operation of
law) upon and security interests in such Financed Vehicle. However, liens for
repairs or taxes, or the confiscation of a Financed Vehicle, could arise or
occur at any time during the term of a Receivable. No notice will be given to
the applicable Trustee or Certificateholders and any Indenture Trustee or
Noteholders, if any, in the event such a lien arises or confiscation occurs.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is the method employed by Ford Credit in the
majority of instances in which a default occurs and is accomplished simply by
retaking possession of the financed vehicle. In cases where the obligor objects
or raises a defense to repossession, or if otherwise required by applicable
state law, a court order must be obtained from the appropriate state court, and
the vehicle must then be repossessed in accordance with that order.
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NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which the
obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding, and preparing the collateral for disposition
and arranging for this sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance. Repossessed vehicles are generally resold by Ford Credit through
automobile auctions which are attended principally by dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the obligor on the receivable. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments.
However, the deficiency judgment would be a personal judgment against the
obligor for the shortfall, and a defaulting obligor can be expected to have very
little capital or sources of income available following repossession. Therefore,
in many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of any lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former obligor.
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.
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Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts paid by the Obligor on the Receivable.
Under most state motor vehicle dealer licensing laws, sellers of motor vehicles
are required to be licensed to sell motor vehicles at retail sale. Furthermore,
Federal Odometer Regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of new and used vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed or if an Odometer Disclosure
Statement was not provided to the purchaser of the related financed vehicle, the
obligor may be able to assert a defense against the seller of the vehicle. If an
Obligor were successful in asserting any such claim or defense, such claim or
defense would constitute a breach of Ford Credit's and the Seller's
representations and warranties under the related Purchase Agreement and the
related Sale and Servicing Agreement or Pooling and Servicing Agreement,
respectively, and would create an obligation of Ford Credit and the Seller to
repurchase the Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of the Receivables."
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
Ford Credit and the Seller will warrant under each Purchase Agreement and
the applicable Sale and Servicing Agreement or Pooling and Servicing Agreement,
respectively, that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against a Trust for
violation of any law and such claim materially and adversely affects such
Trust's interest in a Receivable, such violation would constitute a breach of
warranty under the related Purchase Agreement and the related Sale and Servicing
Agreement or Pooling and Servicing Agreement and would create an obligation of
Ford Credit and the Seller to repurchase the Receivable unless the breach is
cured. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The Receivables prohibit the sale or transfer of the vehicle securing a
Receivable without Ford Credit's consent and, except those originated in Ohio
and Wisconsin, permit Ford Credit to accelerate the maturity of the Receivable
upon a sale or transfer without its consent. The Servicer
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does not intend to consent to any sale or transfer and intends to require
prepayment of the Receivable. The Servicer may enter into a transfer of equity
agreement with the secondary purchaser for the purpose of effecting the transfer
of the Financed Vehicle.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a series. The summary does not purport to deal with federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of Noteholders or Certificateholders that are insurance companies,
regulated investment companies or dealers in securities. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt instruments and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. Prospective investors
are urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase, ownership
and disposition of the Notes and the Certificates of any series.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of special federal tax counsel to each Trust specified in the
related Prospectus Supplement ("Special Tax Counsel"), regarding certain federal
income tax matters discussed below. An opinion of Special Tax Counsel, however,
is not binding on the IRS or the courts. No ruling on any of the issues
discussed below will be sought from the IRS. For purposes of the following
summary, references to the Trust, the Notes, the Certificates and related terms,
parties and documents shall be deemed to refer, unless otherwise specified
herein, to each Trust and the Notes, Certificates and related terms, parties and
documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust is intended to be treated as a partnership under
the Code or whether the Trust will be treated as a grantor trust. The Prospectus
Supplement for each series of Certificates will specify whether the Trust is
intended to be treated as a partnership or the Trust will be treated as a
grantor trust.
SCOPE OF THE TAX OPINIONS
It is expected that Special Tax Counsel will, upon issuance of a series of
Notes and/or Certificates, deliver its opinion that the applicable Trust will
not be classified as an association (or publicly traded partnership) taxable as
a corporation for federal income tax purposes.
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.
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ERISA CONSIDERATIONS
ERISA and Section 4975 of the Code impose certain restrictions on (a)
employee benefit plans (as defined in Section 3(3) of ERISA), (b) plans
described in Section 4975(e)(1) of the Code, including individual retirement
accounts or Keogh plans, (c) any entities whose underlying assets include plan
assets by reason of a plan's investment in such entities (each of (a), (b) and
(c), a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties in Interest" under ERISA and "Disqualified Persons" under the
Code). Moreover, based on the reasoning of the United States Supreme Court in
John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993),
an insurance company's general account may be deemed to include assets of the
Plans investing in the general account (for example, through the purchase of an
annuity contract), and the insurance company might be treated as a Party in
Interest with respect to a Plan by virtue of such investment. ERISA also imposes
certain duties on persons who are fiduciaries of Plans subject to ERISA and
prohibits certain transactions between a Plan and Parties in Interest or
Disqualified Persons with respect to such Plans. Violation of these rules may
result in the imposition of an excise tax or penalty.
A fiduciary of any Plan should carefully review with its legal and other
advisors whether the purchase or holding of any Securities of a series could
give rise to a transaction prohibited or otherwise impermissible under ERISA or
the Code, and should refer to "ERISA Considerations" in the related Prospectus
Supplement regarding any restrictions on the purchase and/or holding of the
Securities offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the prohibited transaction provisions of ERISA and
Section 4975 of the Code. Accordingly, assets of such plans may, subject to the
provisions of any other applicable federal and state law, be invested in
Securities of any series without regard to the factors described herein and
under "ERISA Considerations" in the related Prospectus Supplement. It should be
noted, however, that any such plan that is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Plan investing in Securities issued by the Trust. Under
a regulation (the "Plan Assets Regulation") issued by the 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.
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If so specified in the related Prospectus Supplement, the DOL will have
issued an individual exemption to one or more of the underwriters of the Senior
Certificates (the "Underwriters' Exemption"). The Underwriters' Exemption
generally exempts from the application of the prohibited transaction provisions
of Section 406 of ERISA and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code and Section 502(i)
of ERISA certain transactions relating to the initial purchase, holding and
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions and
requirements set forth in the Underwriters' Exemption. In addition, the
Underwriters' Exemption provides that the assets of such pass-through trusts may
include (i) yield supplement agreements or similar yield maintenance
arrangements (provided such arrangements do not involve swap agreements or other
notional principal contracts) and (ii) certain pre-funding account arrangements.
The receivables covered by the Underwriters' Exemption include motor vehicle
retail installment sale contracts such as the Receivables. The Underwriters'
Exemption will apply to the acquisition, holding and resale of the Senior
Certificates by a Plan from the applicable underwriters, provided that specified
conditions (certain of which are described below) are met. The Seller believes
that the Underwriters' Exemption will apply to the acquisition and holding of
the Senior Certificates by a Plan and that all conditions of the Underwriters'
Exemption other than those within the control of the investors have been or will
be met.
The Underwriters' Exemption sets forth six general conditions that must be
satisfied for a transaction involving the acquisition of the Senior Certificates
by a Plan to be eligible for the exemptive relief thereunder:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the Senior Certificates acquired
by a Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust;
(3) The Senior Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic rating
categories from any one of four Rating Agencies;
(4) The Trustee is not an affiliate of any other member of the "Restricted
Group," which consists of the applicable underwriters, the Seller, the Servicer,
the applicable Trustee and any 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
60
<PAGE> 190
acquisition, the Senior Certificates continue to satisfy the third general
condition set forth above. The Seller and the Servicer expect that the fourth
general condition set forth above will be satisfied with respect to the Senior
Certificates. A fiduciary of a Plan contemplating purchasing a Senior
Certificate must make its own determination that the first, fifth and sixth
general conditions set forth above will be satisfied with respect to the Senior
Certificates.
In addition, the Trust must satisfy the following requirements:
(a) The corpus of the Trust must consist solely of assets of the type
which have been included in other investment pools;
(b) Certificates evidencing interests in such other investment pools
must have been rated in one of the three highest generic rating categories
of one of the Rating Agencies for at least one year prior to the Plan's
acquisition of Senior Certificates; and
(c) Certificates evidencing interests in such other investments pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of Senior Certificates.
If the general conditions of the Underwriters' Exemption are satisfied, the
Underwriters' Exemption should provide relief from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(A) through
(D) of the Code, in connection with the direct or indirect purchase, exchange,
transfer or holding of the Senior Certificates by a Plan. However, no exemption
is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of
ERISA for the acquisition or holding of a Senior Certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For purposes
of the Senior Certificates, an Excluded Plan is a Plan sponsored by any member
of the Restricted Group.
If certain other specific conditions of the Underwriters' Exemption are
also satisfied, the Underwriters' Exemption should provide relief from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Section 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(E) of the Code in connection with the direct or indirect sale,
exchange, transfer or holding of Senior Certificates in the initial issuance of
Senior Certificates between the Seller or applicable underwriters and a Plan
other than an Excluded Plan when the person who has 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.
61
<PAGE> 191
Subordinated Certificates. The following discussion applies only to
subordinated Certificates (referred to herein as "Subordinated Certificates")
issued by a Trust that does not issue Notes.
Because the Subordinated Certificates are subordinated to the Senior
Certificates in certain respects, the Underwriters' Exemption will not apply to
the purchase of Subordinated Certificates by or on behalf of a Plan. However,
other exemptions may be applicable, such as Prohibited Transaction Class
Exemption ("PTCE") 90-1, which exempts certain transactions involving insurance
company pooled separate accounts; PTCE 95-60, which exempts certain transactions
involving insurance company general accounts; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; PTCE 96-23, which
exempts certain transactions effected on behalf of a Plan by an "in house" asset
manager; or PTCE 84-14, which exempts certain transactions effected on behalf of
a Plan by a "qualified professional asset manager." It should be noted, however,
that even if the conditions specified in one or more of these exemptions are
met, the scope of relief provided by these exemptions may not necessarily cover
all acts that might be construed as prohibited transactions.
Any Plan fiduciary considering whether to purchase a Subordinated
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of one or more of such exemptions to such purchase. Prior to
making an investment in the Subordinated Certificates, a Plan investor must
determine whether, and each fiduciary causing the Subordinated Certificates to
be purchased by, on behalf of or using the assets of a Plan shall be deemed to
have represented that either (i) no part of the funds to be used to purchase the
Subordinated Certificates constitutes assets allocable to any trust that
contains the assets of any Plan or (ii) such purchase is covered by one or more
of the exemptions described above.
SECURITIES ISSUED BY TRUSTS THAT ISSUE BOTH NOTES AND CERTIFICATES
The discussion in this section "-- Securities Issued by Trusts That Issue
Both Notes and Certificates" applies only to Securities issued by a Trust that
issues both Notes and Certificates.
The Notes. Unless otherwise provided in the related Prospectus Supplement,
the Seller believes that the Notes of any series should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. (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
62
<PAGE> 192
Section 4975 of the Code, (iii) a governmental plan, as defined in Section 3(32)
of ERISA, subject to any federal, state or local law which is, to a material
extent, similar to the provisions of Section 406 of ERISA or Section 4975 of the
Code, (iv) an entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (within the meaning of the Plan Assets
Regulation), or (v) a person investing "plan assets" of any such plan (including
without limitation, for purposes of this clause (v), as applicable, an insurance
company general account, but excluding any entity registered under the
Investment Company Act of 1940, as amended) (each, a "Plan Investor").
In addition, investors other than Plan Investors should be aware that a
prohibited transaction could be deemed to occur if any holder of the
Certificates or any of their respective affiliates, is or becomes a Party in
Interest or a Disqualified Person with respect to any Plan that purchases and
holds the related Notes without being covered by one or more of the exemptions
described above in "The Notes."
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
The Small Business Job Protection Act of 1996 added new Section 401(c) of
ERISA relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. Pursuant to Section 401(c), the
Department of Labor is required to issue final regulations (the "General Account
Regulations") 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.
63
<PAGE> 193
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given series and an underwriting agreement
with respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement (or Supplemental Prospectus Supplement, as
described below) 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. Each Prospectus Supplement, together with a Supplemental Prospectus
Supplement, may also be used by Ford Credit or another affiliate for the sale of
a specified class of Notes or Certificates originally purchased from the Seller
by Ford Credit.
The Seller and Ford Credit will indemnify the underwriters of Securities
purchased from the Seller 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. Ford Credit will
indemnify the Underwriters of Securities purchased from Ford Credit against
certain civil 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, or other counsel
satisfactory to the Underwriters. 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.
64
<PAGE> 194
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
American Road............................................... [ ]
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
</TABLE>
65
<PAGE> 195
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Disqualified Persons........................................ 61
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
Investment Earnings......................................... 46
IRS......................................................... 60
Issuer...................................................... 3
LIBOR....................................................... 36
LIBOR Determination Date.................................... 36
LIBOR Security.............................................. 33
London Banking Day.......................................... 36
Michigan Tax Counsel........................................ 12
</TABLE>
66
<PAGE> 196
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 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
Simple Interest Advance..................................... 10
Simple Interest Receivables................................. 20
Special Tax Counsel......................................... 12, 60
</TABLE>
67
<PAGE> 197
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
Y2K......................................................... [ ]
</TABLE>
68
<PAGE> 198
(This page intentionally left blank)
<PAGE> 199
- ------------------------------------------------------
- ------------------------------------------------------
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 Certificateholders............ S-3
Summary.................................. S-4
Risk Factors............................. S-24
The Trust................................ S-29
The Receivables Pool..................... S-29
Pool Factors............................. S-38
Maturity and Prepayment Considerations... S-38
Description of the Certificates.......... S-43
Certain Federal Income Tax Consequences.. S-59
Certain State Tax Consequences........... S-68
Legal Investment......................... S-70
ERISA Considerations..................... S-70
Underwriting............................. S-70
Legal Opinions........................... S-72
Index of Terms........................... S-73
Annex I -- Global Clearance, Settlement
and Tax Documentation Procedures....... I-1
PROSPECTUS
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
Summary.................................. 3
Risk Factors............................. 12
The Trusts............................... 16
The Receivables Pools.................... 18
Maturity and Prepayment Considerations... 20
Pool Factors and Trading Information..... 21
Use of Proceeds.......................... 21
The Seller and the General Partner....... 22
The Servicer............................. 23
Description of the Notes................. 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............................ 54
Certain Federal Income Tax Consequences.. 58
ERISA Considerations..................... 59
Plan of Distribution..................... 64
Legal Opinions........................... 64
Index of Terms........................... 65
</TABLE>
UNTIL , 199 (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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
FORD CREDIT
AUTO OWNER TRUST
199 -
$
[CLASS A-1]
% ASSET BACKED NOTES
[$
CLASS A-2
% ASSET BACKED NOTES]
[$
CLASS A-3
% ASSET BACKED NOTES]
$
% ASSET BACKED CERTIFICATES
FORD CREDIT AUTO
RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
------------
PROSPECTUS SUPPLEMENT
------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 200
SUPPLEMENTAL PROSPECTUS SUPPLEMENT
TO PROSPECTUS SUPPLEMENT DATED [ ], 199
AND PROSPECTUS DATED [ ], 199
FORD CREDIT AUTO OWNER TRUST 199 -[ ]
$[ ] CLASS A-[ ] [ ]% ASSET BACKED NOTES
FORD CREDIT AUTO RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
---------------------------
Ford Credit Auto Owner Trust 199 -[ ] (the "Trust") was
established by an Amended and Restated Trust Agreement, dated as of
[ ], 199 , between Ford Credit Auto Receivables Two L.P. (the "Seller")
and [ ], as Owner Trustee. The Trust also has issued $[ ]
aggregate initial principal amount of Class A-[ ] [ ]% Asset Backed
Notes (the "Class A-[ ] Notes"), $[ ] aggregate initial principal
amount of Class A-[ ] [ ]% Asset Backed Notes (the "Class
A-[ ] Notes"), $[ ] aggregate initial principal amount of Class
A-[ ] [ ]% Asset Backed Notes (the "Class A-[ ] Notes"), and
$[ ] aggregate initial principal amount of Class A-[ ]
(continued
on following page)
---------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE SPS-4 HEREIN AND ON PAGE S-20 OF
THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND PAGE 13 OF THE ACCOMPANYING
PROSPECTUS.
---------------------------
THE CLASS A-[ ] NOTES REPRESENT OBLIGATIONS OF 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.
---------------------------
The Class A-[ ] Notes will be purchased by the Underwriter from
Ford
Motor Credit Company ('Ford Credit'). The Underwriter will offer the Class
A-[ ] Notes to the public from time to time in negotiated transactions
or otherwise at varying prices to be determined at the time of sale. Proceeds to
Ford Credit will be % of the aggregate principal amount of the Class
A-[ ] Notes, or $ , plus accrued interest from ,
199 . It is expected that the Class A-[ ] 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") on or about , 199 against payment
therefor in immediately available funds.
---------------------------
, 199
<PAGE> 201
(continued from previous page)
[ ]% Asset Backed Notes (the "Class A-[ ] Notes" and, together with
the Class A-[ ] Notes, the Class A-[ ] Notes and the Class
A-[ ] Notes, the "Class A Notes") and $[ ] aggregate initial
principal amount of Class [ ] [ ]% Asset Backed Notes (the "Class [ ]
Notes" and, together with the Class A Notes, the "Notes") pursuant to an
Indenture dated as of [ ], 199 , between the Trust and The Chase Manhattan
Bank, as Indenture Trustee. The Trust has also issued $[ ] aggregate
initial principal balance of Class [ ] % Asset Backed Certificates (the
"Class [ ] Certificates") and $[ ] aggregate initial principal balance of
Class [ ] % Asset Backed Certificates (the "Class [ ] Certificates" and,
together with the Class [ ] Certificates, the "Certificates" and, together with
the Notes, the "Securities"). Only the Class A-[ ] Notes are being offered
hereby. The rights of the holders of the Class [ ] Notes are subordinated to the
rights of the holders of the Class A Notes, and the rights of Certificateholders
are subordinated to the rights of Noteholders to the extent described herein.
The assets of the Trust 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 are secured by the assets of the Trust pursuant to the
Indenture.
Interest on all classes of Notes accrues at the fixed per annum interest
rates specified above. Interest on the Notes is due and payable on or about the
fifteenth day of each month (each, a "Distribution Date"), commencing [ ],
199 . Principal of the Notes is 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-[ ] Notes until the Class A-[ ] Notes
have been paid in full, (ii) on the Class A-[ ] Notes until the Class
A-[ ] Notes have been paid in full, (iii) on the Class A-[ ] Notes
until the Class A-[ ] Notes have been paid in full, or (iv) on the Class
[ ] Notes until the Class A-[ ] Notes have been paid in full. Payments of
principal of and interest on the Class [ ] Notes will be subordinated in
priority to payments due on the Class A Notes as described herein.
The Class A-[ ] Notes are payable in full on the [ ]
Distribution Date, the Class A-[ ] Notes are payable in full on the
[ ] Distribution Date, the Class A-[ ] Notes are payable in full on
the [ ] Distribution Date, the Class A-[ ] Notes are payable in full
on the [ ] Distribution Date, the Class A-[ ] Notes are payable in
full on the [ ] Distribution Date and the Class B Notes are payable in
full on the [ ] Distribution Date. The final scheduled Distribution Date
with respect to the Class [ ] Certificates is the [ ] Distribution Date.
However, payment in full of a class of Notes or of the Class [ ] Certificates
could occur earlier or later than such dates as described herein. In addition,
the Class A-[ ] Notes and the Class [ ] Notes are subject to redemption in
whole, but not in part, and the Class [ ] Certificates are 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 SUPPLEMENTAL PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE
INFORMATION ABOUT THE OFFERING OF THE CLASS A-[ ] NOTES. ADDITIONAL
INFORMATION IS CONTAINED IN THE PROSPECTUS AND PROSPECTUS SUPPLEMENT AND
PROSPECTIVE INVESTORS ARE URGED TO READ THIS SUPPLEMENTAL PROSPECTUS SUPPLEMENT,
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A-[ ]
NOTES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED THIS SUPPLEMENTAL
PROSPECTUS SUPPLEMENT, THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
2
<PAGE> 202
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus Supplement
and the Prospectus. Certain capitalized terms used herein are defined elsewhere
in this Supplemental 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 Supplement or Prospectus.
Issuer........................ Ford Credit Auto Owner Trust 199 -[ ] (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 [ ,] 199 ,
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................. [ ], a Delaware banking corporation, as
trustee under the Trust Agreement (the "Owner
Trustee").
The Notes..................... The Trust issued Asset Backed Notes (the
"Notes") pursuant to an Indenture dated as of
[ ,] 199 (as amended and supplemented
from time to time, the "Indenture"), between
the Issuer and the Indenture Trustee, as
follows: (1) Class A-[ ] [ ]% Asset Backed
Notes (the "Class A-[ ] Notes") in the
aggregate initial principal amount of $[ ];
(2) Class A-[ ] [ ]% Asset Backed Notes (the
"Class A-[ ] Notes") in the aggregate initial
principal amount of $[ ]; (3) Class A-[ ]
[ ]% Asset Backed Notes (the "Class A-[ ]
Notes") in the aggregate initial principal
amount of $[ ]; (4) Class A-[ ] [ ]% Asset
Backed Notes (the "Class A-[ ] Notes") in the
aggregate principal amount of $[ ]; and (5)
Class [ ] [ ]% Asset Backed Notes (the "Class
[ ] Notes") in the aggregate initial principal
amount of $[ ]. The Class A-[ ] Notes, the
Class A-[ ] Notes, the Class A-[ ] Notes and
the Class A-[ ] Notes are referred to herein
collectively as the "Class A Notes."
The Notes are secured by the assets of the
Trust pursuant to the Indenture.
The Class A-[ ] 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.
3
<PAGE> 203
Ratings of the Class A-[ ]
Notes......................... It is a condition to the obligation of the
Underwriter to purchase the Class A-[ ] Notes
that the Class A-[ ] Notes at the time of
purchase be rated in the highest long-term
rating category by at least two nationally
recognized rating agencies and not have been
placed on watch list by any nationally
recognized rating agency. There can be no
assurance that a rating will not be lowered or
withdrawn by a rating agency if circumstances
so warrant.
4
<PAGE> 204
RISK FACTORS
Prospective investors should consider, among other things, the risk factors
discussed under "Risk Factors" beginning on page S-22 of the Prospectus
Supplement and page 12 of the accompanying Prospectus.
LIMITED LIQUIDITY
There is currently no secondary market for the Class A-[ ] Notes. The
Underwriter currently intends to make a market in the Class A-[ ] Notes 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 holders of the Class A-[ ] Notes with liquidity of investment or that it
will continue for the life of the Class A-[ ] Notes.
THE RECEIVABLES POOL
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>
NINE MONTHS
ENDED
SEPTEMBER 30, 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.................... $3,795 3,572.022 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)............. 2.59% 2.83% 2.85% 2.54% 2.21% 2.03% 2.02%
61-90 Days(2)............. 0.30% 0.32% 0.32% 0.26% 0.17% 0.15% 0.15%
Over 90 Days(3)........... 0.11% 0.10% 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.
5
<PAGE> 205
CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 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...................... $46,777 $40,616 $41,186 $40,269 $35,699 $33,703 $31,205
Net........................ $40,035 $34,062 $34,715 $33,647 $30,015 $28,526 $26,152
Repossessions as a Percent of
Average Number of Contracts
Outstanding................ 2.56% 3.03% 3.01% 3.01% 2.38% 2.15% 2.27%
Net Losses as a Percent of
Gross Liquidations(2)...... 2.03% 2.32% 2.46% 2.21% 1.43% 1.06% 1.16%
Net Losses as a Percent of
Average Gross Portfolio
Outstanding(2)............. 1.07% 1.33% 1.38% 1.28% 0.82% 0.62% 0.69%
Net Losses as a Percent of
Average Net Portfolio
Outstanding(2)............. 1.25% 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.
6
<PAGE> 206
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), Ford Credit has agreed to sell to (the
"Underwriter"), and the Underwriter has agreed to purchase the entire $[ ]
outstanding principal amount of Class A-[ ] Notes. The Class A-[ ] Notes were
previously purchased by Ford Credit from the Seller.
Distribution of the Class A-[ ] Notes will be made by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to Ford Credit will be [ ]% of the
aggregate principal amount of the Class A-[ ] Notes, or $ , plus accrued
interest from , 199 . The Seller will not receive any of such
proceeds. In connection with the purchase and sale of the Class A-[ ] Notes,
the Underwriter may be deemed to have received compensation from Ford Credit in
the form of underwriting discounts.
Ford Credit has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriter may be required to make in respect
thereof.
Upon receipt of a request by an investor who has received an electronic
Prospectus from the Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
Ford Credit or the Underwriter will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
7
<PAGE> 207
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Supplemental
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
Supplemental Prospectus Supplement are defined in the Prospectus Supplement and
Prospectus. See "Index of Terms" in the Prospectus Supplement and Prospectus.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cedel....................................................... SPS-1
Certificates................................................ SPS-2
Class A Notes............................................... SPS-2, SPS-4
Class A-[ ] Notes.......................................... SPS-2, SPS-4
Class A-[ ] Notes.......................................... SPS-2, SPS-4
Class A-[ ] Notes.......................................... SPS-2, SPS-4
Class A-[ ] Notes.......................................... SPS-2, SPS-4
Class [ ] Notes............................................ SPS-2, SPS-4
Class [ ] Certificates..................................... SPS-2
Class [ ] Certificates..................................... SPS-2
Distribution Date........................................... SPS-2
DTC......................................................... SPS-1
Euroclear................................................... SPS-1
Ford Credit................................................. SPS-4
Indenture................................................... SPS-4
Indenture Trustee........................................... SPS-3
Issuer...................................................... SPS-3
Net Losses.................................................. SPS-5
Note Owner.................................................. SPS-4
Notes....................................................... SPS-2, SPS-3
Owner Trustee............................................... SPS-3
Receivables................................................. SPS-2
Securities.................................................. SPS-2
Seller...................................................... SPS-1, SPS-3
Servicer.................................................... SPS-3
Trust....................................................... SPS-1, SPS-3
Trust Agreement............................................. SPS-3
Underwriter................................................. SPS-5
Underwriting Agreement...................................... SPS-5
</TABLE>
8
<PAGE> 208
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, THIS PROSPECTUS SUPPLEMENT AND THIS SUPPLEMENTAL PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THE PROSPECTUS, THIS PROSPECTUS
SUPPLEMENT AND THIS SUPPLEMENTAL 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 UNDERWRITER. NEITHER THE DELIVERY OF
THE PROSPECTUS, THIS PROSPECTUS SUPPLEMENT, THE SUPPLEMENTAL 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 THERE OF OR THE RECEIVABLES SINCE THE DATE HEREOF.
THIS SUPPLEMENTAL PROSPECTUS SUPPLEMENT, 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
SUPPLEMENTAL PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... SPS-3
Risk Factors.......................... SPS-5
The Receivables Pool.................. SPS-5
Underwriting.......................... SPS-7
Index of Terms........................ SPS-8
</TABLE>
UNTIL , 199 (NINETY DAYS AFTER THE DATE OF THIS
SUPPLEMENTAL PROSPECTUS SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A SUPPLEMENTAL PROSPECTUS SUPPLEMENT, PROSPECTUS SUPPLEMENT AND A
PROSPECTUS WHEN ACTING AS UNDERWRITES AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
FORD CREDIT
AUTO OWNER TRUST
199 -
$[ ]
CLASS A-[ ]
[ ]% ASSET BACKED NOTES
FORD CREDIT AUTO
RECEIVABLES TWO L.P.
SELLER
FORD MOTOR CREDIT COMPANY
SERVICER
-----------------------------------------
SUPPLEMENTAL
PROSPECTUS SUPPLEMENT
-----------------------------------------
, 199
[NAME OF UNDERWRITER]
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 209
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering described in this Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission.......................... $2,360,000
Rating agency fee........................................... $1,105,000
Printing.................................................... $ 390,000
Legal fees and expenses..................................... $ 85,000
Accountants' fees........................................... $ 225,000
Fees and expenses of Indenture Trustee...................... $ 60,000
Fees and expenses of applicable Trustee..................... $ 125,000
Miscellaneous expenses...................................... $ 150,000
----------
Total..................................................... $4,500,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
provides as follows:
SECTION 17-108. INDEMNIFICATION.
Subject to such standards and restrictions, if any, as are set forth in its
partnership agreement, a limited partnership may, and shall have the power to,
indemnify and hold harmless any partner or other person from and against any and
all claims and demands whatsoever.
Section 4.2 of the Agreement of Limited Partnership of Ford Credit Auto
Receivables Two L.P. provides as follows:
Section 4.2. Exculpation and Indemnification.
(a) Neither the General Partner nor any director, officer, partner,
agent or legal representative of the General Partner or the Partnership,
nor any of their Affiliates or the respective directors, officers,
partners, stockholders, agents or legal representatives of any of their
Affiliates (collectively, the "Indemnified Parties") shall have any
liability (whether direct or indirect, in contract, tort or otherwise) to
any Partner (or its Affiliates) for any losses, claims, damages,
liabilities or expenses, including, without limitation, judgments, interest
on such judgments, fines, charges, costs, amounts paid in settlement,
expenses and attorneys' fees incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or
any appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or commission, whether
pending or merely threatened, whether or not any Indemnified Party is or
may be a party thereto, including interest on any of the foregoing
(collectively, "Damages"), arising out of, or in connection with, the
management or conduct of the business and affairs of the Partnership,
except for any such Damages to the extent that they are found by a court of
competent jurisdiction to have resulted from the gross negligence or
willful misconduct of the Indemnified Parties or willful violations of the
express provisions hereof by the indemnified Parties. The Indemnified
Parties may consult with counsel and accountants with respect to the
affairs of the Partnership and shall be fully protected and justified, to
the extent allowed by law, in acting, or failing to act, if such action or
failure to act is in accordance with the advice or opinion of such counsel
or accountants.
(b) The Partnership will, to the extent permitted by law, indemnify
and hold harmless any and all of the Indemnified Parties for any and all
Damages arising out of or in connection with the management or conduct of
the business and affairs of the Partnership or their activities with
II-1
<PAGE> 210
respect thereto, except to the extent that any such Damages are found by a
court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of the person seeking indemnification (or willful
violation of the express provisions hereof). No Indemnified Party may
satisfy any right of indemnity or reimbursement granted in this Section
4.3(b) or to which it may otherwise be entitled except out of the assets of
the Partnership, and no Partner shall be personally liable with respect to
any such claim for indemnity or reimbursement.
Section 145 of the General Corporation Law of Delaware provides as follows:
145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE --
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of
II-2
<PAGE> 211
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or
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<PAGE> 212
otherwise. The Court of Chancery may summarily determine a corporation's
obligation to advance expenses (including attorneys' fees).
Article Five of the Certificate of Incorporation of Ford Credit Auto
Receivables Two, Inc. provides as follows:
(a) A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article FIFTH to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
(b) Any repeal or modification of paragraph (a) of this Article FIFTH
by the stockholders of the corporation shall not adversely affect any right
or protection of a director of the corporation existing at the time of such
repeal or modification.
(c)(i) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative, investigative or otherwise (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director, officer or
employee of the corporation or is or was serving at the request of the
corporation as a director, officer or employee of another corporation or of
a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer
or employee or in any other capacity while serving as a director, officer
or employee, shall be indemnified and held harmless by the corporation to
the fullest extent authorized by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all expense,
liability and loss (including penalties, fines, judgments, attorneys' fees,
amounts paid or to he paid in settlement and excise taxes imposed on
fiduciaries with respect to (i) employee benefit plans, (ii) charitable
organizations or (iii) similar matters) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person (other than pursuant to subparagraph
(c)(ii) of this Article FIFTH) only if such proceeding (or part thereof)
was authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this subparagraph (c)(i) of Article FIFTH
shall be a contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law so requires, the payment of such expenses incurred
by a director or officer in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding shall be made only upon delivery to the corporation of an
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<PAGE> 213
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this subparagraph (c)(i)
of Article FIFTH or otherwise.
(ii) If a claim which the corporation is obligated to pay under
subparagraph (c)(i) of this Article FIFTH is not paid in full by the
corporation within 60 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which
make it permissible under the Delaware General Corporation Law for the
corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor
an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Claimant has not met the applicable
standard of conduct.
(iii) The provisions of this paragraph (c) of Article FIFTH shall
cover claims, actions, suits and proceedings, civil or criminal, whether
now pending or hereafter commenced, and shall be retroactive to cover acts
or omissions or alleged acts or omissions which heretofore have taken
place. If any part of this paragraph (c) of Article FIFTH should be found
to be invalid or ineffective in any proceeding, the validity and effect of
the remaining provisions shall not be affected.
(iv) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in
this paragraph (c) of Article FIFTH shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
(v) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
(vi) The corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to
be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any agent of the
corporation to the fullest extent of the provisions of this paragraph (c)
of Article FIFTH with respect to the indemnification and advancement of
expenses of director, officers and employees of the corporation.
Similar indemnification provisions in Section 5 of Article NINTH of the
Certificate of Incorporation of both Ford Motor Company and Ford Motor Credit
Company are applicable to directors, officers and employees of Ford Credit Auto
Receivables Two, Inc. who serve as such at the request of Ford Motor Company or
Ford Motor Credit Company.
Ford Credit Auto Receivables Two, Inc. is insured for liabilities it may
incur pursuant to Article FIFTH of its Certificate of Incorporation relating to
the indemnification of its directors, officers
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<PAGE> 214
and employees. In addition, directors, officers and certain key employees are
insured against certain losses which may arise out of their employment and which
are not recoverable under the indemnification provisions of Ford Credit Auto
Receivables Two, Inc.'s Certificate of Incorporation. The premium for both
insurance coverages is paid by Ford Motor Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(A) Exhibits:
<TABLE>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement for the Notes. Filed as
Exhibit 1.1 to Registration Statement No. 333-01245 and
incorporated herein by reference.
1.2 -- Form of Underwriting Agreement for the Certificates. Filed
as Exhibit 1.2 to Registration Statement No. 333-01245 and
incorporated herein by reference.
3.1 -- Certificate of Limited Partnership of the Seller. Filed as
Exhibit 3.1 to Registration Statement No. 333-01245 and
incorporated herein by reference.
3.2 -- Limited Partnership Agreement between the General Partner
and Ford Credit. Filed as Exhibit 3.2 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
3.3 -- Certificate of Incorporation of the General Partner. Filed
as Exhibit 3.3 to Registration Statement No. 333-01245 and
incorporated herein by reference.
3.4 -- By-Laws of the General Partner. Filed as Exhibit 3.4 to
Registration Statement No. 333-01245 and incorporated herein
by reference.
4.1 -- Form of Indenture between the Trust and the Indenture
Trustee (including forms of Notes). Filed as Exhibit 4.1 to
Registration Statement No. 333-01245 and incorporated herein
by reference.
4.2 -- Form of Trust Agreement between the Seller and the Owner
Trustee (including forms of Certificates). Filed as Exhibit
4.2 to Registration Statement No. 333-01245 and incorporated
herein by reference.
4.3 -- Form of Pooling and Servicing Agreement among the Seller,
the Servicer and the Trustee (including forms of
Certificates). Filed as Exhibit 4.3 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
4.4 -- Form of Standard Terms and Conditions of Agreement among the
Seller, the Servicer and the Trustee. Filed as Exhibit 4.4
to Registration Statement No. 333-01245 and incorporated
herein by reference.
5.1 -- Opinion of H.D. Smith, Esq., Secretary and Corporate Counsel
of Ford Credit Auto Receivables Two, Inc. with respect to
legality.
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to federal income tax matters.
8.2 -- Form of Opinion of H.D. Smith, Esq., Secretary and Corporate
Counsel of the Servicer with respect to tax matters under
Michigan law.
10.1 -- Form of Interest Rate Cap between the Trust and the Interest
Rate Cap Provider. Filed as Exhibit 10.1 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
10.2 -- Form of Interest Rate Swap between the Trust and the Swap
Counterparty. Filed as Exhibit 10.2 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
10.3 -- Form of Guaranteed Rate Agreement between the Trust and the
Investment Provider. Filed as Exhibit 10.3 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
</TABLE>
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<PAGE> 215
<TABLE>
<C> <C> <S>
23.1 -- Consent of H.D. Smith Esq., Secretary and Corporate Counsel
of Ford Credit Auto Receivables Two, Inc. (included as part
of Exhibit 5.1).
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included as part of Exhibit 8.1).
23.3 -- Form of Consent of H.D. Smith, Esq., Secretary and Corporate
Counsel of the Servicer (included as part of Exhibit 8.2).
24.1 -- Powers of Attorney.
25.1 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Chase Manhattan Bank
99.1 -- Form of Sale and Servicing Agreement among the Seller, the
Servicer and the Trust. Filed as Exhibit 99.1 to
Registration Statement No. 333-01245 and incorporated herein
by reference.
99.2 -- Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee. Filed as Exhibit
99.2 to Registration Statement No. 333-01245 and
incorporated herein by reference.
99.3 -- Form of Purchase Agreement between Ford Credit and the
Seller. Filed as Exhibit 99.3 to Registration Statement No.
333-01245 and incorporated herein by reference.
99.4 -- Form of Appendix A -- Defined Terms. Filed as Exhibit 99.4
to Registration Statement No. 333-01245 and incorporated
herein by reference
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement; (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; provided, however, that (a)(i) and (a)(ii) will not
apply if the information required to be included in a post-effective
amendment thereby is contained in periodic reports filed with or furnished
to the Commission, pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 216
(e) To provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(f) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 15 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(g) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(h) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dearborn and the State of Michigan on
the 2nd day of December, 1998.
FORD CREDIT AUTO RECEIVABLES TWO L.P.
By FORD CREDIT AUTO RECEIVABLES
TWO, INC.,
General Partner of the Registrant
By: /s/ ELIZABETH S. ACTON*
------------------------------------
(Elizabeth S. Acton,
Chairman of the Board of Directors
of
Ford Credit Auto Receivables Two,
Inc.)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
directors and officers of FORD CREDIT AUTO RECEIVABLES TWO, INC. in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ELIZABETH S. ACTON* Chairman of the Board of Directors December 2, 1998
- --------------------------------------------- and Director (principal executive
(Elizabeth S. Acton) officer)
/s/ DANIEL D. MEYER* Controller (principal accounting December 2, 1998
- --------------------------------------------- officer)
(Daniel D. Meyer)
/s/ DAVID P. COSPER* Director and President and December 2, 1998
- --------------------------------------------- Treasurer (principal financial
(David P. Cosper) officer)
/s/ HURLEY D. SMITH* Director December 2, 1998
- ---------------------------------------------
(Hurley D. Smith)
</TABLE>
*By: /s/ R. P. CONRAD
---------------------------------
(R. P. Conrad, Attorney in Fact)
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<PAGE> 218
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement for the Notes. Filed as
Exhibit 1.1 to Registration Statement No. 333-01245 and
incorporated herein by reference.
1.2 -- Form of Underwriting Agreement for the Certificates. Filed
as Exhibit 1.2 to Registration Statement No. 333-01245 and
incorporated herein by reference.
3.1 -- Certificate of Limited Partnership of the Seller. Filed as
Exhibit 3.1 to Registration Statement No. 333-01245 and
incorporated herein by reference.
3.2 -- Limited Partnership Agreement between the General Partner
and Ford Credit. Filed as Exhibit 3.2 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
3.3 -- Certificate of Incorporation of the General Partner. Filed
as Exhibit 3.3 to Registration Statement No. 333-01245 and
incorporated herein by reference.
3.4 -- By-Laws of the General Partner. Filed as Exhibit 3.4 to
Registration Statement No. 333-01245 and incorporated herein
by reference.
4.1 -- Form of Indenture between the Trust and the Indenture
Trustee (including forms of Notes). Filed as Exhibit 4.1 to
Registration Statement No. 333-01245 and incorporated herein
by reference.
4.2 -- Form of Trust Agreement between the Seller and the Owner
Trustee (including forms of Certificates). Filed as Exhibit
4.2 to Registration Statement No. 333-01245 and incorporated
herein by reference.
4.3 -- Form of Pooling and Servicing Agreement among the Seller,
the Servicer and the Trustee (including forms of
Certificates). Filed as Exhibit 4.3 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
4.4 -- Form of Standard Terms and Conditions of Agreement among the
Seller, the Servicer and the Trustee. Filed as Exhibit 4.4
to Registration Statement No. 333-01245 and incorporated
herein by reference.
5.1 -- Opinion of H.D. Smith, Esq., Secretary and Corporate Counsel
of Ford Credit Auto Receivables Two, Inc. with respect to
legality.
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to federal income tax matters.
8.2 -- Form of Opinion of H.D. Smith, Esq., Secretary and Corporate
Counsel of the Servicer with respect to tax matters under
Michigan law.
10.1 -- Form of Interest Rate Cap between the Trust and the Interest
Rate Cap Provider. Filed as Exhibit 10.1 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
10.2 -- Form of Interest Rate Swap between the Trust and the Swap
Counterparty. Filed as Exhibit 10.2 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
10.3 -- Form of Guaranteed Rate Agreement between the Trust and the
Investment Provider. Filed as Exhibit 10.3 to Registration
Statement No. 333-01245 and incorporated herein by
reference.
23.1 -- Consent of H.D. Smith Esq., Secretary and Corporate Counsel
of Ford Credit Auto Receivables Two, Inc. (included as part
of Exhibit 5.1).
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included as part of Exhibit 8.1).
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
<C> <S> <C> <C>
23.3 -- Form of Consent of H.D. Smith, Esq., Secretary and Corporate
Counsel of the Servicer (included as part of Exhibit 8.2).
24.1 -- Powers of Attorney.
25.1 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Chase Manhattan Bank.
99.1 -- Form of Sale and Servicing Agreement among the Seller, the
Servicer and the Trust. Filed as Exhibit 99.1 to
Registration Statement No. 333-01245 and incorporated herein
by reference.
99.2 -- Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee. Filed as Exhibit
99.2 to Registration Statement No. 333-01245 and
incorporated herein by reference.
99.3 -- Form of Purchase Agreement between Ford Credit and the
Seller. Filed as Exhibit 99.3 to Registration Statement No.
333-01245 and incorporated herein by reference.
99.4 -- Form of Appendix A -- Defined Terms. Filed as Exhibit 99.4
to Registration Statement No. 333-01245 and incorporated
herein by reference.
</TABLE>
