<PAGE> 1
Rule 424 (b)1
Registration Statement No. 333-11167
PROSPECTUS
$810,843,000
[FORD LOGO]
Ford Credit Auto Lease Trust 1996-1
$150,000,000 Class A-1 5.45125% Asset Backed Senior Notes
$660,843,000 Class A-2 5.80% Asset Backed Senior Notes
RCL Trust 1996-1
Transferor
Ford Motor Credit Company
Administrative Agent
Ford Credit Auto Lease Trust 1996-1 (the "Issuer") will be formed pursuant to a
Lease Trust Agreement to be dated as of November 26, 1996 between First Union
Bank of Delaware (the "RCL Trustee") in its capacity as trustee of the RCL Trust
1996-1 (the "Transferor") and PNC Bank, Delaware (the "Lease Trustee") in its
capacity as trustee of the Issuer. Pursuant to an Indenture to be dated as of
November 26, 1996 between the Lease Trustee, on behalf of the Issuer, and The
Chase Manhattan Bank, as Indenture Trustee, the Issuer will issue notes secured
by interests in certain retail automotive leases and leased vehicles, including
$150,000,000 initial principal balance of 5.45125% Class A-1 Asset Backed Senior
Notes (the "Class A-1 Senior Notes") and $660,843,000 initial principal balance
of 5.80% Class A-2 Asset Backed Senior Notes (the "Class A-2 Senior Notes" and,
together with the Class A-1 Senior Notes, the "Senior Notes"). The Issuer also
will issue $106,690,331.13 initial principal balance of 6.00% Asset Backed
Subordinated Notes (the "Subordinated Notes") and $30,821,533.09 initial
principal balance of 6.10% Asset Backed Lease Trust Certificates (the "Lease
Trust Certificates"). The Subordinated Notes and the Lease Trust Certificates
are not being offered hereby. (cover continued on following page)
FOR INFORMATION CONCERNING THE RISKS OF AN INVESTMENT IN THE SENIOR NOTES, SEE
"RISK FACTORS" BEGINNING ON PAGE 16 HEREIN.
EXCEPT TO THE EXTENT DESCRIBED HEREIN, THE SENIOR NOTES REPRESENT OBLIGATIONS OF
THE ISSUER ONLY AND DO NOT REPRESENT INTERESTS IN, RECOURSE TO OR OBLIGATIONS OF
THE TRANSFEROR, FORD MOTOR CREDIT COMPANY OR ANY OF THEIR RESPECTIVE AFFILIATES.
THE RIGHTS OF HOLDERS OF THE SUBORDINATED NOTES AND THE LEASE TRUST CERTIFICATES
ARE SUBORDINATED TO THE RIGHTS OF HOLDERS OF THE SENIOR NOTES TO THE EXTENT
DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PRICE TO UNDERWRITING THE ISSUER
PRINCIPAL BALANCE PUBLIC (1) DISCOUNT (1)(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 Senior Notes $150,000,000 99.990290% 0.20% 99.790290%
- -------------------------------------------------------------------------------------------------------
Class A-2 Senior Notes $660,843,000 99.931652% 0.25% 99.681652%
- -------------------------------------------------------------------------------------------------------
Total $810,843,000 $810,376,762.03 $1,952,107.50 $808,424,654.53
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, calculated from November 26, 1996.
(2) Before deducting expenses payable by the Issuer estimated at $750,000.
The Senior Notes are offered by the Underwriters when, as, and if issued and
accepted by them and subject to their right to reject orders in whole or in
part. The Underwriters reserve the right to withdraw, cancel or modify such
offer. It is expected that the Senior Notes will be delivered in book-entry form
through the facilities of The Depository Trust Company on or about November 26,
1996 against payment therefor in immediately available funds.
J.P. MORGAN & CO.
CS FIRST BOSTON
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
November 19, 1996
<PAGE> 2
As more fully described herein, the assets of the Issuer will include
certificates (the "Series 1996-1 Certificates") transferred to the Issuer by the
Transferor representing a 100% undivided beneficial interest in specified retail
automobile and light truck leases (the "Series 1996-1 Leases"), all payments
from lessees (the "Obligors") thereunder, the related leased vehicles (the
"Series 1996-1 Leased Vehicles") and all proceeds from the sale of Series 1996-1
Leased Vehicles upon termination of the related Series 1996-1 Leases. Subject to
the security interest granted to the Indenture Trustee pursuant to the Indenture
to secure the Senior Notes, the Issuer will enter into the Program Operating
Lease with the Transferor pursuant to which the Transferor will be entitled to
the benefits of the Series 1996-1 Certificates during the term of the underlying
Series 1996-1 Leases in exchange for the payment by the Transferor of certain
amounts paid under the underlying Series 1996-1 Leases and paid from the sale of
Series 1996-1 Leased Vehicles. These payments will be applied by the Issuer,
together with other amounts payable on the Series 1996-1 Certificates, to pay
interest on and principal of the Senior Notes, the Subordinated Notes and the
Lease Trust Certificates. See "Series 1996-1 Certificates -- Lease of the Series
1996-1 Certificates to the Transferor." The Issuer will have the benefit of the
Cash Collateral Account established by the Transferor to secure the Transferor's
payment obligations under the Program Operating Lease. As outlined above and as
more fully described herein, the sources of payments on the Senior Notes will be
limited to the amounts payable to the Issuer under the Series 1996-1
Certificates, the payments by the Transferor under the Program Operating Lease
and the benefits provided by the Cash Collateral Account, including the deposit
therein of payments of interest on and principal of the Subordinated Notes.
Interest on the Senior Notes will accrue at the respective fixed per annum
interest rates specified above and generally will be payable quarterly on
February 15, May 15, August 15 and November 15 of each year or, if any such day
is not a business day, on the next succeeding business day (each, a "Payment
Date"), commencing February 17, 1997. Principal of the Senior Notes will be
payable on each Payment Date to the extent described herein. No principal
payments will be made on the Class A-2 Senior Notes until the Class A-1 Senior
Notes have been paid in full; provided that if an Event of Default under the
Indenture has occurred and the maturity of the Senior Notes has been
accelerated, principal payments will be made on the Senior Notes on a pro rata
basis based on their respective principal balances, without any distinction
between Classes. No principal will be payable on the Subordinated Notes and the
Lease Trust Certificates until the Senior Notes have been paid in full.
The Stated Maturity of the Class A-1 Senior Notes will be the November 15,
1997 Payment Date. The Stated Maturity of the Class A-2 Senior Notes will be the
May 15, 1999 Payment Date. However, payment in full of either Class of Senior
Notes could occur earlier than such date as described herein.
There is currently no secondary market for the Senior Notes offered hereby.
The Underwriters expect, but will not be obligated, to make a market in the
Senior Notes. There can be no assurance that a secondary market for any of the
Senior Notes will develop or, if one does develop, that it will provide the
Senior Noteholders with liquidity of investment or that it will continue for the
life of the Senior Notes offered hereby.
AVAILABLE INFORMATION
The Transferor, as originator of the Issuer, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") on behalf of the
Issuer with respect to the Senior Notes offered pursuant to this Prospectus. For
further information, reference is made to the Registration Statement and
amendments thereof and to the exhibits thereto, which are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade
Center, 13th Floor, New York, New York 10048; and Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of the Registration
Statement and amendments thereof and exhibits thereto may be obtained from the
Public Reference Section of the Commission, 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
2
<PAGE> 3
Wide Web at which the Registration Statement and amendments thereof and exhibits
thereto may be viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Transferor, the Issuer, the Administrative Agent
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus, nor
any sale made hereunder, shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
hereof.
UNTIL FEBRUARY 17, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SENIOR NOTES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS. UPON RECEIPT OF A REQUEST BY AN INVESTOR OR HIS OR HER
REPRESENTATIVE WITHIN THE PERIOD DURING WHICH THERE IS A PROSPECTUS DELIVERY
OBLIGATION, THE ISSUER OR THE UNDERWRITERS WILL TRANSMIT OR CAUSE TO BE
TRANSMITTED PROMPTLY, WITHOUT CHARGE, AND IN ADDITION TO ANY SUCH DELIVERY
REQUIREMENTS, A PAPER COPY OF A PROSPECTUS, OR A PROSPECTUS ENCODED IN AN
ELECTRONIC FORMAT.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 5
Risk Factors.......................... 16
Ford Credit........................... 23
The Issuer............................ 23
Property of the Issuer................ 24
Use of Proceeds....................... 25
FCTT.................................. 25
The Transferor........................ 27
Series 1996-1 Certificates............ 28
The Leases and Leased Vehicles........ 31
Maturity, Prepayment and Yield
Considerations...................... 40
Pool Factors and Trading
Information......................... 42
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
<CAPTION>
PAGE
----
<S> <C>
Description of the Senior Notes....... 42
Description of the Administrative
Agency Agreement.................... 56
Additional Document Provisions........ 64
Ratings of the Senior Notes........... 70
Certain Legal Aspects of FCTT and the
Series 1996-1 Certificates.......... 70
Certain Legal Aspects of the Leases
and Leased Vehicles................. 74
Federal Income Tax Consequences....... 77
Certain State Tax Consequences........ 81
Legal Investment...................... 82
ERISA Considerations.................. 82
Underwriting.......................... 83
Legal Matters......................... 83
Glossary of Terms..................... 84
</TABLE>
REPORTS TO SENIOR NOTEHOLDERS
Unless and until Definitive Senior Notes are issued, quarterly unaudited
reports containing information concerning the Issuer will be prepared by the
Administrative Agent and sent by the Indenture Trustee on behalf of the Issuer
only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC")
and registered holder of the Senior Notes. See "Description of the Senior Notes
- -- Book-Entry Registration." Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
See "Pool Factors and Trading Information" for additional information concerning
periodic reports to Senior Noteholders.
3
<PAGE> 4
OVERVIEW-TRANSFER OF SERIES 1996-1 CERTIFICATES
<TABLE>
<S><C>
98% Beneficial Interest in FCTT 2% Beneficial Interest in FCTT
- - Exchangeable Beneficial Certificate - Exchangeable Beneficial Certificate
- - Series 1996-1 Certificate - Series 1996-1 Certificate
_______________ ______________
| | Series 1996-1 Series 1996-1 | FORD CREDIT |
| FORD CREDIT | Certificate Certificate | LEASING |
|_____________|/________________________________ ____________________________\|______________|
| /|\ \ | | / /|\ |
| |______________________________ | | ____________________________| |
| | | | | |
| Exchangeable | | | | Exchangeable |
| Beneficial | | | | Beneficial |
| Certificate | | | | Certificate |
| |______|__________|_____| |
| | |Series 1996-1| | |
| | | Assets | | |
| | |_____________| | |
| | FCTT | |
| |_______________________| |
Contribution of | | Contribution of
Series 1996-1 | | Series 1996-1
Certificate | | Certificate
| |
|____________________________________\___________________/________________________________|
/| RCL TRUST |\
| 1996-1 |
___________________________________\| (TRANSFEROR) |
| /|_________________|
| /|\ |
| Transfer and Program | | Program Operating
| Operating Lease of | | Lease Payments
Subordinated Notes | Series 1996-1 Certificates | | (secured by Cash
and 1% of Lease | | | Collateral Account)
Trust Certificates | \|/_______________\|/
| | FORD CREDIT | Senior
| | AUTO LEASE | Notes __________________
|___________________________________| TRUST 1996-1 |_______________________\| |
| (ISSUER) | /| INDENTURE |
| |_______________________\| TRUSTEE |
|_________________| Pledge of Lease /| |
| Trust Estate |________________|
| |
Lease Trust Certificates| | Senior
| | Notes
__________\|/__________ ________\|/________
| LEASE TRUST | | Senior |
| CERTIFICATEHOLDERS | | Noteholders |
|_____________________| |__________________|
</TABLE>
4
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms used herein are defined in the "Glossary of Terms" or elsewhere in this
Prospectus.
OVERVIEW...................... As more fully described herein, Dealers in
fifteen states have originated certain retail
lease contracts for automobiles and light
trucks and have assigned and will assign such
lease contracts and the related vehicles to the
Ford Credit Titling Trust ("FCTT"), a trust
established by Ford Credit and Ford Credit
Leasing, a special purpose wholly owned
subsidiary of Ford Credit. Ford Credit and Ford
Credit Leasing are the beneficiaries of the
interests in FCTT which have not previously
been securitized and have instructed the
Administrative Agent to select, in accordance
with certain eligibility criteria, Leases and
Leased Vehicles held by FCTT to be designated
as Series 1996-1 Assets. On the Closing Date,
the Series 1996-1 Certificates representing the
beneficial interest in the Series 1996-1 Assets
will be issued to Ford Credit and Ford Credit
Leasing. Immediately thereafter, Ford Credit
and Ford Credit Leasing will contribute their
Series 1996-1 Certificates to the Transferor
which in turn will transfer the Series 1996-1
Certificates to the Issuer. The Issuer will
issue the Senior Notes pursuant to the
Indenture and will pledge the Series 1996-1
Certificates to the Indenture Trustee as
security for such Senior Notes. The Issuer also
will issue the Subordinated Notes and the Lease
Trust Certificates, which are not offered
hereby.
Pursuant to the Program Operating Lease the
Issuer will lease the Series 1996-1
Certificates, subject to the lien securing the
Senior Notes, back to the Transferor in
exchange for the obligation of the Transferor
to make certain payments during the period that
each underlying Series 1996-1 Leased Vehicle is
subject to the Program Operating Lease. Such
payments (the "Program Operating Lease
Payments") will consist of a Required Interest
Payment portion and an Additional Payment
portion. The "Required Interest Payment"
generally will be equal to the sum for the
related three months of the Administrative
Agent Fee and three months of interest accrued
on the Senior Notes, the Subordinated Notes and
the Lease Trust Certificates. The "Additional
Payment" generally will be equal to the amount,
if any, by which the amount on deposit in the
Cash Collateral Account on any Payment Date
(after giving effect to any withdrawals
therefrom to pay the Required Interest Payment
and any deposits therein with respect to such
Payment Date, including payments on the
Subordinated Notes) exceeds the Required Cash
Collateral Amount for such Payment Date. The
Issuer will apply such Program Operating Lease
Payments, together with certain proceeds (as
described in "-- Transferor Leased Vehicle
Purchase Option") from Series 1996-1 Leased
Vehicles which are sold on or after their
Scheduled Lease End Dates, to pay interest on
and principal of the Senior Notes, the
Subordinated Notes and the Lease Trust
Certificates in accordance with their
respective terms.
On the Closing Date, the Transferor will make
an initial deposit to the Cash Collateral
Account of $30,821,533.09. The Cash
5
<PAGE> 6
Collateral Account will secure the Transferor's
obligation to make Program Operating Lease
Payments on a quarterly basis. The Transferor
initially will retain the Subordinated Notes
and will be required to deposit payments of
interest on and principal of the Subordinated
Notes into the Cash Collateral Account. The
Transferor will pledge the Subordinated Notes
to the Issuer to secure the Transferor's
obligation to make Program Operating Lease
Payments on a quarterly basis. Amounts payable
to the Issuer with respect to the Series 1996-1
Certificates and the Program Operating Lease
(including amounts withdrawn from the Cash
Collateral Account) will be applied to pay
interest on and principal of the Senior Notes,
the Subordinated Notes and the Lease Trust
Certificates and certain other amounts as more
fully described herein. The Issuer has pledged
amounts payable to it to the Indenture Trustee
to secure payment of the Senior Notes. Ford
Credit and Ford Credit Leasing intend that the
securitization described in this Prospectus
will result in a sale of the Series 1996-1
Assets for accounting purposes and a financing
of the Series 1996-1 Leases and Series 1996-1
Leased Vehicles for tax purposes.
THE ISSUER.................... Ford Credit Auto Lease Trust 1996-1,
established pursuant to the Lease Trust
Agreement.
THE LEASE TRUSTEE............. PNC Bank, Delaware, as Lease Trustee under the
Lease Trust Agreement.
THE INDENTURE TRUSTEE......... The Chase Manhattan Bank, as Indenture Trustee
under the Indenture.
THE ADMINISTRATIVE AGENT...... Ford Credit, a wholly owned indirect subsidiary
of Ford Motor Company, is the Administrative
Agent. See "Description of the Administrative
Agency Agreement."
FORD CREDIT LEASING........... Ford Credit Leasing Company, Inc., a wholly
owned special purpose subsidiary of Ford
Credit.
THE TRANSFEROR................ The Transferor will be formed by Ford Credit
and Ford Credit Leasing as a Delaware business
trust pursuant to the RCL Trust Agreement. The
RCL Trustee is First Union Bank of Delaware, a
Delaware banking corporation. See "The
Transferor."
THE SENIOR NOTES.............. On the Closing Date the Issuer will issue,
pursuant to the Indenture, Class A-1 Senior
Notes in an initial principal balance of
$150,000,000 and Class A-2 Senior Notes in an
initial principal balance of $660,843,000.
Concurrently with the issuance of the Senior
Notes, the Issuer will issue Subordinated Notes
in an initial principal balance of
$106,690,331.13 and Lease Trust Certificates in
an initial principal balance of $30,821,533.09.
The Subordinated Notes and the Lease Trust
Certificates are not being offered hereby.
INTEREST...................... The Class A-1 Senior Notes will bear interest
at the rate of 5.45125% per annum and the Class
A-2 Senior Notes will bear interest at the rate
of 5.80% per annum. Interest on the principal
balance of the Senior Notes will accrue at the
applicable interest rate (i) with respect to
the Class A-1 Senior Notes, either from and
including the Closing Date (in the case of the
first Payment Date) or from and including the
most recent Payment Date on which interest has
been paid to but excluding the following
6
<PAGE> 7
Payment Date and (ii) with respect to the Class
A-2 Senior Notes, either from and including the
Closing Date (in the case of the first Payment
Date) or from and including the fifteenth day
of the third calendar month preceding the
calendar month in which each Payment Date
occurs, to but excluding the fifteenth day of
the calendar month in which such Payment Date
occurs. Interest will be payable on each
Payment Date to Senior Noteholders of record on
the related Record Date. Interest accrued but
not paid as of any Payment Date will be due on
the next Payment Date together with interest on
such amount (to the extent lawful) at a rate
per annum equal to the interest rate for the
applicable Class. Interest on the Class A-1
Senior Notes will be calculated on the basis of
actual days elapsed and a 360-day year.
Interest on the Class A-2 Senior Notes will be
calculated on the basis of a 360-day year of
twelve 30-day months. See "Description of the
Senior Notes -- Interest."
PRINCIPAL..................... The aggregate amount of principal of the Senior
Notes payable on each Payment Date will equal
the sum of the Available Funds and the Cash
Collateral Additional Draw Amount, if any,
remaining after giving effect on such Payment
Date to (i) the payment of the Administrative
Agent Fee and (ii) the payment of interest
accrued on the Senior Notes, the Subordinated
Notes and the Lease Trust Certificates. See
"Description of the Senior Notes -- The
Indenture Cash Flows."
Principal of the Senior Notes will be paid to
holders of each Class of Senior Notes
sequentially. No principal payments will be
made on the Class A-2 Senior Notes until the
principal balance of the Class A-1 Senior Notes
has been reduced to zero, and no principal
payments will be made on the Subordinated Notes
and the Lease Trust Certificates until the
principal balance of the Class A-2 Senior Notes
has been reduced to zero; provided that if an
Event of Default under the Indenture has
occurred and the maturity of the Senior Notes
has been accelerated, principal payments will
be made on a pro rata basis to holders of the
Class A-1 Senior Notes and the Class A-2 Senior
Notes based on their respective principal
balances without any distinction between
Classes. See "Description of the Senior Notes
-- Indenture" for a discussion of the Events of
Default under the Indenture and the remedies
available to the Indenture Trustee and the
Senior Noteholders.
As described in "-- Priority of Payments" and
"Description of the Senior Notes -- The
Indenture Cash Flows," amounts payable on any
Payment Date generally will be paid first from
Available Funds and second from the Cash
Collateral Additional Draw Amount, if any. The
"Available Funds" on any Payment Date will be
equal to the sum of the Available Sale Proceeds
and the Cash Collateral Required Draw Amount.
The "Available Sale Proceeds" with respect to
any Payment Date will be equal to the Monthly
Scheduled Termination Sale Proceeds deposited
in the Collection Account on each of the two
preceding Distribution Dates and Monthly
Scheduled Termination Sale Proceeds deposited
in the Collection Account on the business day
preceding the Distribution
7
<PAGE> 8
Date occurring on such Payment Date (or on each
business day during the related Accrual Period
if any Monthly Remittance Condition has not
been satisfied) plus the Aggregate Net Sale
Proceeds Advances deposited in the Collection
Account on the business day preceding such
Payment Date. The "Cash Collateral Required
Draw Amount" with respect to any Payment Date
is the lesser of (i) the Required Interest
Payment for such Payment Date and (ii) the Cash
Collateral Amount on the business day preceding
such Payment Date (after giving effect to all
deposits to the Cash Collateral Account on such
business day). See "Description of the Senior
Notes -- Cash Collateral Account Withdrawals
and Deposits."
The "Cash Collateral Additional Draw Amount" on
any Payment Date will be equal to the
Additional Payment for such Payment Date less
the portion thereof to be applied to make
payments on the Subordinated Notes. See
"Description of the Senior Notes -- Cash
Collateral Account Withdrawals and Deposits."
The rate of payment and the yield to maturity
on each Class of Senior Notes generally will be
directly related to the rate at which payments
are made on the Series 1996-1 Leases and in
respect of the Series 1996-1 Leased Vehicles.
The rate of prepayments on the Series 1996-1
Leases may be influenced by a variety of
economic, social and other factors including
competing consumer finance products and the
conditions in the used vehicle market. If there
are prepayments in full of the Series 1996-1
Leases, Senior Noteholders will bear the risk
of being able to reinvest principal payments of
the Senior Notes at yields at least equal to
the yield on their respective Class of Senior
Notes. For further discussion of the factors
which may affect the amount and timing of
payments of principal of the Senior Notes, see
"Maturity, Prepayment and Yield
Considerations." See also "Description of the
Senior Notes -- Principal" and "-- The
Indenture Cash Flows."
PRIORITY OF PAYMENTS.......... On each Payment Date, the Indenture Trustee
will apply first the Available Funds and second
the Cash Collateral Additional Draw Amount, if
any, to the following (in the priority
indicated): (i) the Administrative Agent Fee to
the Administrative Agent; (ii) interest due on
the outstanding Senior Notes (and, to the
extent permitted under applicable law, interest
on any overdue interest at the interest rate
for the applicable Class) to the Senior
Noteholders; (iii) interest due on the
outstanding Subordinated Notes (and, to the
extent permitted under applicable law, interest
on any overdue interest at the interest rate
for the Subordinated Notes) to the Lease Trust
Paying Agent for deposit to the Cash Collateral
Account; (iv) interest accrued (including any
interest accrued but not deposited to the
Certificate Distribution Account on the
previous Payment Date) on the Lease Trust
Certificates (and, to the extent permitted
under applicable law, interest on any overdue
interest at the interest rate for the Lease
Trust Certificates) plus the Certificate
Distribution Draw Amount, if any, to the
Certificate Distribution Account; and (v)
principal with respect to each Class of Senior
Notes outstanding, sequentially, to the Senior
Noteholders until the Senior Notes have been
paid in
8
<PAGE> 9
full; provided that if an Event of Default has
occurred under the Indenture and the maturity
of the Senior Notes has been accelerated,
principal payments will be made on a pro rata
basis to holders of the Class A-1 Senior Notes
and the Class A-2 Senior Notes based on their
respective principal balances, without any
distinction between Classes. Following payment
in full of the Class A-2 Senior Notes, the
portion, if any, of the Available Funds plus
the Cash Collateral Additional Draw Amount, if
any, remaining will be applied to pay the
Subordinated Notes and the Lease Trust
Certificates in accordance with the terms
thereof. See "Description of the Senior Notes
-- The Indenture Cash Flows."
OPTIONAL REDEMPTION OF THE
SENIOR NOTES................. The Administrative Agent may, at its option,
purchase the Series 1996-1 Certificates on any
Payment Date on which the Pool Balance has
declined to less than 10% of the Initial Pool
Balance. Because the principal balance of the
Subordinated Notes and the Lease Trust
Certificates exceeds 10% of the Initial Pool
Balance, the Issuer does not anticipate,
although no assurances can be given, that the
Pool Balance will decline to a level permitting
the Administrative Agent to purchase the Series
1996-1 Certificates while the Senior Notes are
outstanding. If, however, such a decline occurs
and the Administrative Agent exercises such
option, the Senior Notes will be redeemed in
whole, but not in part, on the Payment Date of
such exercise. See "Description of the Senior
Notes -- Optional Redemption."
FCTT.......................... FCTT is a trust formed pursuant to the FCTT
Agreement. The FCTT Trustee is Comerica Bank, a
Michigan banking corporation, which may appoint
one or more co-trustees or separate trustees
for the purpose of meeting applicable state
requirements. FCTT was formed for the purpose
of holding title to vehicles subject to leases
in order to enable Ford Credit to obtain the
benefits of financing such vehicles and leases
without retitling. Vehicles subject to retail
leases which would otherwise be sold by Dealers
to Ford Credit are instead sold to FCTT. The
FCTT Trustee will hold the assets of FCTT in
trust for the benefit of the beneficiaries of
FCTT. As of the date of this Prospectus, the
primary assets of FCTT are Leases and Leased
Vehicles assigned to it by Dealers located in
fifteen states and all amounts payable in
connection therewith. See "FCTT -- Creation of
FCTT by Ford Credit and Ford Credit Leasing."
Ford Credit and Ford Credit Leasing were the
initial beneficiaries of FCTT. Ford Credit
initially held an Exchangeable Beneficial
Certificate (an "EBC") representing a 98%
beneficial interest in FCTT and the FCTT Assets
and Ford Credit Leasing initially held an EBC
representing a 2% beneficial interest in FCTT
and the FCTT Assets. Ford Credit and Ford
Credit Leasing have previously exchanged a
portion of their EBCs for a Series of Specified
Beneficial Certificates, the Series 1995-1
Certificates, and contributed such Series
1995-1 Certificates to an affiliate which
deposited them to a securitization trust in
connection with the issuance of a previous
series of asset backed securities. Similarly,
Ford Credit and Ford Credit Leasing will
exchange a portion of their EBCs for the Series
1996-1 Certificates and contribute
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<PAGE> 10
them to the Transferor which will deposit them
with the Issuer. After the issuance of the
Series 1996-1 Certificates on the Closing Date,
the EBCs will represent the beneficial interest
in the FCTT Assets other than the Series 1995-1
Assets, the Series 1996-1 Assets and any other
Series Specified Assets which may be designated
from time to time. See "FCTT -- Exchangeable
Beneficial Certificates and Specified
Beneficial Certificates."
Payments by or on behalf of Obligors made on or
in respect of FCTT Assets other than the Series
1996-1 Assets will not be available to make
payments on the Senior Notes, the Subordinated
Notes or the Lease Trust Certificates. Neither
Ford Credit nor Ford Credit Leasing, as holders
of the EBCs, nor holders of any Series of
Specified Beneficial Certificates other than
Series 1996-1 (whether issued in connection
with a future securitization or for any other
purpose) will have any interest in the Series
1996-1 Assets.
THE SERIES 1996-1 ASSETS...... The Series 1996-1 Leases will consist of a pool
of retail closed-end lease contracts originated
by Dealers and assigned to FCTT. Each Series
1996-1 Lease is an operating lease for
accounting purposes and a "true lease" for tax
purposes and will be purchased by FCTT,
together with the related Series 1996-1 Leased
Vehicle, from the Dealer for an amount equal to
the Balance Subject to Lease Charges. The
Obligor under each Series 1996-1 Lease is
obligated to make a fixed total monthly payment
(a "Total Monthly Payment") to the
Administrative Agent, acting on behalf of FCTT
and the holders of the Series 1996-1
Certificates, equal to the sum of (i) the
Monthly Payment, (ii) the Use and Lease Tax
Amount (payable to tax authorities), and (iii)
the Vehicle Insurance and Maintenance Amount
(payable to Dealers). Only the Monthly Payment
portion of each Total Monthly Payment is
available to holders of the Series 1996-1
Certificates. See "Description of the
Administrative Agency Agreement -- Remittance
of Payments; Allocation of Funds."
The Monthly Payments remitted by Obligors will
be deposited into the Cash Collateral Account
to secure the Transferor's obligation to make
Program Operating Lease Payments to the Issuer.
See "Description of the Senior Notes -- Cash
Collateral Account Withdrawals and Deposits."
The Series 1996-1 Leases consist of 48,284
individual Leases. The aggregate Balance
Subject to Lease Charges of the Series 1996-1
Leases as of their respective dates of
origination was $989,830,208.28. As of the
Series 1996-1 Cut-Off Date, the Pool Balance
was $948,354,864.22 (the "Initial Pool
Balance") and the aggregate Residual Values of
the Series 1996-1 Leased Vehicles were
$748,058,759.90. The Series 1996-1 Leases and
Series 1996-1 Leased Vehicles were selected by
the Administrative Agent at the direction of
Ford Credit and Ford Credit Leasing as holders
of the EBCs from FCTT's portfolio of Leases and
Leased Vehicles represented by the EBCs, based
upon the General Eligibility Criteria and the
Specific Eligibility Criteria described herein.
See "The Leases and Leased Vehicles," "FCTT --
Exchangeable Beneficial Certificates and
Specified Beneficial Certificates" and
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<PAGE> 11
"Additional Document Provisions --
Representations, Warranties and Covenants."
THE SERIES 1996-1
CERTIFICATES.................. The Series 1996-1 Certificates will represent
in the aggregate a 100% beneficial interest in
the Series 1996-1 Assets and will entitle the
holders thereof to all proceeds of and payments
in connection with the Series 1996-1 Assets.
The Series 1996-1 Certificates will not
evidence legal title to or direct ownership of
the Series 1996-1 Assets nor will they
represent a beneficial interest in any FCTT
Assets other than the Series 1996-1 Assets. See
"FCTT -- Exchangeable Beneficial Certificates
and Specified Beneficial Certificates." The
Indenture Trustee as assignee of the Issuer
will have a perfected security interest in the
underlying Series 1996-1 Leases but will not
have a security interest in the underlying
Series 1996-1 Leased Vehicles. For a discussion
of the security interests in the Series 1996-1
Certificates, the Series 1996-1 Leases and the
Series 1996-1 Leased Vehicles, see "Certain
Legal Aspects of the Leases and Leased
Vehicles."
CONTRIBUTION, TRANSFER, AND
LEASE OF SERIES 1996-1
CERTIFICATES................ On the Closing Date, Ford Credit and Ford
Credit Leasing each will contribute their
respective Series 1996-1 Certificates to the
Transferor pursuant to the Asset Contribution
Agreement. The Transferor will transfer the
Series 1996-1 Certificates to the Issuer
pursuant to the Transfer Agreement. Subject to
the pledge by the Issuer of its interest in
such Series 1996-1 Certificates to the
Indenture Trustee to secure payment of the
Senior Notes, the Issuer will lease the Series
1996-1 Certificates back to the Transferor
pursuant to the Program Operating Lease. The
Transferor will assign 1% of all of its assets
and obligations, including its rights and
obligations under the Program Operating Lease,
to Ford Credit Leasing. For convenience, these
rights and obligations of the Transferor and
its assignee, Ford Credit Leasing, generally
are referred to herein as rights and
obligations of the Transferor. In connection
with such assignment, Ford Credit Leasing will
hold $1,066,903.31 in initial principal balance
of Subordinated Notes and $3,115.33 in initial
principal balance of Lease Trust Certificates
representing 1% of the initial principal
balance of the Subordinated Notes and Lease
Trust Certificates, respectively, initially
acquired by the Transferor. See "The Transferor
-- Creation by Ford Credit and Ford Credit
Leasing; Assignment to Ford Credit Leasing."
Under the Program Operating Lease, the
Transferor will be entitled to receive all
payments and proceeds with respect to the
Series 1996-1 Certificates during the term of
the Program Operating Lease and will be
required to deposit such payments and proceeds
into the Cash Collateral Account to secure its
obligation to make Program Operating Lease
Payments to the Issuer. Because the Program
Operating Lease expires with respect to the
portion of the Series 1996-1 Certificates
representing the beneficial interest in a
Series 1996-1 Leased Vehicle at the end of the
related Series 1996-1 Lease (and before such
Series 1996-1 Leased Vehicle is sold or a Sale
Proceeds Advance is made in respect thereof),
the Issuer will receive directly the proceeds
from the sale
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<PAGE> 12
of Series 1996-1 Leased Vehicles following
scheduled termination of the related Series
1996-1 Leases. See "Series 1996-1
Certificates."
PROPERTY OF THE ISSUER; PLEDGE
TO THE INDENTURE TRUSTEE..... Pursuant to the Indenture and prior to entering
into the Program Operating Lease, the Issuer
will pledge its interest in the Lease Trust
Estate to secure its obligation to pay interest
on and principal of the Senior Notes. The
"Lease Trust Estate" consists of (i) the rights
of the Issuer under the Series 1996-1
Certificates, (ii) the rights under the Program
Operating Lease, (iii) the rights of the Issuer
to funds on deposit from time to time in the
Collection Account, the Payahead Account, the
Payment Account, the Certificate Distribution
Account and any other account or accounts
established pursuant to the Indenture
(including investment earnings (net of losses
and investment expenses) on amounts on deposit
in the Collection Account and the Certificate
Distribution Account) and proceeds thereof,
(iv) the rights of the Transferor under the
Asset Contribution Agreement, (v) the rights as
holder of the Series 1996-1 Certificates under
the Administrative Agency Agreement and the
Series 1996-1 Supplement, (vi) the security
interest of the Issuer in the Subordinated
Notes and the Cash Collateral Account and the
right to make withdrawals from the Cash
Collateral Account and (vii) all proceeds of
the foregoing. See "Property of the Issuer" and
"Series 1996-1 Certificates -- Pledge of the
Series 1996-1 Certificates to the Indenture
Trustee."
TRANSFEROR LEASED VEHICLE
PURCHASE OPTION.............. Under the Program Operating Lease, the
Transferor may, at its option, purchase the
Issuer's beneficial interest in any Series
1996-1 Leased Vehicle which is sold at auction
following the Scheduled Lease End Date of the
related Series 1996-1 Lease. The Transferor may
exercise such option (the "Transferor Leased
Vehicle Purchase Option") by paying to the
Issuer an amount equal to the Residual Value of
such Series 1996-1 Leased Vehicle minus any
amounts due from the related Obligor for
Uncollected Excess Wear and Tear and Excess
Mileage (such amount, the "Transferor Purchase
Option Price"). The Transferor will exercise
such option only if neither the Obligor nor the
Dealer exercises its option to purchase the
Series 1996-1 Leased Vehicle, and the Sale
Proceeds of such Series 1996-1 Leased Vehicle
exceed the Transferor Purchase Option Price.
Because the Transferor intends to exercise this
option when available, Sale Proceeds received
by the Issuer with respect to any Series 1996-1
Leased Vehicle the related Series 1996-1 Lease
of which terminated on or after its Scheduled
Lease End Date will not exceed the Transferor
Purchase Option Price. With respect to each
Series 1996-1 Leased Vehicle for which the
Transferor exercises its purchase option, the
Transferor will deposit the excess of the Sale
Proceeds of such Series 1996-1 Leased Vehicle
over the related Transferor Purchase Option
Price (the "Transferor Purchase Option Net
Proceeds") into the Cash Collateral Account
until the aggregate cumulative amount deposited
in respect of such Transferor Purchase Option
Net Proceeds for all such Series 1996-1 Leased
Vehicles equals $94,835,486.42,
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<PAGE> 13
which is equal to 10% of the Initial Pool
Balance. Thereafter, the Transferor will retain
any Transferor Purchase Option Net Proceeds and
such amounts, if any, will not be available to
pay interest on or principal of the Senior
Notes, the Subordinated Notes or the Lease
Trust Certificates. To the extent that
Transferor Purchase Option Net Proceeds are
deposited into the Cash Collateral Account,
such amounts will secure the Transferor's
obligation to make Program Operating Lease
Payments to the Issuer. See "Series 1996-1
Certificates -- Lease of the Series 1996-1
Certificates to the Transferor" for further
discussion of the purchase option of the
Transferor and "Description of the
Administrative Agency Agreement -- Sale of
Leased Vehicles" for a discussion of the
process by which the Administrative Agent sells
Series 1996-1 Leased Vehicles after their
respective Scheduled Lease End Dates.
Senior Noteholders will not be subject to delay
in receipt of principal resulting from a delay
in the sale of Series 1996-1 Leased Vehicles
after their respective Scheduled Lease End
Dates to the extent that the Administrative
Agent makes Sale Proceeds Advances of the
Residual Values of Series 1996-1 Leased
Vehicles as described in "-- Sale Proceeds
Advances" and "Description of the
Administrative Agency Agreement -- Advances of
Sale Proceeds."
CASH COLLATERAL ACCOUNT....... Amounts on deposit in the Cash Collateral
Account from time to time (the "Cash Collateral
Amount") secure the Transferor's obligations
under the Program Operating Lease and on each
Payment Date will be applied to pay Program
Operating Lease Payments. On the Closing Date
the Transferor will deposit $30,821,533.09 (the
"Initial Cash Collateral Deposit") in the Cash
Collateral Account.
Amounts on deposit in the Cash Collateral
Account will be augmented during each Accrual
Period by the deposit therein of the following
amounts with respect to such Accrual Period:
(i) all Collections other than Monthly
Scheduled Termination Sale Proceeds with
respect to Series 1996-1 Assets; (ii) the
Aggregate Net Monthly Payment Advances; (iii)
any Transferor Purchase Option Net Proceeds
until the aggregate cumulative amount deposited
in respect of such proceeds equals
$94,835,486.42; (iv) payments of interest on
and principal of the Subordinated Notes; and
(v) any investment earnings (net of losses and
investment expenses) on funds on deposit in the
Collection Account, the Cash Collateral Account
and the Certificate Distribution Account.
On the business day preceding each Payment
Date, the Indenture Trustee will withdraw the
Cash Collateral Required Draw Amount from the
Cash Collateral Account and use such amount to
pay the Required Interest Payment portion of
the Program Operating Lease Payments. On each
Payment Date, the Indenture Trustee will
withdraw the Cash Collateral Additional Draw
Amount from the Cash Collateral Account and use
such amount to pay the Additional Payment
portion, if any, of the Program Operating Lease
Payments. See "Description of the Senior Notes
-- Cash Collateral Account Withdrawals and
Deposits" and "-- The Indenture Cash Flows."
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<PAGE> 14
The "Required Cash Collateral Amount" as of any
Payment Date will be 3.25% of the Initial Pool
Balance, provided that the Required Cash
Collateral Amount will equal zero as of any
Payment Date occurring on or after the earlier
of the date on which the last remaining Series
1996-1 Lease terminated or the date on which
the Program Operating Lease is terminated
following an event of default thereunder.
THE ADMINISTRATIVE AGENT...... The Administrative Agent will act as servicer
with respect to all Leases and Leased Vehicles
owned by FCTT (including the Series 1996-1
Leases and Series 1996-1 Leased Vehicles) and
will be the custodian of the related Lease
Files. The Administrative Agent will receive
the Administrative Agent Fee and the
Supplemental Administrative Agent Fee as
compensation for servicing the Series 1996-1
Assets (including disposing of Series 1996-1
Leased Vehicles) and administering the
distribution of funds in respect thereof. The
Administrative Agent Fee as of any Payment Date
will equal the sum, for each of the three
Collection Periods preceding such Payment Date,
of the product of 1/12 of 1.00% and the Pool
Balance as of the beginning of each such
Collection Period. See "Description of the
Administrative Agency Agreement."
ADMINISTRATIVE PURCHASES...... Ford Credit and Ford Credit Leasing, as holders
of the EBCs, will be required to purchase the
beneficial interest in any Series 1996-1 Lease
and Series 1996-1 Leased Vehicle as to which
(i) all of the Specific Eligibility Criteria
and General Eligibility Criteria were not
satisfied on the Series 1996-1 Cut-Off Date,
(ii) a breach of certain covenants has occurred
and has not been cured, (iii) the
Administrative Agent has granted a Term
Extension or any Payment Extension over three
months (in the aggregate) or (iv) the Series
1996-1 Leased Vehicle is relocated to a
jurisdiction in which FCTT is not authorized to
hold the related certificate of title. Any such
purchase shall be effected by the deposit of
the Administrative Purchase Amount in the
Collection Account on the business day
preceding the Payment Date relating to the
Accrual Period in which any of the events
specified above occurred or were discovered, as
applicable. See "Description of the
Administrative Agency Agreement --
Administrative Purchases."
MONTHLY PAYMENT ADVANCES...... The Administrative Agent will be obligated to
make a Monthly Payment Advance in an amount
equal to any unpaid portion of the Monthly
Payments due under a Series 1996-1 Lease during
an Accrual Period, but only if the
Administrative Agent determines, in its sole
discretion, that such Monthly Payment Advance
will be recoverable from subsequent Collections
on such Series 1996-1 Lease (excluding Sale
Proceeds). See "Description of the Senior Notes
-- Advances" and "Description of the
Administrative Agency Agreement -- Monthly
Payment Advances."
SALE PROCEEDS ADVANCES........ The Administrative Agent will be obligated to
make a Sale Proceeds Advance in an amount equal
to the Residual Value of any Series 1996-1
Leased Vehicle which has not been sold by the
last business day of the Accrual Period in
which the Scheduled Lease
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<PAGE> 15
End Date of the related Series 1996-1 Lease
occurred, but only if the Administrative Agent
determines, in its sole discretion, that such
Sale Proceeds Advance will be recoverable from
the Sale Proceeds of such Series 1996-1 Leased
Vehicle. See "Description of the Senior Notes
-- Advances" and "Description of the
Administrative Agency Agreement -- Advances of
Sale Proceeds."
TAX STATUS.................... In the opinion of Special Tax Counsel, subject
to the matters discussed under "Federal Income
Tax Consequences," for federal income tax
purposes (i) the Senior Notes will be treated
as debt, (ii) the Lease Trust Certificates
(other than the Lease Trust Certificates
initially acquired by the Transferor) should be
treated as debt and (iii) none of FCTT, the
Transferor or the Issuer will be classified as
an association (or publicly traded partnership)
taxable as a corporation.
The Class A-1 Senior Notes will be treated as
"short-term obligations" issued with
acquisition discount. The Class A-2 Senior
Notes will be issued with a de minimis amount
of original issue discount ("OID"). See
"Federal Income Tax Consequences" for
additional information concerning acquisition
discount, OID and the application of federal
income tax laws.
In the opinion of Michigan Tax Counsel,
assuming that the Senior Notes will be treated
as debt for federal income tax purposes, (i)
the Senior Notes will be treated as debt for
Michigan income and single business tax
purposes and (ii) Senior Note Owners not
otherwise subject to taxation in Michigan would
not become subject to taxation in Michigan
solely because of a Senior Note Owner's
ownership of a Senior Note. Assuming further
that the Lease Trust Certificates (other than
the Lease Trust Certificates initially acquired
by the Transferor) will be treated as debt for
federal income tax purposes and that none of
FCTT, the Transferor or the Issuer will be
classified as an association (or publicly
traded partnership) taxable as a corporation
for federal income tax purposes, none of FCTT,
the Transferor or the Issuer should be subject
to Michigan income and single business tax at
the entity level. See "Certain State Tax
Consequences" for additional information
concerning the application of state tax laws.
ERISA CONSIDERATIONS.......... Subject to the considerations discussed under
"ERISA Considerations," the Senior Notes are
eligible for purchase by employee benefit
plans.
LEGAL INVESTMENT.............. The Class A-1 Senior Notes will be eligible
securities for purchase by money market funds
under Rule 2a-7 under the Investment Company
Act of 1940, as amended.
RATINGS OF THE SENIOR NOTES... It is a condition of the issuance of the Senior
Notes that they be rated in the highest
investment rating category by at least one
Rating Agency. There can be no assurance that
such ratings will not be lowered or withdrawn
by a Rating Agency if in its judgment
circumstances so warrant. See "Ratings of the
Senior Notes" and "Risk Factors -- ERISA
Liabilities; Effect on Ratings."
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<PAGE> 16
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Senior Notes offered hereby.
The Underwriters expect, but will not be obligated, to make a market in the
Senior Notes. There can be no assurance that a secondary market for any of the
Senior Notes will develop or, if one does develop, that it will provide the
Senior Noteholders with liquidity of investment or that it will continue for the
life of the Senior Notes offered hereby.
LIMITED ASSETS
The assets of the Issuer, which have been pledged to the Indenture Trustee
to secure the payment of interest on and principal of the Senior Notes, are
limited to the Lease Trust Estate, including the interest in the Series 1996-1
Certificates held by the Issuer under the Program Operating Lease, the right to
receive payments from the Transferor under the Program Operating Lease and a
security interest in the Subordinated Notes and in the amounts credited to the
Cash Collateral Account to secure the payments required under the Program
Operating Lease. The Issuer will not have, nor is it permitted or expected to
have, any other significant assets or other sources of funds. The Senior Notes
represent obligations of the Issuer, and are not insured or guaranteed by the
Transferor, Ford Credit, Ford Credit Leasing, the RCL Trustee, the Lease
Trustee, the Indenture Trustee or any other person or entity. Moreover, although
payment of interest on and principal of the Senior Notes is ultimately dependent
on the payments made under the Series 1996-1 Leases by Obligors and proceeds
from the disposition of the Series 1996-1 Leased Vehicles, neither the Issuer
nor the Transferor has a direct ownership interest in any Series 1996-1 Lease or
a direct ownership interest or perfected security interest in any Series 1996-1
Leased Vehicle. Because the interest of the Indenture Trustee, as pledgee of the
Issuer, is in the Series 1996-1 Certificates and other assets described above
and not directly in the Series 1996-1 Assets, upon the occurrence of an Event of
Default the Indenture Trustee would have no rights with respect to either the
Series 1996-1 Leases or the Series 1996-1 Leased Vehicles, but instead would be
limited to exercising its rights with respect to the Series 1996-1 Certificates
and the other assets described above (including the amounts available from the
Cash Collateral Account). To the extent that the exercise of such rights
produces insufficient funds to make all required payments with respect to the
Senior Notes, Senior Noteholders could suffer a loss of all or part of their
investment. See "Property of the Issuer" and "Description of the Senior Notes --
Indenture."
LIMITED OBLIGATIONS OF THE ISSUER, THE TRANSFEROR, FORD CREDIT AND FORD CREDIT
LEASING
The Senior Notes are solely obligations of the Issuer, and neither the
Transferor, Ford Credit nor Ford Credit Leasing is obligated to pay interest on
or principal of the Senior Notes (except indirectly to the extent of payments by
the Transferor required under the Program Operating Lease). If, after
application of amounts on deposit in the Cash Collateral Account, the Transferor
does not have sufficient funds to pay to the Issuer the Program Operating Lease
Payments on any Payment Date, the Senior Noteholders could incur a loss on their
investment.
RESIDUAL VALUE RISK
The Residual Value of each Leased Vehicle, including each Series 1996-1
Leased Vehicle, is stated in the related Lease, including the Series 1996-1
Leases, and is determined by Ford Credit as Administrative Agent for FCTT. Ford
Credit sets the Residual Value for a particular model of Leased Vehicle by
reference to its estimate of the wholesale market value of such model at the end
of the Lease Term. However, in connection with sales incentive programs for
particular models, Ford Credit may increase the Residual Values set forth in
Leases to levels above its estimate of the wholesale market values of such
Leased Vehicles at the end of their respective Lease Terms, in order to
stimulate sales of particular models by reducing the amount of the Total Monthly
Payments which would be owed by Obligors. See "The Leases and Leased Vehicles --
Delinquency, Repossession, Residual Value and Loss Data."
At the end of each Series 1996-1 Lease, each Series 1996-1 Leased Vehicle
is either purchased by the Obligor or the Dealer for a price greater than or
equal to its Residual Value or is returned to the
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<PAGE> 17
Administrative Agent. For Series 1996-1 Leased Vehicles which are purchased by
the Obligor or Dealer, the full Residual Value of such Series 1996-1 Leased
Vehicle is applied to make distributions on the Series 1996-1 Certificates. To
the extent that a Series 1996-1 Leased Vehicle is not purchased by the related
Obligor or Dealer, the Administrative Agent will sell such Series 1996-1 Leased
Vehicle at auction and proceeds of the sale will be applied to make
distributions on the Series 1996-1 Certificates. Any shortfalls between (x)
proceeds realized from the sale of Series 1996-1 Leased Vehicles (including
amounts collected in respect of Excess Wear and Tear and Excess Mileage and
reduced by amounts required to be remitted to the Obligor under applicable law)
after their respective Scheduled Lease End Dates and (y) their respective
Residual Values (as such Residual Values are decreased by Uncollected Excess
Wear and Tear and Excess Mileage) will reduce the amounts available for
distribution on the Series 1996-1 Certificates, and, to the extent such
reduction causes the Available Sale Proceeds plus amounts withdrawn from the
Cash Collateral Account to be less than the principal and interest due on the
Senior Notes on any Payment Date, the Senior Noteholders could suffer a loss on
their investment. Because the Transferor intends to exercise its Transferor
Leased Vehicle Purchase Option whenever it is economically advantageous to do
so, any Sale Proceeds of a Series 1996-1 Leased Vehicle which are in excess of
its Residual Value minus Uncollected Excess Wear and Tear and Excess Mileage
will be paid to the Transferor, who will deposit such amounts into the Cash
Collateral Account until the cumulative total of deposits with respect to such
amounts equals $94,835,486.42; thereafter, such amounts, if any, will be paid to
the Transferor but not deposited into the Cash Collateral Account and therefore
will not be available to make payments under the Program Operating Lease. To the
extent that such amounts are deposited into the Cash Collateral Account, they
will secure the Transferor's obligation to make Program Operating Lease Payments
to the Issuer. See "Series 1996-1 Certificates -- Lease of the Series 1996-1
Certificates to the Transferor."
There can be no assurance that the historical realization of the Residual
Values through purchases by the Obligors or Dealers or from sale at auction will
be indicative of future realizations on the Series 1996-1 Leased Vehicles. In
addition, any shortfalls between Liquidation Proceeds and the Adjusted Balance
Subject to Lease Charges of the related Series 1996-1 Leased Vehicle as of the
date the related Series 1996-1 Lease became a Liquidated Lease will also reduce
the amounts available for distribution on the Series 1996-1 Certificates and, to
the extent that such reduction causes the Available Sale Proceeds plus amounts
withdrawn from the Cash Collateral Account to be less than the principal and
interest due on the Senior Notes on any Payment Date, the Senior Noteholders
could suffer a loss on their investment.
Because on the business day preceding each Payment Date the Administrative
Agent generally will make a Sale Proceeds Advance of the Residual Value of each
Series 1996-1 Leased Vehicle for which as of the end of the related Accrual
Period the Scheduled Lease End Date has occurred but the related Sale Proceeds
have not been received, Senior Noteholders will not be subject to delays in the
receipt of principal payments due to delays in the sale of Series 1996-1 Leased
Vehicles. The Administrative Agent is obligated to make a Sale Proceeds Advance
with respect to a Series 1996-1 Leased Vehicle only to the extent that it
believes such advances are recoverable from the Sale Proceeds of such Series
1996-1 Leased Vehicle; if the Administrative Agent determined that Sale Proceeds
Advances would not be recoverable from Sale Proceeds of the Series 1996-1 Leased
Vehicles which had not been sold, or if it otherwise failed to honor its
contractual obligation to make Sale Proceeds Advances, Senior Noteholders could
be subject to delays in the receipt of principal payments to the extent that
there is a delay in the receipt of proceeds from the sale of Series 1996-1
Leased Vehicles. See "Description of the Administrative Agency Agreement -- Sale
of Leased Vehicles" and "-- Advances of Sale Proceeds."
GEOGRAPHIC, ECONOMIC AND OTHER FACTORS
The Dealers which originated the Series 1996-1 Leases are located, and the
Obligors generally are located, in one of fifteen states, with the largest
percentage of such Dealers and Obligors being located in California, New York,
Pennsylvania, Minnesota and Colorado. The percentage of such Dealers and
Obligors located in any one of the fifteen states other than California, New
York, Pennsylvania, Minnesota or Colorado is less than 5%. See "The Leases and
Leased Vehicles -- Characteristics of the Series 1996-1 Assets." Due to the
geographic concentration in California, New York, Pennsylvania, Minnesota and
Colorado, adverse economic conditions in one or more of these states may have a
disproportionate impact on the performance of
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<PAGE> 18
the Series 1996-1 Assets. Economic factors such as unemployment, interest rates,
the rate of inflation and consumer perceptions of the economy may affect the
rate of prepayment and defaults on the Series 1996-1 Leases. In addition,
natural disasters in one or more of the states may affect the rate of prepayment
and defaults on the Series 1996-1 Leases and the ability to realize the Residual
Values of Series 1996-1 Leased Vehicles upon sale. These economic factors, as
well as other factors such as consumer perceptions of used vehicle values (and
Ford vehicles in particular), may also affect the ability to realize the
Residual Values of Series 1996-1 Leased Vehicles upon sale.
STRUCTURAL CONSIDERATIONS
Beneficial Interests
The Issuer does not directly own the Leases or the Leased Vehicles which
constitute the Series 1996-1 Assets nor does it have a perfected security
interest in the Series 1996-1 Leased Vehicles. Because ownership and, generally,
the perfection of a security interest in a vehicle is governed by the
certificate of title statute of the state in which a vehicle is located, and
because obtaining a perfected security interest or an ownership interest in a
vehicle would result in the administrative burden and expense of retitling
vehicles, title to the Series 1996-1 Assets is held by the FCTT Trustee on
behalf of FCTT which will issue the Series 1996-1 Certificates representing
beneficial interests in the Series 1996-1 Assets. Before the designation of
certain specified Leases and Leased Vehicles as the Series 1996-1 Assets and the
issuance of the Series 1996-1 Certificates, the EBCs, held by Ford Credit and
Ford Credit Leasing, will represent the beneficial interest in all FCTT Assets
other than the Series 1995-1 Assets. Ford Credit and Ford Credit Leasing had
previously exchanged a portion of their EBCs for the Series 1995-1 Certificates
in connection with the issuance of an earlier series of asset backed securities.
After the issuance of the Series 1996-1 Certificates, the FCTT Trustee and the
Administrative Agent are required to account separately for the proceeds
relating to the Series 1996-1 Assets and to the other FCTT Assets. Neither the
holders of the EBCs nor the holders of any other Series will have any rights to
the Series 1996-1 Assets, payments relating thereto or the proceeds thereof.
After the contribution of the Series 1996-1 Certificates by Ford Credit and Ford
Credit Leasing to the Transferor and the subsequent transfer of such Series
1996-1 Certificates to the Issuer, the beneficial interest in the Series 1996-1
Assets will be held by the Issuer, subject to the pledge of the Series 1996-1
Certificates to the Indenture Trustee and the rights of the Transferor under the
Program Operating Lease.
Allocation of FCTT Liabilities
The FCTT Agreement provides that the holders of the Series 1996-1
Certificates (which holders for this purpose include both the Transferor and the
Issuer) are responsible for liabilities to third parties or to the FCTT Trustee
incurred in connection with any Series 1996-1 Assets. The Transferor (or other
holder of the Lease Trust Certificates and a portion of the Subordinated Notes
in each case initially acquired by the Transferor) will indemnify the Issuer
against any such liabilities. The FCTT Agreement further provides that the
holders of the Series 1996-1 Certificates will not be responsible for
liabilities incurred in connection with the other assets of FCTT. Holders of the
EBCs will be responsible for any liabilities to third parties or liabilities of
FCTT incurred in connection with any Non-Specified Assets, and the holders from
time to time of any other Series will be responsible for any liabilities to
third parties and liabilities of FCTT incurred in connection with the related
Series Specified Assets. Such allocations are not binding on third parties, and
to the extent that liabilities arising with respect to the assets of FCTT or
imposed upon the FCTT Trustee are not satisfied in accordance with the
allocations described above, the Series 1996-1 Assets could be used to satisfy
such liabilities. To protect against such liabilities, Ford Credit maintains
self-insurance for the benefit of itself and FCTT, and maintains excess
liability insurance policies naming Ford Credit and FCTT as insured parties. In
addition, each of Ford Credit and Ford Credit Leasing will be liable for claims
against FCTT as if FCTT were a partnership and each were a general partner. If
the Contingent and Excess Liability Insurance is insufficient and Ford Credit
and Ford Credit Leasing fail to perform their obligations to indemnify the
Issuer against such liabilities and amounts otherwise distributable to Ford
Credit and Ford Credit Leasing as holders of the EBCs are insufficient to
satisfy such liabilities, the Series 1996-1 Assets, together with the other
assets of FCTT, could be used to satisfy the liabilities to third parties and to
the FCTT Trustee, and the Senior
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<PAGE> 19
Noteholders could incur a loss on their investment. See "Certain Legal Aspects
of FCTT and the Series 1996-1 Certificates -- Insurance."
The Issuer does not own the Series 1996-1 Assets but instead has an
indirect beneficial interest therein. Therefore, a third-party creditor or
claimant who has a perfected security interest in or otherwise obtains a lien on
any Series 1996-1 Asset will have priority over the interest of the FCTT
Trustee. If such creditor or claimant has a claim on any Series 1996-1 Asset,
the effect is the same as if such creditor or claimant had a claim on the Issuer
and the Issuer owned such Series 1996-1 Asset (that is, the Issuer's interest in
the Series 1996-1 Asset would be subject to the prior perfected claim). However,
because other assets in addition to the Series 1996-1 Assets are held by FCTT,
and third-party creditors of FCTT are not bound by the allocation of liabilities
described above, a general creditor of FCTT may obtain a lien either on all or
any one of the Series 1996-1 Assets with respect to a claim unrelated to such
Series 1996-1 Assets or on all of the FCTT Assets, including the Series 1996-1
Assets, regardless of whether such claim would have been allocated to such
Series 1996-1 Assets under the terms of the FCTT Agreement.
Such liens could include judgment liens arising from either successful
claims under federal and state consumer protection laws with respect to Leases
and Leased Vehicles or from successful claims against FCTT arising from
operation of Leased Vehicles constituting FCTT Assets. Other general liens which
could arise include tax liens arising against the Transferor or the Issuer,
liens arising under various federal and state criminal statutes and certain
liens in favor of the Pension Benefit Guaranty Corporation (the "PBGC"). See "--
Consumer Protection Laws," "-- ERISA Liabilities; Effect on Ratings" and "--
Vicarious Tort Liability." Ford Credit and Ford Credit Leasing have each
represented that as of the Series 1996-1 Cut-Off Date, there were no creditors
or claimants with respect to the Series 1996-1 Assets or, except for those
expressly permitted in connection with the issuance of previous series of asset
backed securities, with respect to FCTT.
The FCTT Assets are located in several states, the tax laws of which vary.
In addition, FCTT may in the future purchase Leases and Leased Vehicles from
Dealers located in states other than the fifteen states in which the Series
1996-1 Leases were originated. In the event that any state or locality imposes a
tax on FCTT at the entity level, Ford Credit and Ford Credit Leasing have agreed
to indemnify the holders of the SBCs for the full amount of such taxes. If Ford
Credit and Ford Credit Leasing should fail to fulfill their respective
indemnification obligations, amounts otherwise distributable to them as holders
of the EBCs will be used to satisfy such indemnification obligations. However,
it is possible that the Senior Noteholders could incur a loss on their
investment in the event Ford Credit and Ford Credit Leasing did not have
sufficient assets available (including distributions on the EBCs) to satisfy
such state or local tax liabilities.
The FCTT Agreement provides for Ford Credit and Ford Credit Leasing to be
liable as if FCTT were a partnership and each were a general partner to the
extent necessary after giving effect to the payment of liabilities allocated
severally to the holders of certificates representing their respective
beneficial interest in assets of FCTT. However, it is possible that the Senior
Noteholders could incur a loss on their investment to the extent that any such
claim was allocable to the Issuer as holder of the Series 1996-1 Certificates
either because a lien arose in connection with the Series 1996-1 Assets or in
the event Ford Credit and Ford Credit Leasing did not have sufficient assets
available (including distributions on the EBCs) to satisfy such claimant or
creditor in full.
TERMINATION OF FCTT IN CERTAIN CIRCUMSTANCES
If a bankruptcy or insolvency occurs with respect to Ford Credit Leasing
(which is intended to be a special purpose corporation), the FCTT Agreement
provides that FCTT will be terminated. In addition, if the Transferor (which is
intended to be a limited purpose business trust) becomes bankrupt, insolvent or
is terminated, or the Issuer becomes bankrupt or insolvent (or if the Issuer is
terminated as a result of the bankruptcy, insolvency or termination of the
Transferor or Ford Credit Leasing), the FCTT Agreement provides that FCTT will
be terminated with respect to holding the Series 1996-1 Assets. In each case the
FCTT Trustee is required to distribute the Series 1996-1 Assets to the holder of
the Series 1996-1 Certificates.
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<PAGE> 20
Because the Issuer has pledged its rights to the Series 1996-1 Certificates to
the Indenture Trustee, such distribution would be made to the Indenture Trustee
who would be responsible for retitling the Series 1996-1 Leased Vehicles. The
cost of such retitling would reduce the amounts payable from the Series 1996-1
Assets which are available for payments of interest on and principal of the
Senior Notes, and in such event the Senior Noteholders could suffer a loss on
their investment.
INSOLVENCY OF FORD CREDIT -- SUBSTANTIVE CONSOLIDATION WITH FORD CREDIT; TRUE
SALE
As described under "Certain Legal Aspects of FCTT and the Series 1996-1
Certificates -- Insolvency Related Matters," the transactions described herein
have been structured and the parties to the Basic Documents described herein
have undertaken to act in a manner such that the voluntary or involuntary
commencement of an insolvency-related case or proceeding under the Bankruptcy
Code or similar state laws by or against Ford Credit should not result in any of
Ford Credit Leasing, FCTT or the Transferor becoming subject to a similar case
or proceeding, and should not result in the substantive consolidation of the
assets and liabilities of Ford Credit Leasing, FCTT or the Transferor with those
of Ford Credit for purposes of such case or proceeding. Each of Ford Credit and
Ford Credit Leasing intends that its transfer of its Series 1996-1 Certificate
to the Transferor be an absolute transfer (a "true sale") of all its interest in
such Series 1996-1 Certificate, and each will so treat and report such transfer
for all relevant purposes. A legal opinion will be delivered to the effect that
(i) the assets and liabilities of each of Ford Credit Leasing, FCTT and the
Transferor would not be substantively consolidated with those of Ford Credit if
Ford Credit were to become the subject of a case under the Bankruptcy Code, and
(ii) the transfer of the Series 1996-1 Certificates by each of Ford Credit and
Ford Credit Leasing would constitute an absolute transfer of all interest in
such Series 1996-1 Certificates and, therefore, such Series 1996-1 Certificates
(including payments thereon and the proceeds thereof) would not be property of
either Ford Credit or Ford Credit Leasing, as the case may be, if either were to
become the subject of a case under the Bankruptcy Code. Such conclusions are
reasoned conclusions, based upon various assumptions regarding factual matters
and future events, as to which there necessarily can be no assurance, and such
legal opinion should not be regarded as a guaranty of the result a court would
reach in an actual case before it. If Ford Credit Leasing, FCTT or the
Transferor were to become the subject of an insolvency-related case or
proceeding, or if a bankruptcy trustee, Ford Credit as debtor in possession, a
creditor or other party having standing were to assert that Ford Credit Leasing,
FCTT or the Transferor should be substantively consolidated with Ford Credit, or
that the transfer of the Series 1996-1 Certificates from Ford Credit (or, if
applicable, Ford Credit Leasing) should be recharacterized as a pledge of such
Series 1996-1 Certificates to secure a borrowing, then delays in payments on the
Series 1996-1 Certificates or (in the event of such an insolvency-related case
or proceeding or should the court rule in favor of such assertion) reductions in
such payments could occur, resulting in delays (or reductions) in payments on
the Senior Notes and a potential loss to Senior Noteholders on their investment.
INSOLVENCY OF FORD CREDIT -- PREFERENCE RISK
If Ford Credit were to become the subject of a case under the Bankruptcy
Code, Administrative Purchase Amounts paid by Ford Credit pursuant to the
Administrative Agency Agreement might be recoverable as preferential transfers
from Ford Credit to the extent made within a year of the commencement of such
case. Such a case (or a similar case or proceeding under applicable state law)
with respect to Ford Credit also would be an event of default under the
Administrative Agency Agreement, which could result in the removal of Ford
Credit as Administrative Agent. Either of such occurrences could adversely
affect timely payment to Senior Noteholders and, if payments previously made by
Ford Credit were to be recovered, losses to Senior Noteholders could result.
REQUIRED SALE OF ASSETS IN CERTAIN CIRCUMSTANCES
If a bankruptcy or insolvency occurs with respect to the Transferor or Ford
Credit Leasing, or the Transferor is terminated (which could occur upon the
bankruptcy or insolvency of Ford Credit Leasing), the Lease Trust Agreement
provides that the Issuer will be dissolved (and the Program Operating Lease will
terminate) and the Indenture Trustee will be required to sell the assets of the
Issuer in a commercially
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<PAGE> 21
reasonable manner and on commercially reasonable terms. Because each of the
events which requires the Issuer to be dissolved is also an event which requires
either FCTT to be terminated or FCTT to be terminated with respect to holding
the Series 1996-1 Assets, the Series 1996-1 Assets will be distributed from FCTT
to the purchaser and the Series 1996-1 Vehicles will be retitled at the
direction of such purchaser. The proceeds from the sale of the assets of the
Issuer plus amounts on deposit in the Cash Collateral Account and other accounts
of the Issuer, after the payment of any unpaid fees of the Indenture Trustee and
the Administrative Agent and the reimbursement of all outstanding Sale Proceeds
Advances and Monthly Payment Advances, will be distributed first to Senior
Noteholders, second to holders of Subordinated Notes (which amounts will be
deposited into the Cash Collateral Account) and third to holders of Lease Trust
Certificates in the priority set forth in the Indenture, and if such proceeds
and amounts are not sufficient to pay the Senior Notes in full, the amount of
principal returned to the Senior Noteholders would be reduced, and the Senior
Noteholders would incur a loss on their investment. See "Additional Document
Provisions -- The Lease Trust Agreement -- Termination."
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The rate of payment of principal and the yield to maturity on each Class of
Senior Notes generally will be directly related to the rate at which payments on
the Series 1996-1 Leases and in respect of the Series 1996-1 Leased Vehicles are
received. Partial prepayments by Obligors will be treated as Payaheads and will
not increase the rate of payment of principal of the Senior Notes because such
payments will be held and paid out to Senior Noteholders as principal only when
required to meet a shortfall in a subsequent payment from the related Obligor.
However, because the Residual Values of Series 1996-1 Leased Vehicles account
for a large portion of the Pool Balance, the rate of payment of principal on the
Senior Notes increases substantially on the August 15, 1998 Payment Date as a
result of a significant portion of Series 1996-1 Leases reaching their Scheduled
Lease End Dates in the related Accrual Period. See "The Leases and Leased
Vehicles." Further, prepayment of the entire Adjusted Balance Subject to Lease
Charges of a Series 1996-1 Lease, whether in the form of Voluntary Early
Termination Proceeds, Liquidation Proceeds or Administrative Purchase Amounts,
will have the effect of increasing the rate of payment of principal on the
Senior Notes. In addition, no principal will be paid on the Class A-2 Senior
Notes until the Class A-1 Senior Notes have been paid in full, unless an Event
of Default under the Indenture has occurred and the maturity of the Senior Notes
has been accelerated, in which case principal will be paid on a pro rata basis
to the holders of the Class A-1 Senior Notes and the Class A-2 Senior Notes
based on their respective principal balances without any distinction between
Classes. The rate of payment of principal of the Senior Notes also will be
increased by the application to the payment of principal on the Senior Notes
(after payment of interest on the Senior Notes, the Subordinated Notes and the
Lease Trust Certificates) of the portion, if any, of the Available Funds plus
the Cash Collateral Additional Draw Amount, if any, which does not constitute
payments by or on behalf of Obligors in reduction of the Balance Subject to
Lease Charges of the related Series 1996-1 Leases and which is not applied to
pay certain fees. To the extent Series 1996-1 Leases which have higher Retail
Operating Lease Factors are prepaid faster than others, the amount of such
additional portion of the Available Funds plus the Cash Collateral Additional
Draw Amount, if any, available to pay principal of the Senior Notes will be
reduced. See "Maturity, Prepayment and Yield Considerations."
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and regulations,
including the federal Consumer Leasing Act of 1976 and Regulation M promulgated
by the Board of Governors of the Federal Reserve System, impose requirements on
retail lease contracts such as the Series 1996-1 Leases. These laws apply to
FCTT as the assignee of each Series 1996-1 Lease and may also apply to the
Issuer as holder of the Series 1996-1 Certificates which represent a beneficial
interest in the Series 1996-1 Leases, among other things. The failure of the
Dealer, FCTT, or the Administrative Agent acting on behalf of FCTT, to comply
with such laws and regulations may give rise to liabilities on the part of FCTT,
and claims by FCTT or the Administrative Agent acting on behalf of FCTT with
respect to Obligors may be subject to set-off as a result of such
non-compliance.
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<PAGE> 22
Each of the fifteen states in which the Series 1996-1 Leases were
originated has adopted a "Lemon Law" that provides purchasers of vehicles,
including lessees in some states, certain rights with respect to vehicles which
are substandard. Such Lemon Laws apply with respect to the Series 1996-1 Leased
Vehicles. A successful claim under a Lemon Law could result in, among other
things, the termination of the related Series 1996-1 Lease and/or the refunding
to the related Obligor of some portion of Total Monthly Payments paid by such
Obligor. Any such refund would reduce the amounts distributed with respect to
the Series 1996-1 Certificates, which could, in certain circumstances, reduce
the payments to Senior Noteholders. See "Certain Legal Aspects of the Leases and
Leased Vehicles -- Consumer Protection Laws."
ERISA LIABILITIES; EFFECT ON RATINGS
It is possible that the PBGC could assert that the assets of FCTT,
including the Series 1996-1 Assets, should be subject to liens in favor of the
PBGC to satisfy any unpaid ERISA liabilities with respect to tax-qualified
defined benefit plans sponsored by any member of an "affiliated group" that
includes Ford Credit, Ford and their respective affiliates. Because such
affiliated group has historically substantially fully funded its ERISA
obligations (none of which arise under multiemployer plans), the Transferor
believes that the likelihood of any such unpaid liability occurring and the PBGC
attempting to assert such a lien (including a lien against the Series 1996-1
Assets) is remote. However, if an unfunded ERISA liability of the type that can
give rise to such a lien existed with respect to any member of such affiliated
group and such a liability were to go unpaid, there can be no assurance that the
PBGC would not attempt to assert such a lien on the assets of FCTT, in which
event the ratings of the Senior Notes might be downgraded. There are currently
no unfunded ERISA liabilities in the Ford affiliated group, although there can
be no assurance that the current level of funding will continue in the future.
See "Ratings of the Senior Notes."
VICARIOUS TORT LIABILITY
Although FCTT will hold title to the Series 1996-1 Leased Vehicles and the
Issuer, as holder of the Series 1996-1 Certificates (subject to the pledge to
the Indenture Trustee and the rights of the Transferor under the Program
Operating Lease), will have a beneficial interest therein, the Series 1996-1
Leased Vehicles will be operated by the related Obligors and their respective
invitees. State laws differ as to whether anyone suffering injury to person or
property involving a leased vehicle may bring an action against the owner of the
vehicle merely by virtue of its ownership of the vehicle. To the extent that
applicable state law permits such an action, FCTT and the FCTT Assets, including
the Series 1996-1 Assets, may be subject to liability to such an injured party.
FCTT is named as an insured party under the Contingent and Excess Liability
Insurance. In the event that vicarious liability was imposed on FCTT as owner of
a Series 1996-1 Leased Vehicle (or, in certain circumstances a Leased Vehicle
that is not a Series 1996-1 Leased Vehicle) and the coverage provided by the
Contingent and Excess Liability Insurance was insufficient to cover the full
amount of such loss, and Ford Credit and Ford Credit Leasing failed to perform
their obligations to indemnify the Issuer, the Senior Noteholders could incur a
loss on their investment. See "-- Structural Considerations," "Certain Legal
Aspects of FCTT and the Series 1996-1 Certificates" and "Certain Legal Aspects
of the Leases and Leased Vehicles -- Vicarious Tort Liability."
ADMINISTRATIVE AGENT DEFAULT
Ford Credit is the Administrative Agent with respect to the Leases and
Leased Vehicles, including the Series 1996-1 Leases and Series 1996-1 Leased
Vehicles. Administrative Agent Events of Default may occur with respect to all
beneficiaries of FCTT, including the Issuer, or only with respect to one or more
Series. Upon the occurrence of an Administrative Agent Event of Default with
respect to all beneficiaries of FCTT, the FCTT Trustee, if so directed by 100%
of the beneficiaries of FCTT (which, so long as any Senior Notes are
outstanding, will for this purpose include the Indenture Trustee and any other
holder of a Series, but exclude Ford Credit and Ford Credit Leasing), may
terminate all of the rights and obligations of Ford Credit under the
Administrative Agency Agreement. Upon the occurrence of an Administrative Agent
Event of Default with respect to Series 1996-1, the Indenture Trustee may
terminate all of the rights and obligations of Ford Credit with respect to
Series 1996-1 only, and the FCTT Trustee will become the successor
Administrative Agent until such time as a successor Administrative Agent is
appointed pursuant to the terms of the Administrative Agency Agreement. Any
replacement of Ford Credit as Administrative Agent in
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<PAGE> 23
servicing the Leases and disposing of the Leased Vehicles could have an adverse
effect on the timely receipt of interest and principal by the Senior
Noteholders. See "Description of the Administrative Agency Agreement --
Administrative Agent Events of Default."
BOOK-ENTRY REGISTRATION
Each Class of the Senior Notes will be initially represented by one or more
physical notes registered in the name of Cede or any successor nominee for DTC
and will not be registered in the names of the beneficial owners of Senior Notes
or their nominees. Accordingly, unless and until Definitive Senior Notes are
issued, holders of beneficial interests in Senior Notes will not be recognized
by the Indenture Trustee as Senior Noteholders and will only be able to exercise
the rights of Senior Noteholders indirectly through DTC and its participants.
See "Description of the Senior Notes -- Book-Entry Registration."
FORD CREDIT
Ford Credit was incorporated in Delaware in 1959 and is a wholly owned
indirect subsidiary of Ford.
Ford Credit provides wholesale financing and capital loans to franchised
Ford vehicle dealers and other dealers associated with such franchisees and
purchases 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 dealers. In addition, a wholly owned subsidiary of Ford
Credit provides these financing services in the United States and Canada to
other vehicle dealers. Ford Credit also provides retail financing for used
vehicles built by Ford and other manufacturers. In addition to vehicle
financing, Ford Credit makes loans to affiliates of Ford and finances certain
receivables of Ford and its subsidiaries. Ford Credit's insurance operations,
conducted through its wholly owned subsidiary, The American Road Insurance
Company and its subsidiaries, consist primarily of underwriting floor plan
insurance related to substantially all new vehicle inventories of dealers
financed at wholesale by Ford Credit in the United States and Canada, credit
life and disability insurance in connection with retail vehicle financing, and
insurance related to retail contracts sold by automobile dealers to cover
repairs.
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.
THE ISSUER
FORMATION OF THE ISSUER
The Issuer is a trust formed under the laws of the State of Delaware
pursuant to the Lease Trust Agreement solely for the purposes of the
transactions described in this Prospectus. After its formation, the Issuer will
not engage in any activity other than (i) issuing the Senior Notes, the
Subordinated Notes and the Lease Trust Certificates, (ii) acquiring the Series
1996-1 Certificates and the other property of the Lease Trust Estate using the
proceeds from the sale of the Senior Notes and Lease Trust Certificates to third
party investors and from the issuance of the Subordinated Notes and $311,533.09
of Lease Trust Certificates to the Transferor, (iii) making payments on the
Senior Notes, the Subordinated Notes and the Lease Trust Certificates, (iv)
assigning and pledging the Lease Trust Estate to the Indenture Trustee, (v)
entering into and performing its obligations under the Basic Documents to which
it is a party and (vi) engaging in other transactions, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
CAPITALIZATION OF THE ISSUER
On the Closing Date, the Issuer will be capitalized with $810,843,000.00 of
Senior Notes, $106,690,331.13 of Subordinated Notes and $30,821,533.09 of Lease
Trust Certificates. The Issuer will sell Lease Trust Certificates with an
aggregate initial principal balance of $30,510,000.00 to third party investors
that are expected to be unaffiliated with the Transferor, the Administrative
Agent, their respective affiliates or
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<PAGE> 24
the Issuer. In exchange for the transfer of the Series 1996-1 Certificates, the
Issuer will pay the proceeds from the sale of the Senior Notes and the Lease
Trust Certificates to the Transferor and will issue to the Transferor the entire
initial principal balance of the Subordinated Notes and $311,533.09 initial
principal balance of Lease Trust Certificates.
The following table illustrates the capitalization of the Issuer as of the
Closing Date, as if the issuance and sale of the Senior Notes, the Subordinated
Notes and the Lease Trust Certificates as described above had taken place on
such date:
<TABLE>
<S> <C>
Class A-1 Senior Notes....................................... $150,000,000.00
Class A-2 Senior Notes....................................... 660,843,000.00
Subordinated Notes........................................... 106,690,331.13
Lease Trust Certificates..................................... 30,821,533.09
---------------
Total................................................... $948,354,864.22
===============
</TABLE>
THE LEASE TRUSTEE
PNC Bank, Delaware, a Delaware banking corporation, is the Lease Trustee
under the Lease Trust Agreement. The principal offices of the Lease Trustee are
located at 222 Delaware Avenue, Wilmington, Delaware 19801. The Transferor, Ford
Credit and their affiliates may maintain normal commercial banking relationships
with the Lease Trustee and its affiliates. The fees and expenses of the Lease
Trustee will be paid by the Administrative Agent.
PROPERTY OF THE ISSUER
On the Closing Date, the Series 1996-1 Certificates will be transferred to
the Issuer pursuant to the Transfer Agreement. The Issuer will then pledge its
interest in the Series 1996-1 Certificates to the Indenture Trustee under the
Indenture and then, subject to such pledge, will lease the Series 1996-1
Certificates back to the Transferor pursuant to the Program Operating Lease. The
Program Operating Lease with respect to the beneficial interest in each Series
1996-1 Leased Vehicle expires with respect to such Series 1996-1 Leased Vehicle
immediately preceding the earlier to occur of (i) the sale of such Series 1996-1
Leased Vehicle, but only if such sale occurs on or after the related Scheduled
Lease End Date and (ii) the making of a Sale Proceeds Advance in respect
thereof. See "Series 1996-1 Certificates." After giving effect to the
transactions described herein and effected by the Basic Documents, the property
of the Issuer (the "Lease Trust Estate") will consist of (i) the rights of the
Issuer under the Series 1996-1 Certificates, (ii) the rights under the Program
Operating Lease, (iii) the rights of the Issuer to funds on deposit from time to
time in the Collection Account, the Payahead Account, the Payment Account, the
Certificate Distribution Account and any other account or accounts established
pursuant to the Indenture (including investment earnings (net of losses and
investment expenses) on amounts on deposit in the Collection Account and the
Certificate Distribution Account) and proceeds thereof, (iv) the rights of the
Transferor under the Asset Contribution Agreement, (v) the rights as holder of
the Series 1996-1 Certificates under the Administrative Agency Agreement and the
Series 1996-1 Supplement, (vi) the security interest of the Issuer in the
Subordinated Notes and the Cash Collateral Account and the right to make
withdrawals from the Cash Collateral Account and (vii) all proceeds of the
foregoing. All of the Lease Trust Estate is pledged to the Indenture Trustee
pursuant to the terms of the Indenture.
Because the Series 1996-1 Certificates represent the beneficial interest in
the Series 1996-1 Assets, Senior Noteholders are dependent on payments made on
the Series 1996-1 Leases and proceeds received in connection with the
disposition of Series 1996-1 Leased Vehicles for payment of interest on and
principal of the Senior Notes. The Issuer will not have a direct ownership
interest in the Series 1996-1 Leases, or a direct ownership interest or
perfected security interest in the Series 1996-1 Leased Vehicles (which will be
titled in the name of FCTT), and it is therefore possible that a claim or lien
with respect to the Series 1996-1 Leased Vehicles or on FCTT could limit the
amounts paid to the holders of the Series 1996-1 Certificates to less than
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<PAGE> 25
the amount due from the related Obligors or realized from the sale of Series
1996-1 Leased Vehicles. To the extent that a claim or lien delays disposition of
Series 1996-1 Leased Vehicles or reduces the amount paid to the holders of the
Series 1996-1 Certificates as holders of the beneficial interest in the Series
1996-1 Assets, Senior Noteholders could be subject to delays in payment or
losses on their investment. See "Risk Factors -- Structural Considerations,"
"Description of the Senior Notes -- Cash Collateral Account Withdrawals and
Deposits," "Series 1996-1 Certificates" and "Certain Legal Aspects of FCTT and
the Series 1996-1 Certificates."
USE OF PROCEEDS
The net proceeds from the sale of the Senior Notes will be applied,
together with the proceeds from the sale of Lease Trust Certificates to third
party investors and from the issuance of the Subordinated Notes and $311,533.09
of Lease Trust Certificates to the Transferor, to acquire the Series 1996-1
Certificates from the Transferor pursuant to the Transfer Agreement.
FCTT
CREATION OF FCTT BY FORD CREDIT AND FORD CREDIT LEASING
Ford Credit Titling Trust ("FCTT") was formed by Ford Credit and Ford
Credit Leasing, a special-purpose, wholly owned subsidiary of Ford Credit,
pursuant to the terms of the FCTT Agreement. The primary purpose of FCTT is to
acquire from Dealers located in specified jurisdictions the Leases and Leased
Vehicles originated by such Dealers and to conserve and hold such Leases and
Leased Vehicles on behalf of the beneficiaries from time to time of FCTT. As of
the date hereof, Ford Credit has directed that each lease under the Red Carpet
Lease Plan which is originated by Dealers in Arizona, Arkansas, California,
Colorado, Kansas, Minnesota, Nebraska, Nevada, New Mexico, New York, North
Dakota, Pennsylvania, South Dakota, Virginia and Washington, and the related
leased vehicle, be assigned by Dealers to FCTT, except that if the obligor under
the lease is located in any other state, such lease and the related leased
vehicle is assigned to Ford Credit instead of FCTT. All the Series 1996-1 Leases
and Series 1996-1 Leased Vehicles were originated in one of the fifteen states
identified above with Obligors located in such states. The Administrative Agent
has advised the Issuer that it anticipates that after the date hereof,
additional states will be added to the list of states in which Dealers will
assign Leases and Leased Vehicles to FCTT. Leases and Leased Vehicles originated
in such additional states will constitute FCTT Assets but will not constitute
Series 1996-1 Assets. See "-- Lease Origination from Dealers and Assignment to
FCTT."
THE FCTT TRUSTEE
Comerica Bank, a Michigan banking corporation, is the FCTT Trustee. The
principal offices of Comerica Bank are located in Detroit, Michigan. The
Transferor, Ford Credit and their affiliates may maintain normal commercial
banking relationships with Comerica Bank and its affiliates. The FCTT Trustee
may appoint one or more co-trustees or separate trustees for the purpose of
meeting applicable state requirements.
LEASE ORIGINATION FROM DEALERS AND ASSIGNMENT TO FCTT
Dealers originate Leases on a form providing for the assignment thereof to
FCTT. Each Leased Vehicle which is assigned to FCTT previously has been sold to
the Dealer by Ford or, in certain limited circumstances, by another manufacturer
of motor vehicles. The Dealer has negotiated the terms of the Lease with the
Obligor, including an option to purchase the related Leased Vehicle on the
Scheduled Lease End Date for an amount greater than or equal to the Residual
Value of the Leased Vehicle. Upon entering into a Lease with an Obligor and
approval of such Lease by the Administrative Agent, Dealers assign the Lease,
the related Leased Vehicle, the first Total Monthly Payment received from the
Obligor and rights to any security deposit or reconditioning reserve to FCTT
against payment of the related Balance Subject to Lease Charges. As of the date
of the assignment, FCTT holds the title to and is the record owner of the Lease
and Leased Vehicle. Until such date as the Lease and Leased Vehicle are
designated as Series Specified Assets in connection with
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the issuance of any Series, the beneficial interest in such Lease and Leased
Vehicle is held by Ford Credit and Ford Credit Leasing as holders of the
Exchangeable Beneficial Certificates. See "-- Exchangeable Beneficial
Certificates and Specified Beneficial Certificates." Pursuant to agreements
between Ford Credit and the Dealers, each Dealer is obligated, after originating
and assigning Leases and Leased Vehicles to FCTT, to repurchase such Leases and
Leased Vehicles which do not meet certain representations and warranties made by
such Dealer. The Administrative Agent or the Dealer has paid or will pay
applicable sales, use and similar taxes to the appropriate authorities from
amounts collected from Obligors or otherwise.
TITLING OF LEASED VEHICLES
The Administrative Agent, on behalf of FCTT, purchases the Leases and
related Leased Vehicles, including the Series 1996-1 Leases and the related
Series 1996-1 Leased Vehicles, from the originating Dealers and causes the
certificate of title for each Leased Vehicle to be issued in the name "Ford
Credit Titling Trust," or "Ford Credit Titling Trust, Comerica Bank [or
applicable co-trustee or separate trustee], Trustee" or in a substantially
similar name acceptable to the relevant governmental departments or agencies. No
lien will be placed on the certificate of title to indicate the interests of the
beneficiaries of FCTT, and new certificates of title will not be issued in
connection with the transfer of any beneficial interests in FCTT. Therefore,
there will be no indication on the certificates of title for the Series 1996-1
Leased Vehicles that the Issuer or any other person has an interest in such
Series 1996-1 Leased Vehicles. In certain circumstances, however, certificates
of title to the Leased Vehicles will reflect a lien recorded in favor of the
Administrative Agent, including therein the address of an office of the
Administrative Agent at which Leases and the certificates of title to Leased
Vehicles are to be delivered. This lien exists only to assure delivery of the
certificates of title to the correct location; the Administrative Agent will not
have an interest in the Leased Vehicles, although for administrative
convenience, it (or a third-party contractor hired by it) will hold the
certificates of title as custodian on behalf of the FCTT Trustee. See "Risk
Factors -- Structural Considerations" and "Certain Legal Aspects of FCTT and the
Series 1996-1 Certificates."
EXCHANGEABLE BENEFICIAL CERTIFICATES AND SPECIFIED BENEFICIAL CERTIFICATES
The FCTT Trustee initially issued to Ford Credit and Ford Credit Leasing,
as the beneficiaries of FCTT, Exchangeable Beneficial Certificates (each, an
"EBC") representing the entire beneficial interest in the FCTT Assets
(representing a 98% beneficial interest in the FCTT Assets in the case of Ford
Credit, and a 2% beneficial interest in the case of Ford Credit Leasing). On May
24, 1995, Ford Credit and Ford Credit Leasing exchanged a portion of their EBCs
for a Series of Specified Beneficial Certificates (the "Series 1995-1
Certificates") representing beneficial interests in certain FCTT Assets
designated as Series 1995-1 Assets. Such Series 1995-1 Certificates were
contributed to an affiliate which deposited them into a securitization trust in
connection with the issuance of a previous series of asset backed securities. As
described below, the FCTT Trustee may issue from time to time additional series
of Specified Beneficial Certificates ("SBCs") representing beneficial interests
in certain designated FCTT Assets. After the issuance of the Series 1996-1
Certificates and until the next series of SBCs are issued, the EBCs will
represent the beneficial interest in all of the FCTT Assets other than those
FCTT Assets which are designated as Series 1995-1 Assets or Series 1996-1 Assets
(such other FCTT Assets, the "Non-Specified Assets"). The beneficial interest in
FCTT and the FCTT Assets as of any date is represented by the EBCs and each
outstanding SBC. Neither Ford Credit nor Ford Credit Leasing may transfer or
assign their respective EBCs.
Pursuant to the FCTT Agreement, the Administrative Agent, acting at the
unanimous direction of the holders of the EBCs, may at any time deliver to the
FCTT Trustee a Series Specification Notice identifying certain FCTT Assets to be
designated as Series Specified Assets and the date (the "Series Issue Date")
upon which an SBC representing the beneficial interest in such Series Specified
Assets will be issued to each holder of an EBC. Upon delivery of the SBC, such
holder's beneficial interest in the FCTT Assets will be represented by the EBC
(with respect to the Non-Specified Assets) and such SBC (with respect to the
Series Specified Assets). As described in "Series 1996-1 Certificates --
Issuance of Series 1996-1 Certificates to Ford Credit and Ford Credit Leasing,"
the Series 1996-1 Certificate to be issued to Ford Credit will be an SBC
representing a 98% beneficial interest in the Series 1996-1 Assets and the
Series 1996-1 Certificate to be
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issued to Ford Credit Leasing will be an SBC representing a 2% beneficial
interest in the Series 1996-1 Assets. Ford Credit and Ford Credit Leasing expect
from time to time to designate other FCTT Assets as Series Specified Assets and
to cause FCTT to issue additional Series representing beneficial interests in
such Series Specified Assets. No Series may be issued unless an Opinion of
Counsel is delivered that such issuance will not cause FCTT to be classified as
an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.
As set forth in the FCTT Agreement and the Administrative Agency Agreement,
the holders from time to time of any SBC will have a beneficial interest in the
related Series Specified Assets, will be entitled to receive such percentage
interest of the proceeds of the related Series Specified Assets set forth in
such SBC and, acting together with each other holder of an SBC representing a
beneficial interest in such Series Specified Assets, will be entitled to direct
the FCTT Trustee to take actions or refrain from taking actions with respect to
such Series Specified Assets. The holders from time to time of any SBCs will not
be entitled to receive proceeds from Non-Specified Assets or from any other
Series Specified Assets which may exist from time to time. However, it is
possible in certain circumstances that notwithstanding the allocations of
liabilities and the indemnities set forth in the FCTT Agreement, certain Series
Specified Assets could be attached or proceeds of such Series Specified Assets
could be used to satisfy a claim with respect to Non-Specified Assets or other
Series Specified Assets or a claim assessed on FCTT generally. See "Risk Factors
- -- Structural Considerations."
THE TRANSFEROR
DELAWARE BUSINESS TRUST
The Transferor is a business trust formed under the laws of the State of
Delaware pursuant to the RCL Trust Agreement for purposes of the transactions
described herein. The beneficiaries of the Transferor are Ford Credit and Ford
Credit Leasing. The activities of the Transferor are limited to (i) acquiring
and transferring the Series 1996-1 Certificates and entering into and performing
its obligations under the Program Operating Lease; (ii) acting as depositor to
the Issuer and entering into the Lease Trust Agreement and acquiring certain
Lease Trust Certificates issued thereunder; (iii) acquiring the Subordinated
Notes; and (iv) making distributions and executing agreements as are necessary,
suitable or convenient to accomplish the foregoing. In addition, after entering
into the Program Operating Lease the Transferor will assign a 1% interest in all
of its assets and obligations to Ford Credit Leasing. See "-- Creation by Ford
Credit and Ford Credit Leasing; Assignment to Ford Credit Leasing" and "Series
1996-1 Certificates -- Lease of the Series 1996-1 Certificates to the
Transferor."
RCL TRUSTEE
The RCL Trustee is First Union Bank of Delaware, a Delaware banking
corporation, with offices located at One Rodney Square, 920 King Street,
Wilmington, Delaware 19801. The Transferor, Ford Credit and their affiliates may
maintain normal commercial banking relationships with the RCL Trustee and its
affiliates. The fees and expenses of the RCL Trustee will be paid by Ford Credit
and Ford Credit Leasing, the beneficiaries of the Transferor.
CREATION BY FORD CREDIT AND FORD CREDIT LEASING; ASSIGNMENT TO FORD CREDIT
LEASING
Prior to the issuance of the Series 1996-1 Certificates and the
securitization described herein, Ford Credit held a 98% beneficial interest in
the Transferor and Ford Credit Leasing held a 2% beneficial interest in the
Transferor. Because the Transferor will assign a 1% interest in its assets and
obligations to Ford Credit Leasing on the Closing Date, the beneficial interest
in the Transferor held by Ford Credit and Ford Credit Leasing will be changed by
the amount so assigned. After giving effect to the assignment on the Closing
Date, Ford Credit Leasing, in addition to a direct right to 1% of all assets of
the Transferor (and an obligation to pay 1% of all obligations of the
Transferor), will retain a 1/99 beneficial interest in the Transferor. After
giving effect to the assignment to Ford Credit Leasing, Ford Credit as a
beneficiary of the Transferor will retain a 98/99 beneficial interest in the
Transferor. As described in "Series 1996-1 Certificates -- Lease of the Series
1996-1 Certificates
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to the Transferor," the primary obligation of the Transferor after the Closing
Date is to make Program Operating Lease Payments and its primary assets after
the Closing Date are the interest it has as lessee of the Series 1996-1
Certificates pursuant to the Program Operating Lease, its interest in the Cash
Collateral Account, the Subordinated Notes and $311,533.09 in initial principal
balance of Lease Trust Certificates.
SERIES 1996-1 CERTIFICATES
ISSUANCE OF SERIES 1996-1 CERTIFICATES TO FORD CREDIT AND FORD CREDIT LEASING
On the Closing Date, the FCTT Trustee will (i) issue a Series 1996-1
Certificate to Ford Credit, as holder of an EBC, representing Ford Credit's 98%
beneficial interest in the FCTT Assets which were designated as Series 1996-1
Assets pursuant to the Series Specification Notice relating to Series 1996-1 and
(ii) issue a Series 1996-1 Certificate to Ford Credit Leasing, as holder of an
EBC, representing Ford Credit Leasing's 2% beneficial interest in the FCTT
Assets which were designated as Series 1996-1 Assets pursuant to the Series
Specification Notice relating to Series 1996-1. The Series 1996-1 Certificates
will be the second Series of SBCs issued by FCTT. See "FCTT -- Exchangeable
Beneficial Certificates and Specified Beneficial Certificates."
CONTRIBUTION OF SERIES 1996-1 CERTIFICATES TO THE TRANSFEROR
On the Closing Date, Ford Credit and Ford Credit Leasing each will convey
the Series 1996-1 Certificate issued to it to the Transferor pursuant to the
terms of the Asset Contribution Agreement. Ford Credit and Ford Credit Leasing
each will covenant to treat the conveyance of the Series 1996-1 Certificates to
the Transferor as an absolute transfer for all purposes. Upon the conveyance of
the Series 1996-1 Certificates, the value of the beneficial interests of Ford
Credit and Ford Credit Leasing in the Transferor will be increased by the value
of the Series 1996-1 Certificates. See "The Transferor -- Creation by Ford
Credit and Ford Credit Leasing; Assignment to Ford Credit Leasing."
In addition to the conveyance of the Series 1996-1 Certificates, Ford
Credit and Ford Credit Leasing also will convey to the Transferor their rights
under the Series 1996-1 Supplement and the Administrative Agency Agreement with
respect to Series 1996-1.
The Administrative Agent in the Series 1996-1 Supplement and Ford Credit
and Ford Credit Leasing in the Asset Contribution Agreement will make certain
representations, warranties and covenants with respect to the Series 1996-1
Assets. See "The Leases and Leased Vehicles -- Eligibility Criteria" and
"Additional Document Provisions -- Representations, Warranties and Covenants."
In the event all of the Specific Eligibility Criteria and General Eligibility
Criteria were not satisfied on the Series 1996-1 Cut-Off Date or certain
covenants are breached, Ford Credit and Ford Credit Leasing, as holders of the
EBCs, will be required to purchase the beneficial interest in the Series 1996-1
Asset to which such breach relates. Any such purchase will be effected by the
deposit of the Administrative Purchase Amount in the Collection Account on the
business day preceding the Payment Date relating to the Accrual Period in which
the breach was discovered or occurred, as applicable. See "Description of the
Administrative Agency Agreement -- Administrative Purchases."
TRANSFER OF THE SERIES 1996-1 CERTIFICATES TO THE ISSUER
On the Closing Date, immediately following the conveyance of the Series
1996-1 Certificates to the Transferor pursuant to the Asset Contribution
Agreement as described in "-- Contribution of Series 1996-1 Certificates to the
Transferor," the Transferor, pursuant to the terms of the Transfer Agreement,
will transfer the Series 1996-1 Certificates to the Issuer. The Transferor also
will assign to the Issuer the rights under the Administrative Agency Agreement
and the Series 1996-1 Supplement conveyed to it by Ford Credit and Ford Credit
Leasing pursuant to the Asset Contribution Agreement. In exchange for such
transfer and assignment, the Issuer will pay to the Transferor the proceeds from
the sale of the Senior Notes and Lease Trust Certificates to third party
investors and will issue to the Transferor the Subordinated Notes and
$311,533.09 initial principal balance of Lease Trust Certificates.
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PLEDGE OF THE SERIES 1996-1 CERTIFICATES TO THE INDENTURE TRUSTEE
Immediately following the transfer of the Series 1996-1 Certificates to the
Issuer as described in "-- Transfer of the Series 1996-1 Certificates to the
Issuer," the Issuer will pledge its interest in the Series 1996-1 Certificates
as part of the Lease Trust Estate pledged to the Indenture Trustee as security
for the repayment of the Senior Notes. See "Property of the Issuer."
LEASE OF THE SERIES 1996-1 CERTIFICATES TO THE TRANSFEROR
Immediately following the transfer of the Series 1996-1 Certificates to the
Issuer and the pledge to the Indenture Trustee of the Issuer's interest therein
as described in "-- Transfer of the Series 1996-1 Certificates to the Issuer"
and "-- Pledge of the Series 1996-1 Certificates to the Indenture Trustee," the
Issuer and the Transferor will enter into the Program Operating Lease pursuant
to which the Transferor will lease the Series 1996-1 Certificates during the
term of the Program Operating Lease. As lessee, the Transferor will be entitled
to receive all proceeds from the Series 1996-1 Certificates during the term of
the Program Operating Lease and will be required to make Program Operating Lease
Payments to the Issuer, subject to the assignment by the Transferor of 1% of its
assets and obligations to Ford Credit Leasing. See "The Transferor -- Creation
by Ford Credit and Ford Credit Leasing; Assignment to Ford Credit Leasing."
Because the Program Operating Lease expires with respect to the portion of
the Series 1996-1 Certificates representing the beneficial interest in a Series
1996-1 Leased Vehicle immediately preceding the earlier of (i) the sale of such
Series 1996-1 Leased Vehicle, if such sale occurs on or after such Series 1996-1
Leased Vehicle's Scheduled Lease End Date or (ii) the date on which a Sale
Proceeds Advance is made relating to such Series 1996-1 Leased Vehicle, the
Transferor will receive and will deposit into the Cash Collateral Account all
Monthly Payments with respect to Series 1996-1 Leases, all Sale Proceeds of
those Series 1996-1 Leased Vehicles the related Series 1996-1 Leases of which
terminate before their Scheduled Lease End Dates and all amounts collected in
respect of Excess Wear and Tear and Excess Mileage. The Transferor is obligated
to make Program Operating Lease Payments to the Issuer for so long as the Senior
Notes, the Subordinated Notes or the Lease Trust Certificates are outstanding.
Amounts in the Cash Collateral Account will secure the Transferor's obligation
to make Program Operating Lease Payments to the Issuer. The Transferor will not
receive the Sale Proceeds of those Series 1996-1 Leased Vehicles whose Series
1996-1 Leases terminate on or after their respective Scheduled Lease End Dates.
The right to such Sale Proceeds (as limited by the Transferor Purchase Option
Price) is property of the Issuer pledged pursuant to the Indenture. See "--
Transferor Leased Vehicle Purchase Option" below.
The Program Operating Lease Payment with respect to any Payment Date will
consist of a Required Interest Payment portion and an Additional Payment
portion. The "Required Interest Payment" with respect to any Payment Date equals
the sum of the Administrative Agent Fee plus the amount of interest accrued on
the outstanding Senior Notes, Subordinated Notes and Lease Trust Certificates
since the preceding Payment Date (or, in the case of the first Payment Date,
since the Closing Date) plus any overdue interest and interest on such overdue
interest at the interest rate of the applicable security. The "Additional
Payment" with respect to any Payment Date equals the lesser of (a) the Cash
Collateral Amount on such Payment Date (after giving effect to any decrease
thereof to pay the Required Interest Payment and any increase thereof as a
result of the aggregate amounts required to be deposited in the Cash Collateral
Account with respect to such Payment Date, including payments on the
Subordinated Notes) minus the Required Cash Collateral Amount and (b) an amount
equal to the aggregate outstanding principal balance of the Senior Notes,
Subordinated Notes and Lease Trust Certificates prior to giving effect to any
payments on such Payment Date minus the sum of the Available Sale Proceeds for
the related Accrual Period and the aggregate Residual Values of all Series
1996-1 Leased Vehicles the related Series 1996-1 Leases of which have not yet
terminated as of the close of the last day of the preceding Accrual Period;
provided, however, that on any Payment Date on which the Available Funds is less
than the Required Interest Payment, the Additional Payment shall equal the
lesser of such shortfall or the aggregate payments on the Subordinated Notes
that are required to be deposited into the Cash Collateral Account on such
Payment Date.
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On the business day preceding each Payment Date, the Indenture Trustee will
withdraw from the Cash Collateral Account and deposit into the Payment Account
the Cash Collateral Required Draw Amount, which, to the extent sufficient, will
be deemed to constitute the payment by the Transferor to the Issuer of the
Required Interest Payment portion of the Program Operating Lease Payment for
such Payment Date. On each Payment Date, the Indenture Trustee will withdraw
from the Cash Collateral Account the Cash Collateral Additional Draw Amount, if
any, and apply such amount to make payments required on such Payment Date, which
will be deemed to constitute the payment by the Transferor to the Issuer of the
Additional Payment portion, if any, of the Program Operating Lease Payment for
such Payment Date. See "Description of the Senior Notes -- Cash Collateral
Account Withdrawals and Deposits" for a description of how the Cash Collateral
Required Draw Amount and the Cash Collateral Additional Draw Amount are
calculated.
Defaults under the Program Operating Lease include, among other things,
failure by the Transferor to pay the Required Interest Payment portion of the
Program Operating Lease Payment to the Issuer, the breach of a material
representation or warranty, the failure to observe or perform certain covenants
or the occurrence of an Event of Default under the Indenture. Upon the
occurrence of an event of default under the Program Operating Lease, (i) the
Indenture Trustee as assignee of the rights of the Issuer in the Program
Operating Lease pursuant to the pledge of the Lease Trust Estate would be
entitled to terminate the Program Operating Lease. Upon such termination, the
Issuer would receive directly all distributions with respect to, or would have
the right to sell, the Series 1996-1 Certificates and to apply the Cash
Collateral Amount to pay interest on and principal of the Senior Notes, the
Subordinated Notes and the Lease Trust Certificates. Under such circumstances,
an Event of Default would occur under the Indenture which would permit the
Senior Noteholders to accelerate the maturity of the Senior Notes and in certain
circumstances cause the sale of the Lease Trust Estate. See "Description of the
Senior Notes -- Indenture." If, following an event of default under the Program
Operating Lease, the Senior Noteholders accelerate the maturity of the Senior
Notes, the Indenture Trustee as assignee of the Issuer would be entitled to
demand that the Transferor pay all unpaid Program Operating Lease Payments plus,
as liquidated damages, an amount equal to the sum of (x) any interest due and
unpaid on the Senior Notes, Subordinated Notes and Lease Trust Certificates, (y)
the remaining principal balance of the Senior Notes, Subordinated Notes and
Lease Trust Certificates and (z) any other amounts payable by the Transferor
under the Basic Documents. Upon payment of such amounts, the Transferor would be
entitled to receive the Series 1996-1 Certificates.
Transferor Leased Vehicle Purchase Option. Under the Program Operating
Lease, the Transferor may, at its option, purchase the Issuer's beneficial
interest in any Series 1996-1 Leased Vehicle not purchased by the related
Obligor or Dealer following the Scheduled Lease End Date of the related Series
1996-1 Lease by paying to the Issuer an amount equal to the Residual Value of
such Series 1996-1 Leased Vehicle minus any amounts due from the related Obligor
for Uncollected Excess Wear and Tear and Excess Mileage (the "Transferor
Purchase Option Price"). The Transferor will exercise such option only if
neither the Obligor nor the Dealer exercises its option to purchase the Series
1996-1 Leased Vehicle and the related Sale Proceeds exceed the Transferor
Purchase Option Price. Because the Transferor intends to exercise this option
when available, Sale Proceeds received by the Issuer with respect to the sale of
any Series 1996-1 Leased Vehicle the related Series 1996-1 Lease of which was
terminated on or after its Scheduled Lease End Date will never exceed the
Transferor Purchase Option Price. With respect to each Series 1996-1 Vehicle for
which the Transferor exercises its purchase option, the Transferor will deposit
an amount equal to the excess of the related Sale Proceeds over the Transferor
Purchase Option Price (the "Transferor Purchase Option Net Proceeds") into the
Cash Collateral Account until the aggregate cumulative amount deposited in
respect of such Transferor Purchase Option Net Proceeds equals $94,835,486.42,
which is equal to 10% of the Initial Pool Balance. Thereafter, the Transferor
will retain any Transferor Purchase Option Net Proceeds and such amounts, if
any, will not be available to pay interest on or principal of the Senior Notes,
the Subordinated Notes and the Lease Trust Certificates. To the extent that
Transferor Purchase Option Net Proceeds are deposited into the Cash Collateral
Account, such amounts will secure the Transferor's obligation to make Program
Operating Lease Payments to the Issuer. See "Description of the Senior Notes --
Cash Collateral Account Withdrawals and Deposits."
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THE LEASES AND LEASED VEHICLES
ORIGINATION PROCEDURES
The Leases, including the Series 1996-1 Leases, were originated under the
Ford Credit Red Carpet Lease Plan (the "Red Carpet Lease Plan"), one of a number
of financing programs offered by Dealers to assist their customers in the
acquisition of new automobiles and light trucks. Under the Red Carpet Lease
Plan, an Obligor enters into a Lease that requires the Obligor to make Total
Monthly Payments for a predetermined number of months ("Lease Term") in return
for the use of the related Leased Vehicle. At the end of the Lease Term, the
Obligor has the option to purchase the Leased Vehicle or return it to the
Dealer. Dealers negotiate the terms of the Lease with prospective lessees in
accordance with guidelines set by Ford Credit.
A credit application completed by a prospective lessee is evaluated by Ford
Credit with consideration given to, among other things, the prospective lessee's
credit history, current income, and years at present address. Ford Credit uses a
proprietary credit scoring model that measures the probability of payment for
each potential obligor given information concerning the prospective lessee, the
price of the Leased Vehicle and terms of the Lease. Credit analysts at the
applicable Ford Credit branch office evaluate credit applications based on the
information set forth therein and the results of the proprietary credit scoring
model or in some cases based on additional information obtained from the
relevant Dealer and make a judgment to accept or reject such applications.
Credit analysts may also propose changes to the terms of the Lease to increase
the probability of payment such as a larger down payment or a less expensive
vehicle.
If the credit application is approved and the prospective lessee agrees to
the terms of the Lease, the Dealer completes the transaction documentation and
submits it to Ford Credit. Prior to the Obligor taking possession of the Leased
Vehicle, the Dealer must: (i) collect the first Total Monthly Payment, including
a refundable security deposit (which in certain instances may be waived), (ii)
obtain written evidence that the Obligor has purchased adequate insurance
coverage, and (iii) ensure that all required license fees, registration fees and
up-front taxes are paid. Certain fees and taxes may be financed by the Dealer
and included in the Obligor's Total Monthly Payment (such fees and taxes, the
"Use and Lease Tax Amounts"). The Dealer is responsible for registering and
titling the Leased Vehicle; it is registered in the name of the Obligor, the
Obligor and Ford Credit, the Obligor and FCTT, Ford Credit only or FCTT only and
titled in the name of Ford Credit or FCTT, depending on whether the jurisdiction
is one in which FCTT is authorized to hold the related certificate of title.
Titles are mailed directly to the appropriate Ford Credit branch office or to a
central office of an independent contractor hired by Ford Credit.
SERVICING PROCEDURES
The Leases, including the Series 1996-1 Leases, are serviced through Ford
Credit branch offices. Approximately 19 days before a Total Monthly Payment is
due, Ford Credit sends the Obligor an invoice. The Obligor is instructed to send
the Total Monthly Payment to one of several regional lockboxes dedicated to the
collection of payments for Leases and retail installment contracts. If an
Obligor does not make the payment within 10 days of its due date, a late fee is
assessed. At that time, Ford Credit initiates collection procedures by mailing a
past due notice to the Obligor. In cases such as chronic delinquency, payment
default, multiple returned checks or bankruptcy, a Lease generally is assigned
to a Ford Credit customer service representative after it has become 15 days
delinquent. In other cases, collection assignments are issued when a Lease
becomes 22 days delinquent. The Obligor will be contacted to determine the cause
of the delinquency and to help the Obligor develop plans to resolve it. If the
Obligor cannot make the past due payment, Ford Credit will either grant a
Payment Extension or repossess the Leased Vehicle. If a Payment Extension is
granted, the Obligor is assessed a fee and the Lease Term is extended (although
the Obligor is not permitted to drive the Leased Vehicle more than the
originally agreed upon number of miles without incurring excess mileage fees).
If repossession is necessary, the Obligor may agree to return the Leased Vehicle
or the Leased Vehicle will be repossessed by a contractor hired by Ford Credit.
Any Obligor not in default is permitted to terminate its Lease before the
Scheduled Lease End Date (a "Voluntary Early Termination") if the Obligor: (i)
returns the Leased Vehicle to the Dealer, (ii) pays to Ford Credit the
difference, if any, between (a) the sum of the Adjusted Balance Subject to Lease
Charges
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and any past due amounts and (b) the fair market wholesale value of the Leased
Vehicle as agreed to by the Obligor and the Dealer (or if the Obligor and Dealer
fail to agree, the amount received at auction), and (iii) pays a fee of $200.
The Dealer is required to pay an amount equal to such agreed fair market
wholesale value (or the amount received at auction) to Ford Credit or FCTT, as
the case may be. As described in "Description of the Senior Notes -- Indenture
Cash Flows," Voluntary Early Termination Proceeds with respect to the Series
1996-1 Leases are included in the Collections deposited in the Cash Collateral
Account. See "Maturity, Prepayment and Yield Considerations" for a discussion of
the effect of prepayments of the Series 1996-1 Leases on the payment of
principal of the Senior Notes.
At the Scheduled Lease End Date, the Obligor may (i) purchase the Leased
Vehicle for an amount greater than or equal to its Residual Value or (ii) return
the Leased Vehicle to the Dealer. If the Leased Vehicle is returned to the
Dealer, the Dealer may purchase the Leased Vehicle for an amount equal to its
Residual Value or return it to Ford Credit to be sold at auction. If the Dealer
does not purchase the Vehicle, the Dealer will inspect the Leased Vehicle,
complete a Vehicle Conditioning Report ("VCR") and submit the VCR to Ford
Credit. The Dealer will assess any additional charges for excess wear and tear
or excess mileage on the basis of the VCR. See "Description of the Senior Notes
- -- The Indenture Cash Flows" and "Series 1996-1 Certificates -- Lease of the
Series 1996-1 Certificates to the Transferor -- Transferor Leased Vehicle
Purchase Option" for a description of the circumstances under which the
Transferor may exercise its option to purchase the Series 1996-1 Leased Vehicles
at their Scheduled Lease End Dates.
All Leased Vehicles that are returned to Ford Credit will be inspected to
ensure that the VCR properly reflects the condition of the Leased Vehicle and
that the Dealer has billed the Obligor for all excess wear and tear and excess
mileage charges due. If the VCR does not properly reflect the condition of the
Leased Vehicle, Ford Credit may seek reimbursement for any discrepancies from
the returning Dealer. The Leased Vehicle is then shipped to one of several Ford
Credit regional auction locations. In an attempt to maximize proceeds from the
auction of Leased Vehicles, Ford Credit has established an "Extra Step" program
to refurbish and recondition vehicles returned at the end of 24-month leases.
The results of each auction are monitored and Leased Vehicles will generally be
transported to the regional auction where Ford Credit believes the highest
auction proceeds will be realized.
The procedures that Ford Credit has applied and will apply in originating
and servicing the Leases assigned to FCTT (including the Series 1996-1 Leases)
will be consistent with those that Ford Credit has applied and will apply to
leases under the Red Carpet Lease Plan that are not assigned to FCTT. For
convenience, the discussion under this heading ("-- Servicing Procedures") and
under the heading "-- Origination Procedures" above uses capitalized terms which
have meanings defined with respect to Leases assigned to FCTT. Such terms have
equivalent meanings when applied to leases under the Red Carpet Lease Plan that
are not assigned to FCTT.
DELINQUENCY, REPOSSESSION, RESIDUAL VALUE AND LOSS DATA
The following tables set forth Ford Credit's average Red Carpet Lease asset
balance and loss experience for each of the periods shown with respect to the
leases and leased vehicles under the Red Carpet Lease Plan (the "Red Carpet
Lease Portfolio") in the fifteen states in which Leases are currently assigned
to FCTT. See "FCTT -- Creation of FCTT by Ford Credit and Ford Credit Leasing."
Because the distribution by geographic location of the Series 1996-1 Leases may
differ from the historical distribution by geographic location of the Red Carpet
Lease Portfolio shown in the following tables, the loss experience of the Series
1996-1 Leases may differ from the loss experience of the Red Carpet Lease
Portfolio. There can be no assurance that the loss experience for the Red Carpet
Lease Portfolio or Series 1996-1 Leases in the future will be similar to the
historical experience set forth below.
Because Ford Credit has not historically maintained separate records based
on the term of leases, the data set forth in the following tables includes data
for finance leases (classified by Ford Credit as leases which have a term of
more than 36 months) and operating leases (classified by Ford Credit as leases
which have a term of 36 months or less). However, management believes that to
the extent that there are any material differences between the historical
delinquency and loss statistics for finance leases and operating leases, the
32
<PAGE> 33
delinquencies and losses would be higher on a mixed pool of finance leases and
operating leases (such as that reflected in the tables) than in a pool
consisting solely of operating leases (such as the Series 1996-1 Leases). This
is because, in the opinion of management based on its experience servicing both
finance leases and operating leases, there is a positive correlation between
increased credit risk and the duration of the lease. In addition, management
believes that the statistics provided in such tables closely reflect the
performance of the Red Carpet Lease Portfolio because the proportion of
originations of operating leases to finance leases in the Red Carpet Lease
Portfolio increased: in 1991, the proportion of originations which were
operating leases was approximately 86.6%, while in 1995 the proportion of
originations which were operating leases was approximately 98.9%. During this
four year period the number of originations grew from approximately 171,900 to
629,709 leases per year.
33
<PAGE> 34
RED CARPET LEASE PORTFOLIO
(FIFTEEN STATES IN WHICH LEASES ARE CURRENTLY ASSIGNED TO FCTT(1))
HISTORICAL LOSS EXPERIENCE(2)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, CALENDAR YEAR
------------------ ----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Contracts Outstanding (000)
California.............................. 168 159 161 118 73 52 47
New York................................ 93 92 92 78 60 46 38
Pennsylvania............................ 37 35 35 26 18 15 16
Minnesota............................... 24 22 22 18 12 10 9
Colorado................................ 17 16 17 13 9 7 6
Other(3)................................ 94 89 90 72 48 34 30
------ ------ ------ ------ ------ ------ ------
Total -- Fifteen State................ 432 412 417 326 220 163 147
====== ====== ====== ====== ====== ====== ======
Average Net RCL Assets (Millions)
California.............................. $2,777 $2,480 $2,528 $1,849 $1,094 $ 727 $ 637
New York................................ 1,666 1,527 1,546 1,241 923 635 513
Pennsylvania............................ 659 576 589 403 264 200 198
Minnesota............................... 388 325 331 252 158 110 98
Colorado................................ 288 254 260 193 123 87 72
Other(3)................................ 1,559 1,377 1,405 1,075 668 431 357
------ ------ ------ ------ ------ ------ ------
Total -- Fifteen State................ $7,337 $6,539 $6,661 $5,013 $3,230 $2,190 $1,875
====== ====== ====== ====== ====== ====== ======
Net Credit Losses as a Percentage of
Average Net RCL Assets(4)
California.............................. 2.24%(5) 0.80%(5) 0.96% 0.62% 0.81% 1.33% 2.01%
New York................................ 0.84 0.42 0.43 0.22 0.26 0.47 0.66
Pennsylvania............................ 0.69 0.35 0.43 0.09 0.21 0.25 0.44
Minnesota............................... 0.76 0.29 0.33 0.28 0.25 0.27 0.52
Colorado................................ 0.79 0.31 0.29 0.21 0.16 0.28 0.40
Other(3)................................ 1.18 0.44 0.52 0.40 0.45 0.58 1.05
Weighted Average -- Fifteen State..... 1.42%(5) 0.55%(5) 0.64% 0.40% 0.48% 0.74% 1.15%
Repossessions as a Percentage of Average
Contracts Outstanding
California.............................. 5.3%(5) 4.4%(5) 4.6% 4.0% 4.6% 5.7% 6.3%
New York................................ 2.2 1.9 1.9 1.6 1.6 2.2 2.3
Pennsylvania............................ 2.5 1.9 2.1 1.6 1.4 1.8 2.2
Minnesota............................... 2.8 2.4 2.3 2.3 1.8 2.0 2.8
Colorado................................ 2.4 1.7 1.7 1.7 1.5 2.1 2.3
Other(3)................................ 3.1 2.5 2.7 2.5 2.5 3.0 3.9
Weighted Average -- Fifteen State..... 3.7%(5) 3.0%(5) 3.1% 2.7% 2.8% 3.5% 3.9%
Average Gross Loss per Repossession
California.............................. $3,988 $3,385 $3,597 $3,179 $3,530 $2,699 $3,706
New York................................ 4,076 4,195 4,082 3,192 3,344 1,604 2,634
Pennsylvania............................ 3,345 3,352 3,571 2,402 3,168 1,986 2,489
Minnesota............................... 3,008 2,681 2,936 2,400 2,736 1,490 2,066
Colorado................................ 3,460 3,469 2,907 2,522 3,028 1,995 2,554
Other(3)................................ 3,548 3,226 3,410 3,024 3,097 1,999 3,059
Weighted Average -- Fifteen State..... $3,830 $3,440 $3,585 $3,065 $3,361 $2,288 $3,233
Average Delinquency Ratios -- Fifteen
State
31-60 Days Past Due..................... 2.25% 1.75% 1.88% 1.60% 1.63% 1.96% 2.28%
61-90 Days Past Due..................... 0.25 0.18 0.20 0.17 0.15 0.22 0.30
Over 90 Days Past Due................... 0.06 0.04 0.04 0.04 0.05 0.07 0.11
------ ------ ------ ------ ------ ------ ------
Total..................................... 2.56% 1.97% 2.12% 1.81% 1.83% 2.25% 2.69%
====== ====== ====== ====== ====== ====== ======
</TABLE>
- -------------------------
(Totals may not equal the sum of the respective columns due to rounding.)
(1) Regional data is based on results from branch offices located in the states
of Arizona, Arkansas, California, Colorado, Kansas, Minnesota, Nebraska,
Nevada, New Mexico, New York, North Dakota, Pennsylvania, Virginia and
Washington, and may include a small number of Leases associated with
Obligors living outside of such states. Data relating to some Leases
associated with Obligors living in South Dakota are excluded for
administrative reasons but the inclusion of such data would not have a
material effect on the data shown.
34
<PAGE> 35
(2) The information in the table includes operating (original terms less than or
equal to 36 months) and finance (original terms greater than 36 months)
leases on new and used vehicles and includes previously sold leases which
Ford Credit continues to administer. Only operating leases on vehicles not
previously titled are part of this securitization structure.
(3) Each other state represents less than 5% of the Total -- Fifteen State
Average Contracts Outstanding and less than 5% of the Total -- Fifteen State
Average Net RCL Assets for each of the periods shown.
(4) "Net Credit Losses" means with respect to the period (i) the aggregate
adjusted balance subject to lease charges of all lease contracts and related
leased vehicles which are determined to be uncollectible during such period
plus the aggregate amount of uncollected charges for excess wear and tear
and excess mileage relating to lease contracts which terminated during the
period with respect to which proceeds from the sale of the related leased
vehicle were received in the period plus any uncollected scheduled monthly
payments in the period with respect to leased vehicles sold during the
period minus (ii) all amounts received in the period with respect to lease
contracts and related leased vehicles which were determined to be
uncollectible during the period and recoveries received in the period on
lease contracts and related leased vehicles charged-off in the period or any
previous period.
(5) Annualized rate.
The reduction in "Net Credit Losses as a Percentage of Average RCL Assets"
(as set forth in the preceding table entitled Red Carpet Lease Portfolio) during
the period 1991 to 1994 is a result of fewer leased vehicles being repossessed
(as a percentage of the number of leases outstanding) and an increase in the
amount recovered for each vehicle which has been repossessed. Management of Ford
Credit believes that this trend is a result of actions taken to improve
procedures relating to credit quality and collection procedures. In particular,
efforts have been made to reduce the proportion of longer term (and therefore
higher risk) leases as a percentage of the total number of leases, introduce
improved risk rating guides, increase the number of collection personnel and
improve their training, and contact lessees promptly on delinquent accounts. In
addition, the general improvement in the economy, combined with a reduction in
market interest rates, have had a positive effect on Net Credit Losses. Net
Credit Losses increased in 1995 and in the first three quarters of 1996 as a
result of higher repossessions and higher severity of loss per repossession.
Ford Credit expects that the upward trend in increased Net Credit Losses will
continue through the remainder of 1996.
The following tables provide residual value and residual loss information
for each of the periods shown with respect to the portion of the Red Carpet
Lease Portfolio comprised of the fifteen states in which Leases are currently
assigned to FCTT.
RED CARPET LEASE PORTFOLIO(1)
(FIFTEEN STATES IN WHICH LEASES ARE CURRENTLY ASSIGNED TO FCTT(2))
RESIDUAL VALUE ANALYSIS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
AUGUST 31, CALENDAR YEAR
--------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Residual value of all vehicles the
related lease of which terminated in
the period ($000)(3)................ 1,890,226 1,173,233 1,889,774 956,768 515,503 352,402 117,686
Residual value as a percentage of MSRP
of all vehicles the related lease of
which terminated in the period(4)... 54.9% 51.7% 52.4% 47.8% 42.3% 42.0% 43.1%
Aggregate Residual Losses(5) ($000)... 67,352 43,620 75,508 11,913 4,461 7,178 3,448
Aggregate Residual Losses as a
percentage of residual value of all
vehicles the related lease of which
terminated in the period............ 3.6% 3.7% 4.0% 1.3% 0.9% 2.0% 2.9%
Vehicles returned with a Residual Loss
as a percentage of all vehicles the
related lease of which terminated in
the period.......................... 17.8% 19.0% 19.6% 8.1% 5.4% 12.0% 16.5%
</TABLE>
- -------------------------
(1) The information in the table includes only leases on new and used vehicles
with original terms of 36 months or less (including the Advance Payment
Plan) and includes previously sold leases which Ford Credit continues to
administer. Only vehicles not previously titled are part of this
securitization structure.
35
<PAGE> 36
(2) Based on results on leases for which the last billing address of the related
obligor is in Arizona, Arkansas, California, Colorado, Kansas, Minnesota,
Nebraska, Nevada, New Mexico, New York, North Dakota, Pennsylvania, South
Dakota, Virginia or Washington.
(3) Terminations include voluntary early terminations, terminations due to
defaults and scheduled terminations.
(4) "MSRP" means the Manufacturer's Suggested Retail Price, which will generally
exceed the balance subject to lease charges at inception of a lease.
(5) "Residual Loss" means the amount by which the residual value of a leased
vehicle the related lease of which terminated on or after the end of its
lease term exceeds the sum of (i) sale proceeds of such leased vehicle
(including collected excess wear and tear and excess mileage) and (ii)
uncollected excess wear and tear and excess mileage.
Based on results for the leases included in the preceding table, during the
period 1991 through the first eight months of 1996 a total of 21.5% of all
leased vehicles subject to 24- and 36-month leases were not purchased either by
the lessee or the dealer and were returned to Ford Credit as of their respective
scheduled lease end dates. Of such leased vehicles returned on or after their
scheduled lease end dates and subsequently sold by Ford Credit at auction, 73.8%
were sold for a loss versus 26.2% which were sold for a gain. (Due to lessee and
dealer purchase options, the opportunity to realize a gain on a vehicle is given
first to the lessee, then to the related dealer, and finally to Ford Credit.)
Based on results for the leases included in the preceding table, during the
period 1991 through the first eight months of 1996 a total of 497,624 leased
vehicles with a residual exposure (the sum of the residual values of vehicles
under leases which terminated in such period) of $5.7 billion experienced
aggregate residual losses of $169.9 million. For all such leased vehicles with
24- and 36-month leases which terminated between 1991 and August 31, 1996,
annual aggregate Residual Losses as a percent of residual exposure ranged from
0.9% to 4.0%, with a cumulative average of 2.4%.
ELIGIBILITY CRITERIA
The Series 1996-1 Leases and related Series 1996-1 Leased Vehicles were
purchased by Ford Credit as Administrative Agent on behalf of FCTT, in the
ordinary course of business in accordance with the origination procedures set
forth above. The Series 1996-1 Leases were selected from the Leases in FCTT's
portfolio by several criteria (the "Specific Eligibility Criteria"), including
the following: each related Series 1996-1 Leased Vehicle was an automobile or
light truck which prior to the inception of the related Series 1996-1 Lease had
never been titled, and each Series 1996-1 Lease (a) was entered into by a Dealer
located in and an Obligor with a billing address in Arizona, Arkansas,
California, Colorado, Kansas, Minnesota, Nebraska, Nevada, New Mexico, New York,
North Dakota, Pennsylvania, South Dakota, Virginia or Washington; (b) provides
for Constant Yield Payments that fully amortize the Balance Subject to Lease
Charges of such Series 1996-1 Lease to a final payment equal to the Residual
Value of the related Series 1996-1 Leased Vehicle over the term of such Series
1996-1 Lease; (c) was not more than 30 days past due as of the Series 1996-1
Cut-Off Date and has never been extended; (d) was originated on or after
February 22, 1995; (e) has a Scheduled Lease End Date not later than 36 months
from the date it was entered into; (f) has a Retail Operating Lease Factor equal
to or greater than 5.0%; (g) was not originated under the Advance Payment Plan;
(h) is not subject to a holdback of Excess Deferred Gross; and (i) does not
provide for credit-related recourse to the related Dealer. (Series 1996-1
Supplement, Section 3.1; Asset Contribution Agreement, Section 3.2). The Series
1996-1 Leases were selected from FCTT's portfolio of Leases that were
Non-Specified Assets, in each case meeting the Specific Eligibility Criteria set
forth herein and the General Eligibility Criteria set forth in "Additional
Document Provisions -- Representations, Warranties and Covenants." No selection
procedures believed to be adverse to the Senior Noteholders were utilized in
selecting the Series 1996-1 Leases from qualifying Leases.
36
<PAGE> 37
CHARACTERISTICS OF THE SERIES 1996-1 ASSETS
The following table provides data with respect to the composition of the
Series 1996-1 Assets.
COMPOSITION OF THE SERIES 1996-1 ASSETS
<TABLE>
<S> <C>
Initial Pool Balance........................................................ $948,354,864.22
Number of Series 1996-1 Leases.............................................. 48,284
Average Adjusted Balance Subject to Lease Charges as of Series 1996-1
Cut-Off Date.............................................................. $ 19,641.18
Average Balance Subject to Lease Charges.................................... $ 20,500.17
Weighted Average Original Lease Term(1)..................................... 24.35 months
Weighted Average Remaining Lease Term(1).................................... 21.69 months
Average Retail Operating Lease Factor(2).................................... 8.60%
Aggregate Residual Value as a Percent of Aggregate MSRP..................... 64.36%
Residual Value as a Percent of the Initial Pool Balance..................... 78.88%
</TABLE>
- -------------------------
(1) Weighted by Adjusted Balance Subject to Lease Charges as of the Series
1996-1 Cut-Off Date.
(2) Excluding a fixed additional fee (the "Additional Fee") included in the
determination of the amount of the Monthly Payment (generally 0.11% of the
Balance Subject to Lease Charges per month). Including such fee would have
the effect of increasing the yield of Series 1996-1 Assets.
The following tables set forth the distribution of the Series 1996-1 Assets
by geographic location, Retail Operating Lease Factor, Lease Term and vehicle
type. Percentages may not total 100% due to rounding.
DISTRIBUTION OF THE SERIES 1996-1 ASSETS BY GEOGRAPHIC LOCATION
<TABLE>
<CAPTION>
AGGREGATE ADJUSTED
BALANCE SUBJECT
TO LEASE CHARGES PERCENTAGE OF
NUMBER OF AS OF SERIES 1996-1 INITIAL
LEASES CUT-OFF DATE POOL BALANCE
--------- ------------------- -------------
<S> <C> <C> <C>
Arizona............................................... 1,043 $ 19,828,601.00 2.09%
Arkansas.............................................. 366 7,646,118.97 0.81
California............................................ 12,785 245,893,714.47 25.93
Colorado.............................................. 2,345 46,438,859.48 4.90
Kansas................................................ 1,995 38,275,882.71 4.04
Minnesota............................................. 4,408 85,231,371.46 8.99
Nebraska.............................................. 2,058 41,349,556.92 4.36
Nevada................................................ 101 2,214,577.43 0.23
New Mexico............................................ 817 16,068,742.99 1.69
New York.............................................. 12,215 249,548,740.06 26.31
North Dakota.......................................... 522 10,470,387.57 1.10
Pennsylvania.......................................... 6,838 130,054,066.78 13.71
South Dakota.......................................... 487 9,946,934.48 1.05
Virginia.............................................. 1,217 24,093,368.82 2.54
Washington............................................ 1,087 21,293,941.08 2.25
------- --------------- ------
Total............................................ 48,284 $ 948,354,864.22 100.00%
======= =============== ======
</TABLE>
37
<PAGE> 38
DISTRIBUTION OF THE SERIES 1996-1 ASSETS BY RETAIL OPERATING LEASE FACTOR
<TABLE>
<CAPTION>
AGGREGATE ADJUSTED
BALANCE SUBJECT
TO LEASE CHARGES PERCENTAGE OF
NUMBER OF AS OF SERIES 1996-1 INITIAL
LEASES CUT-OFF DATE POOL BALANCE
--------- ------------------- -------------
<S> <C> <C> <C>
5.00% to 5.50%....................................... 39 $ 851,299.86 0.09%
5.51 to 6.00......................................... 2,428 60,880,820.16 6.42
6.01 to 6.50......................................... 2,951 53,319,167.09 5.62
6.51 to 7.00......................................... 5,734 103,802,084.79 10.95
7.01 to 7.50......................................... 2,944 72,574,783.61 7.65
7.51 to 8.00......................................... 3,304 64,411,435.24 6.79
8.01 to 8.50......................................... 4,891 114,514,222.79 12.08
8.51 to 9.00......................................... 5,687 103,755,850.56 10.94
9.01 to 9.50......................................... 5,301 97,505,867.98 10.28
9.51 to 10.00........................................ 1,637 29,780,389.49 3.14
10.01 to 10.50........................................ 9,219 169,560,370.40 17.88
10.51 to 11.00........................................ 1,064 20,497,777.55 2.16
11.01 to 11.50........................................ 1,430 26,758,493.42 2.82
11.51 to 12.00........................................ 386 7,443,658.76 0.78
12.01 and above....................................... 1,269 22,698,642.52 2.39
------ --------------- ------
Total.......................................... 48,284 $ 948,354,864.22 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION OF THE SERIES 1996-1 ASSETS BY LEASE TERM
<TABLE>
<CAPTION>
AGGREGATE ADJUSTED
BALANCE SUBJECT
TO LEASE CHARGES PERCENTAGE OF
NUMBER OF AS OF SERIES 1996-1 INITIAL
LEASES CUT-OFF DATE POOL BALANCE
--------- ------------------- -------------
<S> <C> <C> <C>
24 Months............................................. 46,637 $ 920,759,725.00 97.09%
36 Months............................................. 1,647 27,595,139.22 2.91
------ --------------- ------
Total.......................................... 48,284 $ 948,354,864.22 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION OF THE SERIES 1996-1 ASSETS BY VEHICLE TYPE
<TABLE>
<CAPTION>
AGGREGATE ADJUSTED
BALANCE SUBJECT
TO LEASE CHARGES PERCENTAGE OF
NUMBER OF AS OF SERIES 1996-1 INITIAL
LEASES CUT-OFF DATE POOL BALANCE
--------- ------------------- -------------
<S> <C> <C> <C>
Ford Automobile....................................... 11,313 $ 175,910,587.01 18.55%
Ford Light Truck...................................... 30,140 643,774,337.04 67.88
Lincoln-Mercury....................................... 5,665 109,269,338.45 11.52
Other................................................. 1,166 19,400,601.72 2.05
------ --------------- ------
Total.......................................... 48,284 $ 948,354,864.22 100.00%
====== =============== ======
</TABLE>
38
<PAGE> 39
The following table depicts the projected cash flows of the Series 1996-1
Certificates assuming no prepayments and no defaults.
SERIES 1996-1 LEASES PROJECTED AMORTIZATION, ASSUMING NO PREPAYMENTS AND NO
DEFAULTS
<TABLE>
<CAPTION>
ADJUSTED BALANCE PRINCIPAL PORTION NON-PRINCIPAL WEIGHTED
SUBJECT TO MONTHLY OF MONTHLY PORTION OF AVERAGE
MONTHS LEASE CHARGES CASH FLOWS(1) CASH FLOWS MONTHLY CASH FLOWS YIELD(2)
- ------------------ ---------------- --------------- ----------------- ------------------ --------
<S> <C> <C> <C> <C> <C>
1................ $ 948,354,864.22 $ 17,187,142.24 $ 9,243,581.87 $ 7,943,560.37 10.05%
2................ 939,111,282.35 17,187,142.24 9,309,505.15 7,877,637.09 10.07
3................ 929,801,777.19 17,187,142.24 9,375,915.99 7,811,226.25 10.08
4................ 920,425,861.20 17,187,142.24 9,442,818.11 7,744,324.13 10.10
5................ 910,983,043.09 17,187,142.24 9,510,215.27 7,676,926.97 10.11
6................ 901,472,827.82 17,187,142.24 9,578,111.26 7,609,030.98 10.13
7................ 891,894,716.55 17,187,142.24 9,646,509.89 7,540,632.35 10.15
8................ 882,248,206.66 17,187,142.24 9,715,415.01 7,471,727.23 10.16
9................ 872,532,791.65 17,187,142.24 9,784,830.49 7,402,311.75 10.18
10................ 862,747,961.16 17,187,142.24 9,854,760.25 7,332,381.99 10.20
11................ 852,893,200.91 17,187,142.24 9,925,208.21 7,261,934.03 10.22
12................ 842,967,992.71 17,187,142.24 9,996,178.35 7,190,963.89 10.24
13................ 832,971,814.36 17,187,142.24 10,067,674.67 7,119,467.57 10.26
14................ 822,904,139.69 17,187,142.24 10,139,701.19 7,047,441.05 10.28
15................ 812,764,438.50 17,187,142.24 10,212,261.99 6,974,880.25 10.30
16................ 802,552,176.51 29,881,567.46 22,998,623.04 6,882,944.42 10.29
17................ 779,553,553.47 30,309,506.32 23,605,259.67 6,704,246.66 10.32
18................ 755,948,293.80 29,543,242.68 23,019,320.56 6,523,922.12 10.36
19................ 732,928,973.24 103,193,475.03 96,952,010.74 6,241,464.30 10.22
20................ 635,976,962.50 98,494,362.93 93,058,434.07 5,435,928.86 10.26
21................ 542,918,528.43 86,813,718.04 82,141,568.75 4,672,149.29 10.33
22................ 460,776,959.68 152,553,781.96 148,721,344.33 3,832,437.63 9.98
23................ 312,055,615.36 174,456,291.37 171,981,539.91 2,474,751.47 9.52
24................ 140,074,075.45 141,122,124.49 140,074,075.45 1,048,049.04 8.98
</TABLE>
- -------------------------
(1) Includes the Additional Fee.
(2) Weighted Average Yield is computed by dividing the amount shown as the
Non-Principal Portion of Monthly Cash Flows for the related month by the
Adjusted Balance Subject to Lease Charges for such month and multiplying the
result by twelve.
39
<PAGE> 40
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The rate of payment of principal and the yield to maturity on each Class of
Senior Notes generally will be directly related to the rate at which payments on
the Series 1996-1 Leases and in respect of the Series 1996-1 Leased Vehicles are
received. To the extent that Obligors make Total Monthly Payments when due (or
the Administrative Agent makes Monthly Payment Advances) and the Residual Values
of Series 1996-1 Leased Vehicles are not realized until their respective
Scheduled Lease End Dates, the minimum rate of payment of principal to Senior
Noteholders can be determined with certainty (such minimum rate of payment of
principal is reflected in the data in the column headed "0% ABS" in the
Percentage of Senior Note Balance Outstanding table shown below). However, the
rate of payment of principal on the Senior Notes will be shifted forward to the
prepayment date to the extent that any Series 1996-1 Lease is prepaid in full,
whether due to the receipt of Voluntary Early Termination Proceeds,
Administrative Purchase Amounts or Liquidation Proceeds. Partial prepayments
will be treated as Payaheads and will not increase the rate of payment of
principal of the Senior Notes because such payments will be held and paid out to
Senior Noteholders as principal only when required to meet a shortfall in a
subsequent payment from the related Obligor.
Additionally, an investor's expected yield will be affected by (i) the
price the investor paid for the Senior Notes, (ii) the rate of prepayments of
the Series 1996-1 Leases and (iii) the investor's assumed reinvestment rate. For
example, if prepayments on the Series 1996-1 Leases are slower than anticipated,
the investor's yield will be lower if interest rates are higher than the
investor anticipated and higher if interest rates are lower than the investor
anticipated. Conversely, if prepayments on the Series 1996-1 Leases are faster
than anticipated, the investor's yield will be higher if interest rates are
higher than the investor anticipated and lower if interest rates are lower than
the investor anticipated.
Because Residual Value is a large component of the Adjusted Balance Subject
to Lease Charges, the timing of the cashflows generated by the Series 1996-1
Assets will be heavily weighted toward the Scheduled Lease End Dates when the
Residual Values of the Series 1996-1 Leased Vehicles are expected to be
realized. The rate of payment of principal on the Senior Notes increases
substantially on the August 15, 1998 Payment Date as a result of a significant
portion of Series 1996-1 Leases reaching their Scheduled Lease End Dates in the
related Accrual Period. In general, prepayments of Series 1996-1 Leases in full
will have the effect of shortening the weighted average life of the Senior Notes
(the average amount of time during which each dollar of the principal balance of
Senior Notes is outstanding). Additionally, holders of the Class A-2 Senior
Notes will not receive any principal payments until the Class A-1 Senior Notes
have been paid in full, unless an Event of Default under the Indenture has
occurred and the maturity of the Senior Notes has been accelerated, in which
case principal will be paid pro rata to the holders of the Class A-1 Senior
Notes and Class A-2 Senior Notes without distinction between Classes. As the
rate of payment of principal on each Class of Senior Notes depends primarily on
the rate of payment (including prepayments) of the Series 1996-1 Leases, final
payment on each Class of Senior Notes could occur significantly earlier than the
respective Stated Maturities. If there are prepayments in full of Series 1996-1
Leases which cause principal of the Senior Notes to be paid earlier than
projected, Senior Noteholders will bear the risk of being able to reinvest
principal payments of the Senior Notes at yields at least equal to the yield on
their respective Class of Senior Notes.
A prepayment of a Series 1996-1 Lease in full may be in the form of
Voluntary Early Termination Proceeds resulting from a Voluntary Early
Termination of such Series 1996-1 Lease, Liquidation Proceeds following a
bankruptcy of or default by the Obligor, or Administrative Purchase Amounts
following the occurrence of certain events set forth in "Description of the
Administrative Agency Agreement -- Administrative Purchases." The rate of
prepayments on the Series 1996-1 Leases may be influenced by a variety of
economic, social and other factors including competing consumer finance products
and the conditions in the used car market. For 24-month leases originated
between 1989 and 1993, Ford Credit believes approximately 49% of the leases
prepaid in full before their respective scheduled lease end dates. For 36-month
leases originated between 1989 and 1993, Ford Credit believes approximately 63%
of the leases prepaid in full before their respective scheduled lease end dates.
Additionally, the rate of payment of principal of each Class of Senior
Notes will be increased by the application to pay principal of the Senior Notes
(after payment of interest on the Senior Notes, the
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<PAGE> 41
Subordinated Notes and the Lease Trust Certificates) of the portion, if any, of
the Available Funds plus the Cash Collateral Additional Draw Amount, if any,
which does not constitute payments by or on behalf of Obligors in reduction of
the Balance Subject to Lease Charges of the related Series 1996-1 Leases and
which is not applied to pay certain fees in any given month. To the extent
Series 1996-1 Leases which have higher Retail Operating Lease Factors are
prepaid faster than others, the amount of such additional portion of the
Available Funds plus the Cash Collateral Additional Draw Amount, if any,
available to pay principal of the Senior Notes will be reduced. See "Description
of the Senior Notes -- The Indenture Cash Flows."
The Percentage of Senior Note Balance Outstanding table shown below was
prepared on the basis of certain assumptions, including that (i) all Collections
are timely received, and that no Series 1996-1 Lease is ever delinquent, (ii)
none of the Series 1996-1 Leases is repurchased by the Administrative Agent,
(iii) there are no Series 1996-1 Credit Losses or Series 1996-1 Residual Losses,
(iv) the Administrative Agent does not exercise its option to purchase the
Series 1996-1 Certificates as described herein, (v) distribution of principal
and interest on the Senior Notes and of interest on the Subordinated Notes is
made on February 15, May 15, August 15 and November 15 of each year, (vi)
distribution of interest on the Lease Trust Certificates is made on May 15 and
November 15 of each year, (vii) payments in respect of the Subordinated Notes
are deposited to the Cash Collateral Account and applied as a portion of the
Cash Collateral Additional Draw Amount, (viii) the Administrative Agent Fee is
1.00% per annum, (ix) all prepayments are prepayments in full, (x) all Program
Operating Lease Payments are made and (xi) the Cash Collateral Account is funded
in an amount equal to the Initial Cash Collateral Deposit.
PERCENTAGE OF SENIOR NOTE BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SPEEDS(1)
------------------------------------------------------------------------------------------------
CLASS A-1 SENIOR NOTES CLASS A-2 SENIOR NOTES
---------------------------------------------- ----------------------------------------------
PAYMENT DATE 0.0% 0.5% 0.7% 0.9% 1.4% 0.0% 0.5% 0.7% 0.9% 1.4%
- ------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial.................. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
2/15/97................. 73.94 64.62 60.82 56.97 47.13 100.00 100.00 100.00 100.00 100.00
5/15/97................. 48.38 30.42 23.08 15.66 0.00 100.00 100.00 100.00 100.00 99.25
8/15/97................. 22.46 0.00 0.00 0.00 0.00 100.00 99.21 96.81 94.37 88.15
11/15/97................. 0.00 0.00 0.00 0.00 0.00 99.12 91.58 88.50 85.38 77.41
2/15/98................. 0.00 0.00 0.00 0.00 0.00 93.05 84.02 80.32 76.68 67.58
5/15/98................. 0.00 0.00 0.00 0.00 0.00 86.36 76.57 72.57 68.52 58.17
8/15/98................. 0.00 0.00 0.00 0.00 0.00 48.42 41.04 38.02 34.97 27.17
11/15/98................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life
(years)(2)............. 0.58 0.46 0.43 0.40 0.34 1.79 1.70 1.66 1.62 1.51
</TABLE>
- -------------------------
(1) Prepayment speeds are expressed in terms of percentages of ABS. As used
herein, "ABS" refers to a prepayment model which assumes a constant
percentage of the original number of leases in a pool prepay each month. ABS
does not purport to be either an historical description of the prepayment
experience of any pool of leases or a prediction of the anticipated rate of
prepayment of any pool of leases, including the Series 1996-1 Leases.
(2) The weighted average life of each Class of Senior Notes is determined by (i)
multiplying the amount of each distribution in reduction of principal
balance by the number of years from the date of the issuance of the Senior
Notes to the related Payment Date, (ii) adding the results and (iii)
dividing the sum by the aggregate distributions in reduction of principal
balance referred to in clause (i).
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<PAGE> 42
POOL FACTORS AND TRADING INFORMATION
The Note Pool Factor for each Class of Senior Notes will be a seven digit
decimal which the Administrative Agent will compute prior to each Payment Date.
The "Note Pool Factor" with respect to each Class of Senior Notes as of any
applicable Payment Date represents the remaining outstanding principal balance
of such Class of Senior Notes as of the applicable Payment Date (after giving
effect to payments made on such Payment Date), expressed as a fraction of the
initial outstanding principal balance of such Class of Senior Notes. Each Note
Pool Factor will initially be 1.0000000 and thereafter will decline to reflect
reductions in the outstanding principal balance of the applicable Class of
Senior Notes. A Senior Noteholder's portion of the principal balance of the
related Class of Senior Notes is the product of (i) the original denomination of
such Senior Noteholder's Senior Note and (ii) the applicable Note Pool Factor.
The Senior Noteholders will receive reports on or about each Payment Date
for the Accrual Period immediately preceding such Payment Date containing
information regarding: (i) payments received on Series 1996-1 Assets, (ii) the
Pool Balance, (iii) the Note Pool Factor of each Class of Senior Notes (as of
such Payment Date after giving effect to payments made on such Payment Date) and
(iv) various other information. See "Description of the Senior Notes --
Statements to Senior Noteholders" for a description of the additional
information provided to Senior Noteholders on each Payment Date. In addition,
Senior Noteholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SOURCES OF CAPITAL AND LIQUIDITY
The Issuer's primary sources of capital will be (i) the net proceeds of the
Senior Notes offered hereby, (ii) the net proceeds of the Lease Trust
Certificates sold to third party investors and (iii) the Subordinated Notes and
$311,533.09 of Lease Trust Certificates issued to the Transferor. See "The
Issuer -- Capitalization of the Issuer."
The Issuer's primary sources of liquidity will be payments on the Series
1996-1 Certificates received either directly by the Issuer or indirectly
pursuant to payments under the Program Operating Lease (including amounts
available from the Cash Collateral Account).
RESULTS OF OPERATIONS
The Issuer is newly formed and, accordingly, has no results of operations
as of the date of this Prospectus. Because the Issuer does not have any
operating history, there has not been included in this Prospectus any historical
or pro forma ratio of earnings to fixed charges. The payments received under the
Program Operating Lease and payments on other assets owned by the Issuer and the
interest costs of the Senior Notes, the Subordinated Notes and the Lease Trust
Certificates will determine the Issuer's results of operations in the future.
The income generated from the Issuer's assets will be used to pay interest on
and principal of the Senior Notes and the Subordinated Notes, related costs and
expenses of the Issuer (to the extent not included in items payable by the
Administrative Agent pursuant to the Administrative Agency Agreement), and
distributions to the holders of the Lease Trust Certificates. The principal
periodic expense of the Issuer is expected to be, but is not limited to, the
Administrative Agent Fee.
DESCRIPTION OF THE SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to the terms of the Indenture. A
copy of the Indenture will be filed with the Commission following the issuance
of the Senior Notes. The following description summarizes the material terms of
the Senior Notes and the Indenture. The summary does not purport to be complete
and
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<PAGE> 43
is qualified in its entirety by reference to the provisions of the Senior Notes,
the Indenture and the other Basic Documents.
The Senior Notes will be issued in denominations of $1,000 and integral
multiples thereof in book-entry form through the facilities of DTC. (Indenture,
Sections 2.2 and 2.10). Each Class of Senior Notes will initially be represented
by one or more Senior Notes, in each case registered in the name of Cede, the
nominee of DTC. Accordingly, Cede is expected to be the holder of record of the
Senior Notes of each Class. Unless and until Definitive Senior Notes are issued
under the limited circumstances described herein, no beneficial owner of a
Senior Note (each, a "Senior Note Owner") will be entitled to receive a physical
certificate representing such owner's Senior Note, except as set forth in "--
Definitive Senior Notes." Unless and until the Senior Notes are issued in fully
registered, certificated form ("Definitive Senior Notes") under the limited
circumstances described in "-- Definitive Senior Notes," all references herein
to distributions, notices, reports and statements to Senior Noteholders will
refer to the same actions made with respect to DTC or Cede, as the case may be,
for the benefit of Senior Note Owners in accordance with DTC procedures.
(Indenture, Sections 2.10 and 2.12).
BOOK-ENTRY REGISTRATION
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC in effect in the State of New York
and a "clearing agency" registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds
securities for its participating members (the "Participants") and facilitates
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly (the "Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Senior Note Owners that are not Participants or Indirect Participants but
that desire to purchase, sell or otherwise transfer ownership of or an interest
in the Senior Notes may do so only through Participants or Indirect
Participants. Participants receive a credit for the Senior Notes in DTC's
records. The ownership interest of each Senior Note Owner is in turn recorded on
the Participants' and Indirect Participants' respective records. Senior Note
Owners will not receive written confirmation from DTC of their purchase, but
Senior Note Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Participant or Indirect Participant through which the Senior Note Owner
entered into the transaction. Transfers of ownership interests in the Senior
Notes will be accomplished by entries made on the books of Participants acting
on behalf of Senior Note Owners.
To facilitate subsequent transfers, all Senior Notes deposited by
Participants with DTC will be registered in the name of Cede, as nominee of DTC.
The deposit of Senior Notes with DTC and their registration in the name of Cede
will effect no change in beneficial ownership. DTC has no knowledge of the
actual Senior Note Owners and its records reflect only the identity of the
Participants to whose accounts such Senior Notes are credited, which may or may
not be the Senior Note Owners. Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Senior Note Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC's practice is to credit Participants' accounts on each Payment Date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on such Payment Date.
Payments by Participants and Indirect Participants to Senior Note Owners will be
governed by standing instructions and customary practices, as in the case with
securities held for the accounts
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<PAGE> 44
of customers in bearer form or registered in "street name", and will be the
responsibility of such Participant and not of DTC, the Indenture Trustee, the
Lease Trustee, the RCL Trustee, the Administrative Agent, the Transferor or the
Issuer, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal of and interest on the Senior Notes to
DTC will be the responsibility of the Indenture Trustee, disbursement of such
payments to Participants will be the responsibility of DTC and disbursement of
such payments to Senior Note Owners will be the responsibility of Participants
and Indirect Participants. As a result, under the book-entry format, Senior Note
Owners may experience some delay in their receipt of payments.
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 Senior Note
Owner to pledge Senior Notes to persons or entities that do not participate in
the DTC system, or otherwise take actions with respect to such Senior Notes, may
be limited due to the lack of a physical certificate for such Senior Notes.
Neither DTC nor Cede will consent or vote with respect to the Senior Notes.
Under its usual procedures, DTC mails an "Omnibus Proxy" to the Indenture
Trustee as soon as possible after any applicable record date for such a consent
or vote. The Omnibus Proxy assigns Cede's consenting or voting rights to those
Participants to whose accounts the Senior Notes are credited on that record date
(identified in a listing attached to the Omnibus Proxy).
Neither the Indenture Trustee, the Lease Trustee, the RCL Trustee, the
Administrative Agent, the Transferor or the Issuer will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Senior Notes held by Cede, as nominee of DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE SENIOR NOTES
Definitive Senior Notes will be issued to Senior Note Owners rather than to
DTC only if (i) DTC is no longer willing or able to discharge its
responsibilities with respect to the Senior Notes and the Administrative Agent
is not able to locate a qualified successor, (ii) the Administrative Agent, at
its option, elects to terminate book-entry registration through DTC or (iii)
after an Event of Default, Senior Note Owners representing not less than a
majority of the aggregate principal balance of the Senior Notes advise the
Indenture Trustee through DTC or its successor in writing that the continuation
of book-entry registration through DTC or its successor is no longer in the best
interest of Senior Note Owners. (Indenture, Section 2.12).
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC will notify all Senior Note Owners, through
Participants, of the availability through DTC of Definitive Senior Notes. Upon
surrender by DTC of the notes representing the Senior Notes and the receipt of
instructions for re-registration, the Indenture Trustee will issue Definitive
Senior Notes to Senior Note Owners, who thereupon will become Senior Noteholders
for all purposes of the Indenture. (Indenture, Section 2.12).
Payments on the Senior Notes will thereafter be made by the Indenture
Trustee directly to Senior Noteholders in accordance with the procedures set
forth herein and in the Indenture. Interest payments and any principal payments
on the Definitive Senior Notes on each Payment Date will be made to holders in
whose names the Definitive Senior Notes were registered at the close of business
on the Record Date with respect to such Payment Date. Payments will be made by
check mailed to the address of such holders as they appear on the Senior Note
Register or, under certain circumstances as provided in the Indenture, by wire
transfer to a bank or depository institution located in the United States and
having appropriate facilities therefor. (Indenture, Section 2.7). The final
payment on any Senior Notes (whether Definitive Senior Notes or global notes
registered in the name of Cede representing the Senior Notes), however, will be
made only upon presentation and surrender of such Definitive Senior Notes or
global notes at the office or agency specified in the notice of final
distribution to Senior Noteholders. (Indenture, Section 2.7).
Definitive Senior Notes will be transferable and exchangeable at the
offices of the Indenture Trustee or the Senior Note Registrar to be set forth in
the Indenture. No service charge will be imposed for any
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<PAGE> 45
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith. (Indenture, Section 2.4).
INTEREST
Interest on the principal balance of the Class A-1 Senior Notes will accrue
at the rate of 5.45125% per annum and interest on the principal balance of the
Class A-2 Senior Notes will accrue at the rate of 5.80% per annum. (Indenture,
Section 2.1). Interest on the Senior Notes will be payable to the Senior
Noteholders quarterly on each Payment Date to Senior Noteholders of record on
the Record Date preceding such Payment Date. Interest on the principal balance
of the Senior Notes will accrue at the applicable interest rate (i) with respect
to the Class A-1 Senior Notes, either from and including the Closing Date (in
the case of the first Payment Date) or from and including the most recent
Payment Date on which interest has been paid to but excluding the following
Payment Date and (ii) with respect to the Class A-2 Senior Notes, either from
and including the Closing Date (in the case of the first Payment Date) or from
and including the fifteenth day of the third calendar month preceding the
calendar month in which each Payment Date occurs, to but excluding the fifteenth
day of the calendar month in which such Payment Date occurs. Interest accrued
but not paid as of any Payment Date will be due on the next Payment Date
together with interest on such overdue amount (to the extent lawful) at a rate
per annum equal to the interest rate for the applicable Class. (Indenture,
Section 2.7). Interest on the Class A-1 Senior Notes will be calculated on the
basis of actual days elapsed and a 360-day year. Interest on the Class A-2
Senior Notes will be calculated on the basis of a 360-day year of twelve 30-day
months. (Indenture, Section 1.1). Interest payments on the Senior Notes
generally will be made from the Available Funds as described in "-- The
Indenture Cash Flows."
Interest payments to all Classes of Senior Noteholders will have the same
priority. If the amount of interest on the principal balance of the Class A-1
Senior Notes and on the principal balance of the Class A-2 Senior Notes exceeds
the Available Funds with respect to such Payment Date (after giving effect to
payment of the Administrative Agent Fee), each Senior Noteholder will receive
its pro rata share (based on the total amount of interest due to all Senior
Noteholders) of the amount available to be distributed in respect of interest on
the aggregate principal balance of the Senior Notes.
PRINCIPAL
Principal payments will be made to the Senior Noteholders sequentially on
each Payment Date in an amount equal to the Available Funds plus the Cash
Collateral Additional Draw Amount, if any, with respect to such Payment Date
after giving effect to (i) the payment to the Administrative Agent of the
Administrative Agent Fee with respect to such Payment Date, (ii) the payment of
interest to Senior Noteholders, (iii) the deposit of interest due on the
Subordinated Notes into the Cash Collateral Account and (iv) the deposit of
interest accrued (including any interest accrued but not deposited to the
Certificate Distribution Account on the previous Payment Date) on the Lease
Trust Certificates plus the Certificate Distribution Draw Amount, if any, into
the Certificate Distribution Account for payment to Lease Trust
Certificateholders when due. No principal payments will be made to the Class A-2
Senior Noteholders until the principal balance of the Class A-1 Senior Notes has
been reduced to zero (Indenture, Section 8.4); provided that if an Event of
Default under the Indenture has occurred and the maturity of the Senior Notes
has been accelerated, principal payments will be made to the holders of the
Class A-1 Senior Notes and the Class A-2 Senior Notes on a pro rata basis based
on their respective principal balances without any distinction between Classes
(Indenture, Section 5.4). Payments of principal with respect to the Subordinated
Notes and the Lease Trust Certificates will not be made until the aggregate
principal balance of the Senior Notes has been reduced to zero. See "-- The
Indenture Cash Flows" and "-- The Accounts -- The Cash Collateral Account."
OPTIONAL REDEMPTION
If the Administrative Agent exercises its option to purchase the Series
1996-1 Certificates on any Payment Date on which the Pool Balance has declined
to less than 10% of the Initial Pool Balance, the Senior Notes will be redeemed
on such date in whole, but not in part, for the Redemption Price. The
Administrative Agent or the Lease Trustee will provide at least 45 days' prior
notice of the redemption of the Senior Notes to
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<PAGE> 46
the Indenture Trustee (who will provide at least 30 days' notice to the Senior
Noteholders). On such Payment Date the aggregate principal balance of the Senior
Notes will be due and payable at the Redemption Price and unless all the Senior
Notes are not redeemed on such Payment Date no interest will accrue on the
Senior Notes after such Payment Date. (Indenture, Section 10.1; Series 1996-1
Supplement, Section 7.1).
Because the initial principal balance of the Subordinated Notes and the
Lease Trust Certificates exceeds 10% of the Initial Pool Balance, absent
substantial shortfalls in amounts available from the Series 1996-1 Certificates,
it is likely that the Senior Notes will have been paid in full on or before the
Payment Date on which the Administrative Agent is permitted to exercise its
option to purchase the Series 1996-1 Certificates. See "The Issuer --
Capitalization of the Issuer."
THE INDENTURE TRUSTEE
The Chase Manhattan Bank is the Indenture Trustee under the Indenture. The
Indenture Trustee is a New York corporation and its corporate trust offices are
located at 450 West 33rd Street, New York, New York 10001. The fees and expenses
of the Indenture Trustee will be paid by the Administrative Agent, acting on
behalf of the Issuer. The Transferor, Ford Credit and their respective
affiliates may maintain normal commercial banking relationships with the
Indenture Trustee and its affiliates.
THE ACCOUNTS
The Collection Account. The Collection Account will be established at an
Eligible Institution in the name of the Indenture Trustee. Amounts deposited
therein will be invested in Permitted Investments with a maturity no later than
the business day preceding the next Payment Date. Income (or losses, if any) on
such investments, if any, will be credited (or charged) to the Collection
Account and will be available to make payments on the Senior Notes, the
Subordinated Notes and the Lease Trust Certificates. (Series 1996-1 Supplement,
Section 5.1). The Collection Account will initially be established with the
Indenture Trustee. If the Indenture Trustee ceases to be an Eligible
Institution, the Collection Account will be moved to an Eligible Institution.
(Series 1996-1 Supplement, Section 5.1).
The Payahead Account. The Payahead Account will be established at an
Eligible Institution in the name of the Indenture Trustee. Payaheads deposited
therein will be invested in Permitted Investments with a maturity no later than
the business day preceding the next Distribution Date. Income (or losses, if
any) on such investments, if any, will be distributed to the beneficiaries of
the Transferor (or, in the case of losses, deducted from distributions to such
beneficiaries). The Payahead Account will be initially established with the
Indenture Trustee. If the Indenture Trustee ceases to be an Eligible
Institution, the Payahead Account will be moved to an Eligible Institution. The
Administrative Agent is required to deposit Payaheads in the Payahead Account
only if it has failed to meet a Monthly Remittance Condition. Payahead Credits
will be applied by the Administrative Agent on each Distribution Date if any
Monthly Payment with respect to a Series 1996-1 Lease has not been paid in the
related Collection Period. (Series 1996-1 Supplement, Section 5.1).
The Payment Account. The Payment Account will be an Eligible Account
established in the name of the Indenture Trustee in trust for the benefit of the
Senior Noteholders, the Subordinated Noteholders and the Lease Trust
Certificateholders. Amounts deposited therein may be invested in Permitted
Investments with a maturity no later than the next Payment Date. Income (or
losses, if any) on such investments, if any, will be credited (or charged) to
the Administrative Agent. (Series 1996-1 Supplement, Section 5.1). The Payment
Account will be initially established with the Indenture Trustee. If the Payment
Account may no longer be maintained at the Indenture Trustee as an Eligible
Account, the Payment Account will be moved to another institution and
established as an Eligible Account. (Series 1996-1 Supplement, Section 5.1).
The Cash Collateral Account. The Cash Collateral Account will be an account
established at an Eligible Institution in the name of the Indenture Trustee.
Amounts deposited therein will be invested in Cash Collateral Account
Investments. Income (or losses, if any) on such investments, if any, will be
credited (or
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<PAGE> 47
charged) to the Cash Collateral Account. The Cash Collateral Account will be
initially established with the Indenture Trustee. If the Indenture Trustee
ceases to be an Eligible Institution, the Cash Collateral Account will be moved
to an Eligible Institution. (Program Operating Lease, Section 3.5). The Cash
Collateral Account will be established by the Transferor to secure the
Transferor's obligations under the Program Operating Lease, and on each Payment
Date amounts on deposit therein are available to pay the Program Operating Lease
Payments required to be made by the Transferor under the Program Operating
Lease. See "-- Cash Collateral Account Withdrawals and Deposits" for a
description of the amounts to be deposited to and withdrawn from the Cash
Collateral Account.
The Certificate Distribution Account. The Certificate Distribution Account
will be an Eligible Account established in the name of the Indenture Trustee in
trust for the benefit of the Senior Noteholders, the Subordinated Noteholders
and the Lease Trust Certificateholders. Amounts deposited therein may be
invested in Permitted Investments with a maturity no later than the business day
preceding the next Payment Date. Income (or losses, if any) on such investments,
if any, will be credited (or charged) to the Cash Collateral Account. The
Certificate Distribution Account will initially be established with the
Indenture Trustee. If the Certificate Distribution Account may no longer be
maintained at the Indenture Trustee as an Eligible Account, the Certificate
Distribution Account will be moved to another institution and established as an
Eligible Account. (Lease Trust Agreement, Section 5.1). Amounts deposited in the
Certificate Distribution Account pursuant to the terms of the Indenture will be
available for distribution to Lease Trust Certificateholders semiannually on the
Payment Dates occurring in the months of May and November in accordance with the
terms of the Lease Trust Agreement; provided, however, that amounts deposited in
the Certificate Distribution Account on the Payment Dates occurring in the
months of February and August in respect of accrued interest on the Lease Trust
Certificates will be withdrawn on the business day preceding the following
Payment Date in an amount equal to the Certificate Distribution Draw Amount, if
any, for such Payment Date. See "Description of the Senior Notes -- The
Indenture Cash Flows -- Certificate Distribution Draw Amount."
THE INDENTURE CASH FLOWS
Monthly or Daily Deposits to Collection Account. On each Distribution Date
(or on the business day preceding such Distribution Date, if such Distribution
Date is a Payment Date), or on each business day if each Monthly Remittance
Condition has not been satisfied, the Administrative Agent will deposit all
Collections with respect to Series 1996-1 Assets into the Collection Account.
(Series 1996-1 Supplement, Section 5.2).
"Collections" means with respect to Series 1996-1 Assets and any Collection
Period, all of the following amounts received by the Administrative Agent
in such Collection Period: (i) all Monthly Payments and Payahead Credits;
(ii) all Administrative Purchase Amounts; (iii) all Monthly Scheduled
Termination Sale Proceeds; (iv) all Voluntary Early Termination Proceeds;
(v) all Liquidation Proceeds; and (vi) all Recoveries.
"Monthly Payment" means with respect to any Lease, the amount payable
monthly by the Obligor equal to the Constant Yield Payment and the
Additional Fee and certain other fees and charges for such month.
"Payahead Credits" means with respect to any Series 1996-1 Lease the amount
of a Payahead with respect to an Obligor either paid by the Administrative
Agent (if each Monthly Remittance Condition is satisfied) or withdrawn from
the Payahead Account, and applied against the Monthly Payment due in such
Collection Period with respect to such Series 1996-1 Lease.
"Administrative Purchase Amount" means with respect to any Series 1996-1
Lease as of the end of a Collection Period as to which a breach of certain
representations, warranties or covenants has occurred (including those
resulting from a Term Extension, Payment Extensions in excess of, in the
aggregate, three months or the relocation of a Series 1996-1 Leased Vehicle
to a jurisdiction in which FCTT is not qualified or authorized to maintain
evidence of the ownership interest of FCTT in such Series 1996-1
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Leased Vehicle), the Adjusted Balance Subject to Lease Charges as of such
date plus any overdue Monthly Payments which have not been paid by the
Obligor.
"Monthly Scheduled Termination Sale Proceeds" means with respect to a
Collection Period, all Sale Proceeds received by the Administrative Agent
in such Collection Period for Series 1996-1 Leased Vehicles which were sold
on or after the termination of the related Series 1996-1 Leases at their
respective Scheduled Lease End Dates (increased by amounts collected in
connection with Excess Wear and Tear and Excess Mileage and reduced by
amounts required to be remitted to the related Obligors under applicable
law); provided that to the extent the Transferor exercises its option to
purchase a Series 1996-1 Leased Vehicle, the Sale Proceeds for any such
Series 1996-1 Leased Vehicle will not exceed the Transferor Purchase Option
Price. See "Series 1996-1 Certificates -- Lease of the Series 1996-1
Certificates to the Transferor."
"Voluntary Early Termination Proceeds" means all amounts received in
connection with a Voluntary Early Termination, which amount includes the
Adjusted Balance Subject to Lease Charges at the time of termination plus
all Monthly Payments due but not paid as of the date of termination.
"Liquidation Proceeds" means all amounts received with respect to a
Liquidated Lease and the related Leased Vehicle in the Collection Period in
which such Lease became a Liquidated Lease, net of any amounts remitted to
the Obligor as required by law.
"Recoveries" means, with respect to any Collection Period, (i) all amounts
received during such Collection Period (net of taxes) with respect to
Leases which became Liquidated Leases before such Collection Period plus
(ii) all amounts received with respect to Leases which expired on their
respective Scheduled Lease End Dates before such Collection Period and with
respect to which the proceeds from the sale of the related Leased Vehicles
were received before such Collection Period, minus any amounts remitted to
the Obligor as required by law.
Quarterly Deposits to Collection Account. On the second business day
preceding each Payment Date, the Administrative Agent acting on behalf of the
Issuer will deliver to the Indenture Trustee instructions setting forth the
information necessary to make all disbursements and payments with respect to
such Payment Date. (Indenture, Section 8.3).
On the business day preceding each Payment Date, the Administrative Agent
will make a deposit or withdrawal from the Collection Account in an amount equal
to the sum of the Aggregate Net Sale Proceeds Advances and Aggregate Net Monthly
Payment Advances to be made by the Administrative Agent for the preceding
Accrual Period. (Series 1996-1 Supplement, Sections 5.2 and 5.4).
"Aggregate Net Sale Proceeds Advances" means, with respect to any Accrual
Period, the aggregate Sale Proceeds Advances made by the Administrative
Agent with respect to such Accrual Period minus the amount received by the
Administrative Agent in such Accrual Period as repayment of Sale Proceeds
Advances which were made with respect to previous Accrual Periods. See
"Description of the Administrative Agency Agreement -- Advances of Sale
Proceeds."
"Aggregate Net Monthly Payment Advances" means, with respect to any Accrual
Period, the aggregate Monthly Payment Advances made by the Administrative
Agent with respect to such Accrual Period minus the amount received by the
Administrative Agent in such Accrual Period as repayment of Monthly Payment
Advances which were made with respect to previous Accrual Periods. See
"Description of the Administrative Agency Agreement -- Monthly Payment
Advances."
On the business day preceding each Payment Date, based on the instructions
of the Administrative Agent, the Indenture Trustee will determine the aggregate
amount of Available Sale Proceeds on deposit in the Collection Account (after
giving effect to all deposits of Collections on the business day preceding such
Payment Date and the deposit or withdrawal of the Aggregate Net Monthly Payment
Advances and the Aggregate Net Sale Proceeds Advances on such day).
The "Available Sale Proceeds" means, with respect to any Payment Date, the
Monthly Scheduled Termination Sale Proceeds deposited in the Collection
Account on each of the two preceding
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Distribution Dates and Monthly Scheduled Termination Sale Proceeds
deposited in the Collection Account on the business day preceding the
Distribution Date occurring on such Payment Date (or on each business day
during the related Accrual Period if any Monthly Remittance Condition has
not been satisfied) plus the Aggregate Net Sale Proceeds Advances deposited
in the Collection Account on the business day preceding such Payment Date.
Quarterly or Daily Deposits to Cash Collateral Account. On the business day
preceding each Payment Date, or on each business day if each Monthly Remittance
Condition has not been satisfied, the Administrative Agent will deposit any
Transferor Purchase Option Net Proceeds with respect to the Series 1996-1 Leased
Vehicles into the Cash Collateral Account until the aggregate cumulative amount
deposited in the Cash Collateral Account in respect of such proceeds equals
$94,835,486.42, which is equal to 10% of the Initial Pool Balance. (Series
1996-1 Supplement, Section 5.3).
Withdrawals from Collection Account/Deposits to Cash Collateral Account. On
the business day preceding each Payment Date and prior to the Indenture
Trustee's withdrawal of any amounts from the Cash Collateral Account on such
day, the Administrative Agent will withdraw from the Collection Account (after
giving effect to all deposits of Collections therein and the deposit or
withdrawal of the Aggregate Net Monthly Payment Advances and the Aggregate Net
Sale Proceeds Advances on such day) and deposit to the Cash Collateral Account
the sum for the related Accrual Period of (i) the Collections other than Monthly
Scheduled Termination Sale Proceeds, (ii) the Aggregate Net Monthly Payment
Advances and (iii) any investment earnings (net of losses and investment
expenses) on funds on deposit in the Collection Account. (Series 1996-1
Supplement, Section 5.2).
Withdrawals from Collection Account/Deposits to Payment Account. On the
business day preceding each Payment Date, the Administrative Agent will withdraw
from the Collection Account and deposit to the Payment Account the Available
Sale Proceeds on deposit in the Collection Account. (Series 1996-1 Supplement,
Section 5.2).
Withdrawals from Certificate Distribution Account/Deposits to Cash
Collateral Account. On the business day preceding each Payment Date, the
Indenture Trustee will withdraw from the Certificate Distribution Account and
deposit to the Cash Collateral Account any investment earnings (net of losses
and investment expenses) on funds on deposit in the Certificate Distribution
Account. (Indenture, Section 8.2).
Withdrawals from Cash Collateral Account/Deposits to Payment Account and
Application of Cash Collateral Additional Draw Amount. On the business day
preceding each Payment Date, the Indenture Trustee will withdraw from the Cash
Collateral Account and deposit to the Payment Account the Cash Collateral
Required Draw Amount and apply such amount as described under "-- Payments"
below. On each Payment Date, the Indenture Trustee will withdraw from the Cash
Collateral Account the Cash Collateral Additional Draw Amount and apply such
amount as described under "-- Payments" below. See "-- Cash Collateral Account
Withdrawals and Deposits" for a description of how the Cash Collateral Required
Draw Amount and the Cash Collateral Additional Draw Amount are calculated.
(Indenture, Section 8.3).
Payments. On each Payment Date, the Indenture Trustee will apply first the
aggregate Available Sale Proceeds and Cash Collateral Required Draw Amount from
the Payment Account (such amount, the "Available Funds") and second the Cash
Collateral Additional Draw Amount, if any, from the Cash Collateral Account, in
the following order of priority:
(i) to the Administrative Agent, the Administrative Agent Fee;
(ii) to the Senior Noteholders, pro rata without any priority between
Classes, to pay interest due on the outstanding Senior Notes on such
Payment Date (and, to the extent permitted under applicable law, interest
on any overdue interest at the interest rate for the applicable Class);
(iii) to the Lease Trust Paying Agent for deposit to the Cash
Collateral Account, an amount equal to the interest due on the outstanding
Subordinated Notes with respect to such Payment Date (and, to the extent
permitted under applicable law, interest on any overdue interest at the
interest rate for the Subordinated Notes);
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(iv) to the Certificate Distribution Account, an amount equal to the
interest accrued (including any interest accrued but not deposited to the
Certificate Distribution Account on the previous Payment Date) on the Lease
Trust Certificates with respect to such Payment Date (and, to the extent
permitted under applicable law, interest on any overdue interest at the
interest rate for the Lease Trust Certificates) plus the Certificate
Distribution Draw Amount, if any, with respect to such Payment Date; and
(v) to the Senior Noteholders, to pay principal with respect to each
Class of Senior Notes outstanding, sequentially, until the Senior Notes
have been paid in full; provided that if an Event of Default has occurred
under the Indenture and the maturity of the Senior Notes has been
accelerated, principal payments will be made on a pro rata basis to holders
of the Class A-1 Senior Notes and the Class A-2 Senior Notes based on their
respective principal balances, without any distinction between Classes.
Any Available Funds plus the Cash Collateral Additional Draw Amount, if
any, remaining after the Class A-2 Senior Notes have been paid in full will be
applied to pay the Subordinated Notes and the Lease Trust Certificates in
accordance with the terms thereof. Amounts deposited in the Cash Collateral
Account in accordance with clause (iii) above will be deemed to have been
distributed to the Subordinated Noteholders as payments in respect of interest
(and overdue interest) and the Subordinated Noteholders will not be entitled to
any further interest on such amounts after the related Payment Date. For
administrative convenience, amounts due to the Transferor in respect of payments
on the Subordinated Notes on a Payment Date may be netted against Additional
Payments owed by the Transferor to the Issuer with respect to such Payment Date.
All such amounts will be recorded and accounted for as if they were paid
separately.
Certificate Distribution Draw Amount. To the extent that with respect to
any Payment Date occurring in the months of May and November the sum of the
amounts required to be paid under clauses (i), (ii) and (iii) of "-- Payments"
above exceeds the Available Funds for such Payment Date, on the business day
preceding such Payment Date the Indenture Trustee will withdraw from the
Certificate Distribution Account the Certificate Distribution Draw Amount and,
after applying the Available Funds but before applying the Cash Collateral
Additional Draw Amount, if any, on the related Payment Date, will apply the
Certificate Distribution Draw Amount on such Payment Date to make the payments
described under "-- Payments" above, in the order of priority indicated. The
"Certificate Distribution Draw Amount" with respect to (a) any Payment Date
occurring in the months of May and November, will be equal to the lesser of (i)
the shortfall, if any, between (x) the Available Funds and (y) the sum of the
Administrative Agent Fee and interest due on the Senior Notes and the
Subordinated Notes on such Payment Date and (ii) the amount on deposit in the
Certificate Distribution Account on the business day preceding such Payment
Date, and (b) any other Payment Date, will be equal to zero.
CASH COLLATERAL ACCOUNT WITHDRAWALS AND DEPOSITS
Amounts on deposit in the Cash Collateral Account from time to time (the
"Cash Collateral Amount") secure the Transferor's obligations under the Program
Operating Lease, and on each Payment Date are available to pay the Program
Operating Lease Payments. The initial amount deposited in the Cash Collateral
Account on the Closing Date will be $30,821,533.09 (the "Initial Cash Collateral
Deposit"). The Cash Collateral Amount will be increased from time to time by the
deposit in the Cash Collateral Account of the following amounts with respect to
each Accrual Period: (i) all Collections other than Monthly Scheduled
Termination Sale Proceeds; (ii) the Aggregate Net Monthly Payment Advances;
(iii) any Transferor Purchase Option Net Proceeds until the aggregate cumulative
amount deposited therein in respect of such proceeds equals $94,835,486.42; (iv)
payments of interest on and principal of the Subordinated Notes; and (v) any
investment earnings (net of losses and investment expenses) on funds on deposit
in the Collection Account, the Cash Collateral Account and the Certificate
Distribution Account. The Cash Collateral Amount will be decreased by the amount
of the Cash Collateral Required Draw Amount and the Cash Collateral Additional
Draw Amount, if any, with respect to each Payment Date.
"Cash Collateral Required Draw Amount" means, with respect to any Payment
Date, an amount equal to the lesser of (i) the Required Interest Payment
for such Payment Date and (ii) the Cash Collateral
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Amount on the business day preceding such Payment Date (after giving effect
to amounts deposited in the Cash Collateral Account on such business day).
"Cash Collateral Additional Draw Amount" means, with respect to any Payment
Date, an amount equal to the Additional Payment less the portion thereof to
be applied to make payments on the Subordinated Notes. The Additional
Payment will be zero (i) on any Payment Date on which the Available Funds
is less than or equal to the sum of the Administrative Agent Fee and
interest due on the Senior Notes and (ii) generally on any other Payment
Date on which (x) the Cash Collateral Amount is less than or equal to the
Required Cash Collateral Amount or (y) the aggregate outstanding principal
balance of the Senior Notes, Subordinated Notes and Lease Trust
Certificates prior to giving effect to any payments on such Payment Date is
less than or equal to the sum of the Available Sale Proceeds for the
related Accrual Period and the aggregate Residual Values of all Series
1996-1 Leased Vehicles the related Series 1996-1 Leases of which have not
yet terminated as of the close of the last day of the preceding Accrual
Period.
"Required Cash Collateral Amount" means, as of any Payment Date, 3.25% of
the Initial Pool Balance, provided that the Required Cash Collateral Amount
will equal zero as of any Payment Date occurring on or after the earlier of
the date on which the last remaining Series 1996-1 Lease terminated (as a
result of voluntary early termination, termination due to default,
scheduled termination or otherwise) or the date on which the Program
Operating Lease is terminated following an event of default thereunder.
On the Payment Date on which the Senior Notes, Subordinated Notes and Lease
Trust Certificates are paid in full and following payment in full of any
remaining obligations of the Transferor under the Basic Documents, any amounts
remaining on deposit in the Cash Collateral Account (after giving effect to any
deposits therein or withdrawals therefrom with respect to such Payment Date)
will be paid to the Transferor.
ADVANCES
The Administrative Agent will make a Monthly Payment Advance on the
business day preceding each Payment Date with respect to Monthly Payments not
received with respect to a Series 1996-1 Lease as of the end of the related
Accrual Period but only if the Administrative Agent determines in its sole
discretion that such Monthly Payment Advance will be recoverable from subsequent
Monthly Payments on such Series 1996-1 Lease. The Administrative Agent will make
Sale Proceeds Advances for Sale Proceeds which have not been received as of the
end of the related Accrual Period with respect to Series 1996-1 Leased Vehicles
which were sold in such Accrual Period on or after their respective Scheduled
Lease End Dates. On the business day preceding each Payment Date, the
Administrative Agent will deposit to, or withdraw from, the Collection Account
the Aggregate Net Sale Proceeds Advances and the Aggregate Net Monthly Payment
Advances. (Series 1996-1 Supplement, Section 5.2). See "-- The Indenture Cash
Flows," "Description of the Administrative Agency Agreement -- Advances of Sale
Proceeds" and "Description of the Administrative Agency Agreement -- Monthly
Payment Advances."
MONTHLY REMITTANCE CONDITION
The Administrative Agency Agreement requires the Administrative Agent to
make all deposits of amounts received from Obligors, proceeds from the sale of
Series 1996-1 Leased Vehicles and any Transferor Purchase Option Net Proceeds
required to be deposited into the Cash Collateral Account during each Collection
Period on each business day. However, so long as each Monthly Remittance
Condition is satisfied, the Administrative Agent may retain such amounts until
the related Distribution Date (or until the business day preceding such
Distribution Date, if such Distribution Date is a Payment Date), provided that
with respect to any Transferor Purchase Option Net Proceeds required to be
deposited into the Cash Collateral Account, the Administrative Agent may retain
such amounts until the business day preceding the related Payment Date. Pending
deposit into the Collection Account or the Cash Collateral Account, collections
of amounts received from Obligors, proceeds from the sale of Series 1996-1
Leased Vehicles and any Transferor Purchase Option Net Proceeds required to be
deposited into the Cash Collateral Account may be employed by the Administrative
Agent at its own risk and for its own benefit and will not be segregated from
its own
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funds. Deposits or withdrawals from the Collection Account with respect to
Monthly Payment Advances and Sale Proceeds Advances will be made on the business
day preceding each Payment Date on a net basis. (Series 1996-1 Supplement,
Section 5.2).
STATEMENTS TO SENIOR NOTEHOLDERS
On or prior to each Payment Date, the Administrative Agent will prepare and
provide the Indenture Trustee a statement to be included with the report
delivered to Senior Noteholders described in "Pool Factors and Trading
Information" setting forth the following information with respect to such
Payment Date, the related Accrual Period and Series 1996-1: (i) the amount of
the distribution allocable to principal and interest with respect to each Class
of Senior Notes outstanding; (ii) the aggregate amount of Collections deposited
in the Collection Account (stating separately the components thereof); (iii) the
amount of Available Sale Proceeds deposited in the Collection Account (stating
separately the components thereof); (iv) the Aggregate Net Sale Proceeds
Advances and Aggregate Net Monthly Payment Advances deposited in the Collection
Account; (v) the Available Funds; (vi) the Cash Collateral Amount, the Cash
Collateral Required Draw Amount and the Cash Collateral Additional Draw Amount,
if any, each separately stated; (vii) the amount of interest accrued on each
Class of Senior Notes, the Subordinated Notes and the Lease Trust Certificates;
(viii) the aggregate outstanding balance of each Class of Senior Notes, the
Subordinated Notes and the Lease Trust Certificates; and (ix) the aggregate
Series 1996-1 Credit Losses and Series 1996-1 Residual Losses (separately
stated) for each of the three preceding Collection Periods. (Indenture, Section
8.4)
INDENTURE
Events of Default. The "Events of Default" in the Indenture consist of (i)
a default for five days or more in the payment of interest on any Senior Note;
(ii) a default in the payment of principal of any Senior Note at its Stated
Maturity or on the Redemption Date; (iii) the occurrence of an event of default
under the Program Operating Lease; (iv) a default in the observance or
performance of any covenant or agreement, or any representation or warranty made
in the Indenture or in any certificate or writing delivered pursuant thereto
proves to have been incorrect in any material respect as of the time when made,
and the continuation of such default for a period of 60 days or in the case of a
materially incorrect representation or warranty, 30 days, after notice thereof
is given to the Lease Trustee by the Indenture Trustee or the Lease Trustee and
the Indenture Trustee by the holders of not less than 25% of the aggregate
principal balance of the Senior Notes or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the Issuer. (Indenture, Section 5.1).
Senior Noteholders holding not less than a majority of the aggregate
principal balance of the Senior Notes may waive any past default or Event of
Default prior to the declaration of the acceleration of the maturity of the
Senior Notes, except a default (i) in payment of principal of or interest on any
of the Senior Notes or (ii) in respect of any covenant or provision in the
Indenture which cannot be modified or amended without unanimous consent of the
Senior Noteholders. (Indenture, Section 5.12). Such a waiver could be treated,
for federal income tax purposes, as a constructive exchange of the Senior Notes
by the Senior Noteholders for deemed new Senior Notes upon which gain or loss
would be recognized if such waiver were to continue for a period that exceeds
two years and any additional period during which the Senior Noteholders conduct
good faith negotiations.
Remedies. If an Event of Default should occur and be continuing, the
Indenture Trustee or the holders of a majority of the aggregate principal
balance of the Senior Notes may declare the principal of the Senior Notes to be
immediately due and payable. Such declaration may be rescinded by the holders of
a majority of the aggregate principal balance of the Senior Notes before a
judgment or decree for payment of the amount due has been obtained by the
Indenture Trustee if (i) the Issuer has deposited with the Indenture Trustee an
amount sufficient to pay (x) all interest on and principal of the Senior Notes
as if the Event of Default giving rise to such declaration had not occurred and
(y) all amounts advanced by the Indenture Trustee and its costs and expenses and
(ii) all Events of Default (other than the nonpayment of principal of the Senior
Notes that has become due solely by such acceleration) have been cured or
waived. (Indenture, Section 5.2).
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If the Senior Notes have been declared due and payable following an Event
of Default, the Indenture Trustee may institute proceedings to collect amounts
due, exercise remedies as a secured party including foreclosure or sale of the
Lease Trust Estate, or elect to maintain the Lease Trust Estate and continue to
apply proceeds from the Lease Trust Estate as if there had been no declaration
of acceleration. The Indenture Trustee may not, however, unless it is required
to sell the Lease Trust Estate pursuant to the Lease Trust Agreement as a result
of the bankruptcy, insolvency or termination of the Transferor or the bankruptcy
or insolvency of Ford Credit Leasing, sell the Lease Trust Estate following an
Event of Default (other than the occurrence of an Event of Default described in
clauses (i) or (ii) above) unless (i) 100% of the Senior Noteholders consent
thereto, (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the then outstanding Senior Notes,
Subordinated Notes and Lease Trust Certificates or (iii) the Indenture Trustee
determines that the Lease Trust Estate would not be sufficient on an ongoing
basis to make all payments on the Senior Notes as such payments would have
become due if such obligations had not been declared due and payable, and the
Indenture Trustee obtains the consent of holders of 66 2/3% of the aggregate
principal balance of the Senior Notes. The Indenture Trustee may, but need not,
obtain and rely upon an opinion of an independent accountant or investment
banking firm as to the sufficiency of the Lease Trust Estate to pay interest and
principal on the Senior Notes on an ongoing basis. (Indenture, Section 5.4). Any
sale of the Lease Trust Estate, other than a sale resulting from the bankruptcy,
insolvency or termination of Ford Credit Leasing or the Transferor, is subject
to a requirement that an Opinion of Counsel be delivered to the effect that such
sale will not cause FCTT or the Issuer to be classified as an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes.
In the event of a sale of the Lease Trust Estate, either as a result of the
bankruptcy, insolvency or termination of the Transferor or the bankruptcy or
insolvency of Ford Credit Leasing, or following the occurrence of an Event of
Default under the circumstances described in the preceding paragraph pursuant to
the direction of the Indenture Trustee or the Senior Noteholders, the proceeds
of such sale will be distributed first to the Indenture Trustee for amounts due
as compensation or indemnity payments pursuant to the terms of the Indenture;
second to the Administrative Agent for reimbursement of all outstanding Sale
Proceeds Advances and Monthly Payment Advances; third to the Administrative
Agent for amounts due in respect of unpaid Administrative Agent Fees; fourth to
the Senior Noteholders to pay interest which is due and unpaid (including any
overdue interest and, to the extent permitted under applicable law, interest on
any overdue interest at the interest rate for the applicable Class), ratably,
without preference or priority between Classes; fifth to the Lease Trust Paying
Agent for deposit to the Cash Collateral Account for the payment of interest
which is due and unpaid (including any overdue interest and, to the extent
permitted under applicable law, interest on any overdue interest at the interest
rate for the Subordinated Notes) on the Subordinated Notes; sixth to the
Certificate Distribution Account for the payment of interest which is due and
unpaid (including any overdue interest and, to the extent permitted under
applicable law, interest on any overdue interest at the interest rate for the
Lease Trust Certificates) on the Lease Trust Certificates; and seventh to the
Senior Noteholders to pay principal which is due and unpaid, ratably, without
any distinction between Classes. Any remaining amounts will be distributed to
the Subordinated Noteholders and the Lease Trust Certificateholders for amounts
due and unpaid in accordance with the terms of the Subordinated Notes and the
Lease Trust Certificates, respectively. (Indenture, Section 5.4).
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default occurs and is continuing with
respect to the Senior Notes, the Indenture Trustee will be under no obligation
to exercise any of the rights or powers under the Indenture at the request or
direction of any of the Senior Noteholders, if the 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 such provisions for indemnification and certain limitations contained
in the Indenture, the holders of not less than a majority of the aggregate
principal balance of the Senior Notes will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
Indenture Trustee or exercising any trust power conferred on the Indenture
Trustee, and the holders of not less than a majority of the aggregate principal
balance of the Senior Notes 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 the Indenture that cannot be
modified without the waiver or consent of all of the holders of the outstanding
Senior
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Notes. Until such time, if any, as Definitive Senior Notes have been issued, the
Indenture Trustee will act only in accordance with the instructions of Cede, as
nominee for DTC. However, under the rules, regulations and procedures creating
and affecting DTC and its operations, DTC will act only in accordance with the
instructions of the Participants to whom Senior Notes are credited, which will
in turn act in accordance with the instructions of persons holding beneficial
interests in such Senior Notes through such Participants. Accordingly, although
only Cede will be entitled to vote under the Indenture, Senior Note Owners will
be entitled to instruct DTC as to the manner in which to vote. (Indenture,
Sections 5.11 and 5.12).
No Senior Noteholder will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Senior Noteholder previously has given
to the Indenture Trustee written notice of a continuing Event of Default, (ii)
the holders of not less than 25% of the aggregate principal balance of the
Senior Notes have made written request of the Indenture Trustee to institute
such proceeding in its own name as Indenture Trustee, (iii) such Senior
Noteholder or Senior Noteholders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute such
proceeding and (v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the holders of a
majority of the aggregate principal balance of the Senior Notes. (Indenture,
Section 5.6).
Neither the Indenture Trustee nor the Lease Trustee in their respective
individual capacities, nor any holder of a Subordinated Note or a Lease Trust
Certificate, nor any of their respective owners, beneficiaries, agents,
officers, directors, employees, successors or assigns will, in the absence of an
express agreement to the contrary, be personally liable for the payment of
interest on or principal of the Senior Notes or for the agreements of the Issuer
and the Lease Trustee, in its capacity as trustee, contained in the Indenture.
Certain Covenants. The Issuer will not, among other things, (i) except as
expressly permitted by the Indenture, the Program Operating Lease and the other
Basic Documents, sell, transfer, exchange or otherwise dispose of any of the
assets of the Issuer, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the Senior Notes (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former Senior Noteholder because of the payment of taxes
levied or assessed upon the Issuer or (iii) permit (x) the validity or
effectiveness of the Indenture to be impaired, (y) any person to be released
from any covenants or obligations with respect to the Senior Notes under the
Indenture except as may be expressly permitted thereby or (z) 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 the Issuer or any
part thereof, or any interest therein or the proceeds therefrom. (Indenture,
Section 3.8).
The Issuer may not engage in any activities other than financing,
acquiring, owning, leasing (subject to the lien of the Indenture), pledging and
managing the Series 1996-1 Certificates as contemplated by the Indenture and the
other Basic Documents. (Indenture, Section 3.12).
The Issuer will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Senior Notes, the Subordinated Notes and
the Lease Trust Certificates or otherwise in accordance with the Basic
Documents. (Indenture, Section 3.13).
The Issuer will or will cause the Administrative Agent to deliver to the
Indenture Trustee on the second business day preceding each Payment Date the
Cash Collateral Account certificates and disbursement and payment instructions
as required pursuant to the Indenture. (Indenture, Section 8.3).
Replacement of the Indenture Trustee. Senior Noteholders holding not less
than a majority of the aggregate principal balance of the Senior Notes may
remove the Indenture Trustee without cause by so notifying the Indenture Trustee
and the Lease Trustee, and following such removal may appoint a successor
Indenture Trustee. Any successor Indenture Trustee must at all times satisfy the
requirements of Section 310(a) of Trust Indenture Act of 1939, as amended and,
in addition, have a combined capital and surplus of at least $50,000,000 and a
long-term debt rating of investment grade or better by each Rating Agency.
(Indenture, Sections 6.8 and 6.11).
The Indenture Trustee may resign at any time by so notifying the Lease
Trustee and the Senior Noteholders. The Lease Trustee is required to remove the
Indenture Trustee if the Indenture Trustee (i)
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ceases to be eligible to continue as the Indenture Trustee, (ii) is adjudged to
be bankrupt or insolvent, or (iii) otherwise becomes incapable of acting. Upon
the resignation or required removal of the Indenture Trustee, or the failure of
the Senior Noteholders to appoint a successor Indenture Trustee following the
removal without cause of the Indenture Trustee, the Lease Trustee will be
required promptly to appoint a successor Indenture Trustee. (Indenture, Section
6.8).
Duties of Indenture Trustee. Except during the continuance of an Event of
Default, the Indenture Trustee will (i) perform such duties and only such duties
as are specifically set forth in the Indenture, (ii) rely, as to the truth of
the statements and the correctness of the opinions expressed therein, on
certificates or opinions furnished to the Indenture Trustee which conform to the
requirements of the Indenture, and (iii) examine any such certificates and
opinions which are specifically required to be furnished to the Indenture
Trustee by the Indenture to determine whether or not they conform to the
requirements of the Indenture. Upon the continuance of an Event of Default, the
Indenture Trustee will be required to exercise the rights and powers vested in
it by the Indenture and use the same degree of care and skill in the exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of such person's own affairs. (Indenture, Section 6.1).
Compensation and Indemnity. The Administrative Agent will (i) pay to the
Indenture Trustee from time to time reasonable compensation for its services,
(ii) reimburse the Indenture Trustee for all expenses, advances and
disbursements reasonably incurred and (iii) indemnify the Indenture Trustee for,
and hold it harmless against, any and all losses, liability or expense
(including attorneys' fees) incurred by it in connection with the performance of
its duties. The Indenture Trustee will not be indemnified against any loss,
liability or expense incurred by it through its own willful misconduct,
negligence or bad faith, except that, the Indenture Trustee will not be liable
(i) for any error of judgment made by it in good faith unless it is proved that
the Indenture Trustee was negligent in ascertaining the pertinent facts, (ii)
with respect to any action it takes or omits to take in good faith in accordance
with a direction received by it from Senior Noteholders in accordance with the
terms of the Indenture, and (iii) for interest on any money received by it
except as the Indenture Trustee and the Lease Trustee may agree in writing. The
Indenture Trustee will not be deemed to have knowledge of any event unless an
officer of the Indenture Trustee has actual knowledge thereof or has received
written notice thereof in accordance with the provisions of the Indenture.
(Indenture, Sections 6.1 and 6.7).
Access to Senior Noteholder Lists. If Definitive Senior Notes are issued in
the limited circumstances set forth in "-- Definitive Senior Notes," and the
Indenture Trustee is not the Senior Note Registrar, the Lease Trustee will
furnish or cause to be furnished to the Indenture Trustee a list of the names
and addresses of the Senior Noteholders (i) as of each Record Date, within five
days thereafter and (ii) as of not more than 10 days prior to the time such list
is furnished, within 30 days after receipt by the Lease Trustee of a written
request therefor. (Indenture, Section 7.1).
Annual Compliance Statement. The Issuer will be required to file annually
with the Indenture Trustee a written statement as to the fulfillment of its
obligations under the Indenture. (Indenture, Section 3.9).
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the Senior Notes upon the delivery to
the Indenture Trustee for cancellation of all the Senior Notes or, with certain
limitations, including receipt of certain opinions with respect to tax matters,
upon deposit with the Indenture Trustee of funds sufficient for the payment in
full of all of the Senior Notes (including interest and any fees due and payable
to the Lease Trustee or the Indenture Trustee). (Indenture, Section 4.1).
Modification of Indenture. Without the consent of the Senior Noteholders,
the Lease Trustee, on behalf of the Issuer, and the Indenture Trustee, upon
request by the Issuer, may execute a supplemental indenture for the purpose of
adding to the covenants of the Issuer, 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 or questions arising under
the Indenture which will not be inconsistent with other provisions of the
Indenture. (Indenture, Section 9.1).
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Without the consent of the holder of each outstanding Senior Note affected
thereby, however, no supplemental indenture may (i) change the Stated Maturity
of or interest on any Senior Note or reduce the principal amount thereof, the
interest rate specified thereon or the Redemption Price with respect thereto or
change any place of payment where, or the coin or currency in which, any Senior
Note or any interest thereon is payable, (ii) impair the right to institute suit
for the enforcement of certain provisions of the Indenture regarding payment,
(iii) reduce the percentage of the aggregate principal balance of the Senior
Notes 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 Indenture or of certain defaults
thereunder and their consequences as provided for in the Indenture, (iv) modify
or alter the provisions of the Indenture regarding the voting of Senior Notes
held by the Issuer, the Transferor, the Administrative Agent, an affiliate of
any of them or any obligor on the Senior Notes, (v) reduce the percentage of the
aggregate principal balance of the Senior Notes the consent of the holders of
which is required to direct the Indenture Trustee to sell or liquidate the Lease
Trust Estate if the proceeds of such sale would be insufficient to pay the
principal balance and accrued but unpaid interest on the Senior Notes, (vi)
decrease the percentage of the aggregate principal balance of the Senior Notes
required to amend the sections of the Indenture which specify the applicable
percentage of the aggregate principal balance of the Senior Notes necessary to
amend the Indenture or the other Basic Documents or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Senior Notes or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the Indenture
on any such collateral or deprive the holder of any Senior Note of the security
afforded by the lien of the Indenture. (Indenture, Section 9.2).
The Lease Trustee, on behalf of the Issuer, and the Indenture Trustee, upon
request by the Issuer, may also enter into supplemental indentures, with the
consent of holders of not less than a majority of the aggregate principal
balance of the Senior Notes, and with written notice to the Rating Agencies, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of modifying in any manner the rights
of Senior Noteholders; provided, that (x) such action will not, (i) as evidenced
by an Opinion of Counsel, materially adversely affect the interests of any
Senior Noteholder and (ii) as confirmed by each Rating Agency rating the Senior
Notes, cause the then current rating assigned to either Class of Senior Notes to
be withdrawn or reduced and (y) an Opinion of Counsel as to certain tax matters
is delivered. (Indenture, Section 9.1).
The Lease Trust Agreement requires the Lease Trustee to give the Lease
Trust Certificateholders 30 days written notice of any proposed supplemental
indenture if it materially adversely affects the Lease Trust Certificateholders
or if Senior Noteholders' consent is required and provides that the Lease
Trustee will not enter into such amendment unless Lease Trust Certificateholders
holding 25% or more of the principal balance of Lease Trust Certificates consent
in writing. See "Additional Document Provisions -- The Lease Trust Agreement."
Senior Notes Owned by Issuer, Transferor, Administrative Agent or their
Affiliates. Any Senior Notes owned by the Issuer, the Transferor, the
Administrative Agent or any of their affiliates will be entitled to benefits
under the Indenture equal and proportionate to the Senior Notes owned by others,
except that such Senior Notes owned by the Issuer, the Transferor, the
Administrative Agent or any of their affiliates will be deemed not to be
outstanding for the purpose of determining whether the requisite percentage of
Senior Noteholders have given any request, demand, authorization, direction,
notice, consent or other action under the Indenture and the other Basic
Documents (other than the commencement by the Issuer of a voluntary proceeding
in bankruptcy as described under "Additional Document Provisions -- Bankruptcy
Provisions -- Issuer").
DESCRIPTION OF THE ADMINISTRATIVE AGENCY AGREEMENT
DUTIES OF THE ADMINISTRATIVE AGENT
The duties of the Administrative Agent with respect to the Series 1996-1
Assets are set forth in the Administrative Agency Agreement and the Series
1996-1 Supplement. The Administrative Agent will
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manage, service, administer, and make collections on the Series 1996-1 Leases
using the same degree of skill and attention that it exercises with respect to
all comparable retail automotive leases and retail installment sale contracts
that it services for itself or others ("Accepted Servicing Practices"). The
Administrative Agent will collect and post all payments, respond to inquiries of
Obligors, investigate delinquencies, commence legal proceedings to enforce
Series 1996-1 Leases against delinquent Obligors, send invoices to Obligors,
account for collections, furnish monthly and annual statements to the FCTT
Trustee with respect to distributions, make Sale Proceeds Advances and Monthly
Payment Advances, and pay Administrative Purchase Amounts. The Administrative
Agent will be required to take all necessary steps to maintain evidence of
FCTT's ownership on the certificate of title of each Series 1996-1 Leased
Vehicle. The Administrative Agent will obtain all licenses required to be held
by FCTT in connection with the ownership of Series 1996-1 Leases and Series
1996-1 Leased Vehicles. The Administrative Agent may contract with third parties
to perform its duties under the Administrative Agency Agreement, but shall
remain responsible for the performance of such duties. (Administrative Agency
Agreement, Sections 4.1 and 4.5).
The Administrative Agency Agreement also sets forth the duties of the
Administrative Agent with respect to the origination and purchase of Leases and
Leased Vehicles by FCTT and the obtaining of certificates of title for such
Leased Vehicles. See "FCTT -- Lease Origination from Dealers and Assignment to
FCTT" and "-- Titling of Leased Vehicles."
COLLECTION OF TOTAL MONTHLY PAYMENTS; EXTENSION OF LEASES
The Administrative Agent will collect all payments under the Series 1996-1
Leases. The Administrative Agent may grant extensions, rebates, or adjustments
on Series 1996-1 Leases in accordance with Accepted Servicing Practices and in
its discretion waive any late payment charge or any other fees that may be
collected in the ordinary course of servicing a Series 1996-1 Lease.
(Administrative Agency Agreement, Section 4.2).
The Administrative Agent may grant an extension of the Lease Term (a "Term
Extension") if the Obligor requesting such extension is not in default under the
Series 1996-1 Lease at the time of such request and agrees to continue to make
Total Monthly Payments in the same amount as required under the original terms
of such Series 1996-1 Lease. Because the granting of a Term Extension with
respect to any Series 1996-1 Lease would be deemed to have a material adverse
effect on holders of the Series 1996-1 Certificates, the Administrative Agent
will be required to purchase the beneficial interest in the related Series
1996-1 Leased Vehicle as of the date of such Term Extension. See "--
Administrative Purchases."
The Administrative Agent may also extend the term of a Series 1996-1 Lease
in accordance with Accepted Servicing Practices, by waiving the Total Monthly
Payment due in any month in exchange for extending the term of the Series 1996-1
Lease for one or more additional months beyond the Scheduled Lease End Date for
each month for which the Total Monthly Payment is waived (such extension, a
"Payment Extension"). The Obligor under any Payment Extension does not receive
an increase in the aggregate number of miles which the Series 1996-1 Leased
Vehicle may be driven by the Obligor without incurring an additional charge for
excess mileage under the related Series 1996-1 Lease. If the Administrative
Agent grants Payment Extensions in excess of, in the aggregate, three months
beyond the Scheduled Lease End Date of a related Series 1996-1 Lease, it will
purchase the beneficial interest in such Series 1996-1 Leased Vehicle as of the
date of the granting of such extension. (Administrative Agency Agreement,
Sections 4.2 and 4.7).
REALIZATION ON LIQUIDATED LEASES
The Administrative Agent will use reasonable efforts (i) to repossess any
Series 1996-1 Leased Vehicle if it determines that eventual payment in full of
the related Series 1996-1 Lease is unlikely and (ii) to maximize Liquidation
Proceeds. Upon repossession, the Administrative Agent has discretion to repair a
damaged Series 1996-1 Leased Vehicle or sell such vehicle without repairs. This
determination will be based on whether the Administrative Agent believes repairs
will increase the related Liquidation Proceeds by an amount greater than the
cost of such repairs. (Administrative Agency Agreement, Section 4.3).
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ADMINISTRATIVE PURCHASES
The Administrative Agent on behalf of Ford Credit and Ford Credit Leasing,
as holders of the EBCs, will be required to purchase the Issuer's beneficial
interest in any Series 1996-1 Asset as to which: either (i) any of the Specific
Eligibility Criteria and General Eligibility Criteria were not satisfied on the
Series 1996-1 Cut-Off Date; (ii) the Administrative Agent has breached certain
covenants in the Administrative Agency Agreement by either (a) failing to make
reasonable efforts to collect Total Monthly Payments from the related Obligor,
(b) failing to maintain record ownership in such Series 1996-1 Leased Vehicle,
(c) changing the Retail Operating Lease Factor of such Series 1996-1 Lease, (d)
modifying the number or amount of Monthly Payments due under the Series 1996-1
Lease, except in connection with a Payment Extension, or (e) otherwise impairing
the rights of FCTT or the Issuer in such Series 1996-1 Lease or Series 1996-1
Leased Vehicle and, in each case, such breach continues unremedied for a
specified period; (iii) the related Series 1996-1 Leased Vehicle has been
relocated to a jurisdiction where FCTT is not qualified or authorized to
maintain evidence of the ownership of Series 1996-1 Leased Vehicles; or (iv) the
Administrative Agent has granted a Term Extension. In addition, because the
granting of Payment Extensions in excess of, in the aggregate, three months
would be deemed to breach a material covenant of the Administrative Agent, the
Administrative Agent will be required to purchase the beneficial interest in the
related Series 1996-1 Leased Vehicle as of the date the proscribed Payment
Extension is granted. The amount payable for each such purchase will be the
Administrative Purchase Amount of the Series 1996-1 Lease and Series 1996-1
Leased Vehicle. (Administrative Agency Agreement, Sections 4.2, 4.5, 4.6 and
4.7; Series 1996-1 Supplement, Section 5.5).
SALE OF LEASED VEHICLES
On the Scheduled Lease End Date of a Series 1996-1 Lease, the Obligor has
the option to purchase the related Series 1996-1 Leased Vehicle for an amount
equal to or greater than its Residual Value. If the Obligor does not purchase
the Leased Vehicle, the Dealer may, at its option, purchase the Leased Vehicle.
If either the Obligor or the Dealer exercises such option, the Administrative
Agent, on behalf of FCTT will sell the Series 1996-1 Leased Vehicle to the
Dealer for an amount equal to the Residual Value thereof plus any unpaid amounts
owing from the related Obligor. If neither the related Obligor nor the Dealer
elects to purchase a Series 1996-1 Leased Vehicle upon termination of the
related Lease, the Dealer will inspect the Series 1996-1 Leased Vehicle and
assess any charges in respect of Excess Wear and Tear and Excess Mileage, and
the Administrative Agent will sell such Series 1996-1 Leased Vehicle at auction,
or otherwise in accordance with Accepted Servicing Practices. The Sale Proceeds
received by the Issuer with respect to a Series 1996-1 Leased Vehicle sold at
auction will be limited to the Transferor Purchase Option Price. With respect to
each Series 1996-1 Leased Vehicle for which the Transferor exercises its
Transferor Leased Vehicle Purchase Option, the Transferor will deposit the
related Transferor Purchase Option Net Proceeds into the Cash Collateral Account
until the aggregate cumulative amount deposited in respect of such Transferor
Purchase Option Net Proceeds for all such Series 1996-1 Leased Vehicles equals
$94,835,486.42, which is equal to 10% of the Initial Pool Balance. Thereafter,
the Transferor will retain any Transferor Purchase Option Net Proceeds. To the
extent that Transferor Purchase Option Net Proceeds are deposited into the Cash
Collateral Account, such amounts will secure the Transferor's obligation to make
Program Operating Lease Payments to the Issuer. See "Series 1996-1 Certificates
- -- Lease of the Series 1996-1 Certificates to the Transferor" and "Risk Factors
- -- Residual Value Risk." (Administrative Agency Agreement, Sections 5.1, 5.2 and
5.3; Series 1996-1 Supplement, Section 5.3).
If the Dealer determines that a Series 1996-1 Leased Vehicle requires
repairs in respect of Excess Wear and Tear and Excess Mileage, either the
Obligor will pay the estimated costs of such repairs or the Administrative Agent
will grant the Obligor a one-month Term Extension to permit the Obligor to
effect such repairs at its own expense. The Administrative Agent will purchase
the beneficial interest in the Series 1996-1 Leased Vehicle for the
Administrative Purchase Amount if it grants a Term Extension. See "--
Administrative Purchases." The Administrative Agent will apply any security
deposit or reconditioning reserve to pay any amounts owed in respect of
Uncollected Excess Wear and Tear or Excess Mileage which are not paid by the
Obligor. (Administrative Agency Agreement, Section 5.1).
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Upon receipt of Sale Proceeds, the Administrative Agent will deliver the
related certificate of title to the Obligor, Dealer or other purchaser, as the
case may be. The Administrative Agent will deposit the Sale Proceeds from the
sale of Series 1996-1 Leased Vehicles (but not an amount in excess of the
Transferor Purchase Option Price) in the Collection Account on the next
following Distribution Date (or on the business day preceding such Distribution
Date, if such Distribution Date is a Payment Date) and will deposit any
Transferor Purchase Option Net Proceeds in the Cash Collateral Account (but only
to the extent the aggregate cumulative amount deposited in respect of such
Transferor Purchase Option Net Proceeds is less than $94,835,486.42) on the
business day preceding the next following Payment Date, or in either case on the
date it receives such proceeds if any Monthly Remittance Condition has not been
satisfied. (Administrative Agency Agreement, Sections 5.2 and 5.3). See "Series
1996-1 Certificates -- Lease of the Series 1996-1 Certificates to the
Transferor."
ADVANCES OF SALE PROCEEDS
If the Scheduled Lease End Date with respect to a Series 1996-1 Lease
occurs and the related Series 1996-1 Leased Vehicle is not sold by the last
business day of the Accrual Period in which the related Scheduled Lease End Date
occurred, the Administrative Agent will, on the business day preceding the
related Payment Date, make an advance (a "Sale Proceeds Advance") equal to the
Residual Value of such Series 1996-1 Leased Vehicle, but only if the
Administrative Agent determines, in its sole discretion, that such Sale Proceeds
Advance will be recoverable from the Sale Proceeds of the related Series 1996-1
Leased Vehicle. To the extent such Sale Proceeds are insufficient to reimburse
the Sale Proceeds Advance, such Sale Proceeds Advance will be reimbursed first
from the Sale Proceeds of other Series 1996-1 Leased Vehicles and then, if
required after the Senior Notes, Subordinated Notes and Lease Trust Certificates
have been paid in full, from a draw on the Cash Collateral Account.
(Administrative Agency Agreement, Section 5.4; Series 1996-1 Supplement, Section
5.4).
VOLUNTARY EARLY TERMINATIONS, LIQUIDATED LEASES AND RECOVERIES
Upon termination of a Series 1996-1 Lease prior to its Scheduled Lease End
Date and receipt by the Administrative Agent of the related Voluntary Early
Termination Proceeds or Liquidation Proceeds, as the case may be, the
Administrative Agent will deliver the related certificate of title to the
purchaser, if any, of the related Series 1996-1 Leased Vehicle. From and after
such date the Series 1996-1 Certificates will represent a beneficial interest in
the Voluntary Early Termination Proceeds or Liquidation Proceeds and Recoveries
received with respect to such Series 1996-1 Asset and will no longer represent
an interest in such Series 1996-1 Lease or Series 1996-1 Leased Vehicle.
(Administrative Agency Agreement, Section 5.5).
REMITTANCE OF PAYMENTS; ALLOCATION OF FUNDS
The Administrative Agent will apply Total Monthly Payments received during
each Collection Period from each Obligor in the following order of priority to
pay (i) current and overdue Monthly Payments and Use and Lease Tax Amounts, in
the chronological order in which such payments were due; and (ii) current and
overdue Vehicle Insurance and Maintenance Amounts due to the related Dealer. The
Administrative Agent will retain amounts credited to overdue Monthly Payments to
the extent of any unreimbursed Monthly Payment Advances with respect to the
related Series 1996-1 Lease. (Administrative Agency Agreement, Section 6.1;
Series 1996-1 Supplement, Section 5.2).
If on any Distribution Date any portion of a Monthly Payment due on a
Series 1996-1 Lease during the related Collection Period has not been received
from the Obligor, the Administrative Agent will apply an amount equal to the
lesser of (i) the amount of Payaheads credited to such Obligor and (ii) the
portion of such Monthly Payment not received to pay the Monthly Payment with
respect to such Series 1996-1 Lease, and reduce the amount credited to such
Obligor by the amount so applied. Payaheads received from an Obligor in any
Collection Period will be credited to such Obligor. (Administrative Agency
Agreement, Section 6.1).
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The Administrative Agent will apply Sale Proceeds (up to the Transferor
Purchase Option Price, if applicable), Voluntary Early Termination Proceeds and
Recoveries which are not from Liquidated Leases received during a Collection
Period in the following order of priority: (i) to pay any sales, use and lease
taxes; (ii) to reduce the Adjusted Balance Subject to Lease Charges of the
related Series 1996-1 Lease until such Adjusted Balance Subject to Lease Charges
has been reduced to zero; (iii) to pay Uncollected Excess Wear and Tear and
Excess Mileage charges, if any; and (iv) as a Total Monthly Payment until an
amount equal to the Total Monthly Payment due in such Collection Period has been
credited as set forth in the first paragraph of this section. (Administrative
Agency Agreement, Section 6.1).
The Administrative Agent will apply Liquidation Proceeds and Recoveries
from Liquidated Leases received during a Collection Period in the following
order of priority: (i) to pay any sales, use and lease taxes; (ii) to reduce the
Adjusted Balance Subject to Lease Charges until such Adjusted Balance Subject to
Lease Charges has been reduced to zero and (iii) as a Total Monthly Payment
until an amount equal to the Total Monthly Payment due in such Collection Period
has been credited as set forth in the first paragraph of this section.
(Administrative Agency Agreement, Section 6.1).
The Administrative Agent will pay any Use and Lease Tax Amounts and any
other sales, use and lease taxes and any Vehicle Insurance and Maintenance
Amounts due in connection with a payment received from an Obligor to the
appropriate tax authorities and originating Dealers, respectively, and such
amounts will not be available to pay interest on and principal of the Senior
Notes, the Subordinated Notes or the Lease Trust Certificates. (Administrative
Agency Agreement, Section 6.1).
MONTHLY PAYMENT ADVANCES
If one or more Monthly Payments due (or any portion thereof) with respect
to a Series 1996-1 Lease during any Accrual Period has not been deposited to the
Collection Account as of the last day of such Accrual Period, the Administrative
Agent will make an advance (a "Monthly Payment Advance") in an amount equal to
the sum of the Monthly Payments due with respect to such Series 1996-1 Lease
during such Accrual Period minus amounts received from the related Obligor, but
only if the Administrative Agent determines, in its sole discretion, that such
Monthly Payment Advance will be recoverable from subsequent Monthly Payments on
such Series 1996-1 Lease. To the extent subsequent Monthly Payments with respect
to such Series 1996-1 Lease are insufficient to reimburse the Monthly Payment
Advance, such Monthly Payment Advance will be reimbursed first from Collections
(other than Sale Proceeds) with respect to other Series 1996-1 Leases and then,
if required after the Senior Notes, the Subordinated Notes and the Lease Trust
Certificates have been paid in full, from a draw on the Cash Collateral Account.
(Administrative Agency Agreement, Section 6.3; Series 1996-1 Supplement, Section
5.4).
STATEMENTS TO HOLDERS
On each Distribution Date, the FCTT Trustee will deliver to the Lease
Trustee a statement relying on the information included in the certificate of
the Administrative Agent described in "-- Reporting" for the related Collection
Period, setting forth for such Collection Period the following information with
respect to the Series 1996-1 Assets: (i) the aggregate Monthly Payments received
by the Administrative Agent with respect to the Series 1996-1 Assets; (ii) the
Pool Balance as of the beginning and end of such Collection Period and the
portion of such Pool Balance constituting the aggregate Residual Values of the
Series 1996-1 Leased Vehicles; (iii) the amount of the Administrative Agent Fee
payable to the Administrative Agent; (iv) the aggregate Administrative Purchase
Amounts paid; (v) the aggregate Monthly Scheduled Termination Sale Proceeds,
Voluntary Early Termination Proceeds, Liquidation Proceeds and Recoveries
received by the Administrative Agent (separately stated); (vi) the aggregate
amount of Payaheads credited to Obligors and the aggregate amount of Payaheads
either held by the Administrative Agent or on deposit in the Payahead Account as
of the beginning and end of the related Collection Period; (vii) the outstanding
Sale Proceeds Advances as of the beginning and end of the related Collection
Period and the aggregate Residual Values of those Series 1996-1 Leased Vehicles
with respect to which the related Series 1996-1 Leases have expired but have not
been sold as of the beginning and end of the related Collection Period; and
(viii) the outstanding
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Monthly Payment Advances as of the beginning and end of the related Collection
Period and the outstanding amount of Monthly Payments which were due but not
collected from the related Obligors as of the beginning and end of the related
Collection Period. In addition to the foregoing, on each Payment Date the FCTT
Trustee will include in such statement: (i) the Series 1996-1 Credit Loss with
respect to each of the three preceding Collection Periods; and (ii) the Series
1996-1 Residual Loss with respect to each of the three preceding Collection
Periods. (Administrative Agency Agreement, Section 6.4; Series 1996-1
Supplement, Section 6.1).
NO RESIGNATION
The Administrative Agent may not resign from its obligations and duties
under the Administrative Agency Agreement unless, as evidenced by an Opinion of
Counsel, the performance of its duties is no longer permissible under applicable
law. No such resignation will become effective until the FCTT Trustee or a
successor Administrative Agent has assumed the responsibilities and obligations
of the Administrative Agent. (Administrative Agency Agreement, Section 7.2).
ADMINISTRATIVE AGENT EVENTS OF DEFAULT
Each of the following will constitute an event of default under the
Administrative Agency Agreement (each, an "Administrative Agent Event of
Default"): (i) failure by the Administrative Agent to make any distribution
required by the Administrative Agency Agreement or the Series 1996-1 Supplement
for three business days after written notice of such failure to the
Administrative Agent or after discovery of such failure by the Administrative
Agent; (ii) any failure by the Administrative Agent to observe or to perform in
any material respect any of its covenants or agreements in the Administrative
Agency Agreement or the Series 1996-1 Supplement, which failure materially
adversely affects the holders of the EBCs, the Issuer, as holder of the Series
1996-1 Certificates, or any other holder of an SBC, and continues for a period
of 30 days after written notice of such failure to the Administrative Agent or
after discovery of such failure by the Administrative Agent; (iii) any
representation, warranty, report or certification of the Administrative Agent
in, or pursuant to, the Administrative Agency Agreement or the Series 1996-1
Supplement was incorrect when made, which has a material adverse effect on any
holder of an EBC, the Issuer, or any other holder of an SBC, and continues for a
period of 30 days after written notice thereof to the Administrative Agent or
after discovery of such failure by the Administrative Agent; or (iv) the
occurrence of certain events of bankruptcy, insolvency, receivership or
liquidation with respect to the Administrative Agent; provided, however, that
the occurrence of an event set forth in clauses (i), (ii), and (iii) with
respect to Series 1996-1 will be an Administrative Agent Event of Default only
with respect to Series 1996-1 and will not be an Administrative Agent Event of
Default with respect to any other Series or the EBCs. (Administrative Agency
Agreement, Section 7.1).
Upon the occurrence of any Administrative Agent Event of Default the sole
remedy available to the holders of the EBCs and the SBCs will be to remove the
Administrative Agent and appoint a successor Administrative Agent. See "--
Removal of the Administrative Agent."
REMOVAL OF THE ADMINISTRATIVE AGENT
The Transferor, with the consent of the Indenture Trustee, acting at the
direction of 100% of the Senior Noteholders, and the Lease Trustee, acting at
the direction of 66 2/3% by aggregate principal balance of the Lease Trust
Certificateholders, may at any time, for any reason, with respect to the Series
1996-1 Assets only, remove the Administrative Agent and appoint a substitute
Administrative Agent. Upon appointment, the substitute Administrative Agent will
assume the rights and obligations of the Administrative Agent under the
Administrative Agency Agreement with respect to administering and servicing the
Series 1996-1 Assets. Until the appointment of such substitute Administrative
Agent, the predecessor Administrative Agent will continue to perform its duties
and obligations with respect to administering and servicing the Series 1996-1
Assets. No substitute Administrative Agent will have any responsibilities with
respect to the purchase of additional Leases and Leased Vehicles by FCTT.
(Administrative Agency Agreement, Section 7.1; Indenture, Section 6.13).
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Upon the occurrence of an Administrative Agent Event of Default, the FCTT
Trustee may, to the extent such Administrative Agent Event of Default relates
(i) to all FCTT Assets, upon direction of the holders of the Series 1996-1
Certificates (which holder for this purpose will be the Indenture Trustee acting
at the direction of a majority by aggregate principal balance of the Senior
Noteholders so long as any of the Senior Notes are outstanding), all holders of
any other SBCs and the holders of the EBCs (excluding Ford Credit and Ford
Credit Leasing or any other affiliate of the Administrative Agent), terminate
all of the rights and obligations of the Administrative Agent under the
Administrative Agency Agreement with respect to all FCTT Assets, or (ii) only to
the Series 1996-1 Assets, upon direction of the holders of the Series 1996-1
Certificates (which holder for this purpose will be the Indenture Trustee acting
at the direction of a majority by aggregate principal balance of the Senior
Noteholders, so long as any of the Senior Notes are outstanding), terminate all
of the rights and obligations of the Administrative Agent under the
Administrative Agency Agreement and the Series 1996-1 Supplement, with respect
to the Series 1996-1 Assets. In each case, the FCTT Trustee will effect such
termination by delivering notice thereof to the Administrative Agent (with a
copy to each Rating Agency then rating the Senior Notes, the Lease Trust
Certificates and any other securities based on any SBCs affected by such
Administrative Agent Event of Default). (Administrative Agency Agreement,
Section 7.1).
APPOINTMENT OF A SUCCESSOR
Upon termination or resignation of the Administrative Agent, the
predecessor Administrative Agent will continue to perform its functions as
Administrative Agent, in the case of termination of the Administrative Agent,
until the earlier of the date specified in the termination notice or, if no such
date is specified therein, the date of the Administrative Agent's receipt of
such notice and, in the case of resignation of the Administrative Agent, until
the later of (i) 45 days after the delivery to the FCTT Trustee of the written
resignation notice and (ii) the date upon which the predecessor Administrative
Agent becomes unable to act as Administrative Agent, as specified in the
resignation notice and accompanying Opinion of Counsel. (Administrative Agency
Agreement, Section 7.3).
In the event of the Administrative Agent's termination with respect to all
FCTT Assets as a result of an Administrative Agent Event of Default or
resignation, the FCTT Trustee, acting at the direction of the holders of the
EBCs and the outstanding SBCs will appoint a successor Administrative Agent. In
the event of a termination of the Administrative Agent with respect to the
Series 1996-1 Assets only, the FCTT Trustee, acting at the direction of the
holders of the Series 1996-1 Certificates (which holder for this purpose will be
the Indenture Trustee so long as any of the Senior Notes are outstanding) will
appoint a successor Administrative Agent. In each such case, the FCTT Trustee
will have the right to approve the successor Administrative Agent, such approval
not to be unreasonably withheld. If a successor Administrative Agent is not
appointed by the effective date of the predecessor Administrative Agent's
resignation or termination, then the FCTT Trustee will act as successor
Administrative Agent. If the FCTT Trustee is legally unable to act as
Administrative Agent, then the FCTT Trustee will be required to appoint, or
petition a court of competent jurisdiction to appoint, any established
institution, having a net worth of not less than $100,000,000 and whose regular
business includes the servicing of retail automotive leases and selling vehicles
at the termination of leases, as the successor Administrative Agent.
(Administrative Agency Agreement, Section 7.3).
Upon appointment, the successor Administrative Agent will assume all of the
rights and obligations of the Administrative Agent under the Administrative
Agency Agreement; provided, however, that no successor Administrative Agent will
have any responsibilities with respect to the purchase of additional Leases and
Leased Vehicles by FCTT or with respect to making Monthly Payment Advances or
Sale Proceeds Advances. (Administrative Agency Agreement, Section 7.3).
Any compensation payable to a successor Administrative Agent may not be in
excess of that permitted the predecessor Administrative Agent unless the holders
of the EBCs bear such excess costs exclusively. (Administrative Agency
Agreement, Section 7.3).
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Any predecessor Administrative Agent will be entitled to reimbursement for
any outstanding Sale Proceeds Advances and Monthly Payment Advances to the
extent funds are available therefor. (Administrative Agency Agreement, Section
7.4).
CUSTODY OF LEASE FILES
The Administrative Agent will be the custodian of the Lease Files
(including certificates of title) for FCTT, including with respect to the Series
1996-1 Assets. The Administrative Agent will be required to maintain accurate
and complete accounts, records, and computer systems pertaining to each Lease
File and to conduct, or cause to be conducted, periodic audits of the Lease
Files and of the related accounts, records, and computer systems.
The Administrative Agent will maintain each Lease File at (i) one of the
offices specified in the Administrative Agency Agreement, (ii) at such other
office (which may be a third party contracted by the Administrative Agent to
hold Lease Files) as the Administrative Agent specifies to the FCTT Trustee by
written notice not later than 90 days after any change in location or (iii) at
one of the offices included in a list delivered to the FCTT Trustee not less
frequently than every 90 days. The Administrative Agent will make available to
the FCTT Trustee, the Lease Trustee, and the Indenture Trustee a list of
locations of the Lease Files, the Lease Files, and the related accounts,
records, and computer systems maintained by the Administrative Agent at such
times as the FCTT Trustee, the Lease Trustee or the Indenture Trustee may
instruct. As soon as practicable after any termination or resignation of the
Administrative Agent, the Administrative Agent will deliver the Lease Files and
the related accounts and records maintained by the Administrative Agent to the
FCTT Trustee or any successor Administrative Agent.
The Administrative Agent as custodian of the Lease Files will indemnify the
FCTT Trustee, the Issuer, and the Indenture Trustee for any and all liabilities
that result from any improper act or omission of the Administrative Agent with
respect to the Lease Files pertaining to the Series 1996-1 Assets. The
Administrative Agent will not be liable for claims resulting from the willful
misfeasance, bad faith, or negligence of the FCTT Trustee with respect to the
Lease Files. (Administrative Agency Agreement, Section 4.4).
REPORTING
On or before the tenth day of each calendar month, the Administrative Agent
will deliver to the FCTT Trustee a certificate containing information relating
to the distribution, on the following Distribution Date (or on the business day
preceding such Distribution Date, if such Distribution Date is a Payment Date),
of Collections from the preceding Collection Period and the information the FCTT
Trustee will provide to the Lease Trustee on such Distribution Date, as
described in "-- Statements to Holders." (Administrative Agency Agreement,
Section 4.9).
On or before April 30th of each year, the Administrative Agent will deliver
to the FCTT Trustee an officer's certificate, dated as of December 31 of the
preceding calendar year, stating that (i) a review of the activities of the
Administrative Agent during the preceding 12-month period and of its performance
under the Administrative Agency Agreement and the Series 1996-1 Supplement has
been made under such officer's supervision and (ii) to the best of such
officer's knowledge, based on such review, the Administrative Agent has
fulfilled all of its obligations under the Administrative Agency Agreement and
the Series 1996-1 Supplement throughout such period, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof. (Administrative Agency
Agreement, Section 4.10).
The Administrative Agent will be required to deliver to the FCTT Trustee,
within five business days of having obtained knowledge thereof, written notice
in an officer's certificate of any event which with the giving of notice or
lapse of time, or both, would become an Administrative Agent Event of Default.
(Administrative Agency Agreement, Section 4.10).
On or before April 30 of each year, a firm of independent certified public
accountants, who may also render other services to the Administrative Agent or
to Ford or any affiliate of either of them, will deliver a
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report to the Administrative Agent, the FCTT Trustee, the Lease Trustee and the
Indenture Trustee (with a copy to each Rating Agency then rating the Senior
Notes and the Lease Trust Certificates), stating that such firm has audited the
financial statements of the Administrative Agent for the prior calendar year and
that such audit (i) was made in accordance with generally accepted auditing
standards, (ii) included procedures relating to retail automotive leases
serviced for others in accordance with applicable industry standards, and (iii)
except as described in such report, disclosed no exceptions or errors in the
records relating to the Series 1996-1 Leases serviced that, in the firm's
opinion, should be included in such report. (Administrative Agency Agreement,
Section 4.11).
ADDITIONAL DOCUMENT PROVISIONS
THE LEASE TRUST AGREEMENT
Authority and Duties of the Lease Trustee. The Lease Trustee will
administer the Issuer in the interest of the Lease Trust Certificateholders,
subject to the lien of the Indenture and to the obligations of the Issuer under
the Subordinated Notes, in accordance with the Lease Trust Agreement and the
other Basic Documents. (Lease Trust Agreement, Section 6.2).
The Transferor, in its capacity as holder of the Lease Trust Certificates
initially acquired by it, may, by written instruction, direct the Lease Trustee
in the administration of the Issuer; provided, that such instruction shall not,
as evidenced by an Opinion of Counsel, materially adversely affect the Senior
Noteholders, Subordinated Noteholders or Lease Trust Certificateholders.
However, the Lease Trustee will not be required to follow any such instruction
if it reasonably determines or is advised by counsel that so doing (i) is likely
to result in liability to the Lease Trustee, (ii) is contrary to the terms of
the Lease Trust Agreement or any other Basic Document, or (iii) is unlawful.
(Lease Trust Agreement, Section 6.3).
The Lease Trustee will not be required to perform any of the obligations of
the Issuer under the Lease Trust Agreement or the other Basic Documents that are
required to be performed by (i) the Administrative Agent under the
Administrative Agency Agreement or the Series 1996-1 Supplement, (ii) the
Transferor under the Transfer Agreement or the Program Operating Lease or (iii)
the Indenture Trustee under the Indenture. (Lease Trust Agreement, Section 7.1).
Restrictions on Actions by Lease Trustee. The Lease Trustee may not (i)
initiate or settle any claim or lawsuit involving the Issuer (unless brought by
the Administrative Agent to collect amounts owed under a Series 1996-1 Lease),
(ii) amend the Indenture where Senior Noteholder consent is required, (iii)
amend the Indenture where Senior Noteholder consent is not required if such
amendment materially adversely affects the Lease Trust Certificateholders or
(iv) amend any Basic Document other than the Indenture if such amendment
materially adversely affects the Lease Trust Certificateholders, unless (a) the
Lease Trustee provides 30 days' written notice thereof to the Lease Trust
Certificateholders and the Rating Agencies and (b) Lease Trust
Certificateholders holding at least 25% of the aggregate principal balance of
the Lease Trust Certificates do not object in writing to any such proposed
amendment within 30 days of such notice. (Lease Trust Agreement, Section 4.1).
Actions by Lease Trust Certificateholders with Respect to Certain
Matters. The Lease Trustee may not, except upon the occurrence of an
Administrative Agent Event of Default subsequent to the payment in full of the
Senior Notes and in accordance with the written directions of Lease Trust
Certificateholders holding 100% of the aggregate principal balance of the Lease
Trust Certificates, remove the Administrative Agent with respect to the Series
1996-1 Assets or appoint a successor Administrative Agent with respect thereto;
provided, however, that the Lease Trustee will not be required to follow any
directions of the Lease Trust Certificateholders if so doing would be contrary
to any obligation of the Lease Trustee or the Issuer. The Lease Trustee may not
sell the Series 1996-1 Certificates except in the event of the bankruptcy and
dissolution of the Issuer or Ford Credit Leasing or upon an event of default
under the Program Operating Lease. Upon a sale of the Series 1996-1 Certificates
following such a bankruptcy or dissolution, the Series 1996-1 Assets will be
distributed to the purchaser and will no longer constitute FCTT Assets, and the
Series 1996-1 Vehicles will be retitled as directed by the purchaser. (Lease
Trust Agreement, Sections 4.2 and 4.4).
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The right of the Transferor or Lease Trust Certificateholders to take any
action affecting the Lease Trust Estate will be subject to the rights of the
Indenture Trustee under the Indenture.
Resignation and Removal of the Lease Trustee. The Lease Trustee may resign
at any time upon written notice to the Administrative Agent, the Transferor and
the Lease Trust Certificateholders, whereupon the Transferor will be obligated
to appoint a successor Lease Trustee. The Transferor or the Lease Trust
Certificateholders holding not less than a majority of the aggregate principal
balance of the Lease Trust Certificates may remove the Lease Trustee if the
Lease Trustee ceases to be eligible, becomes insolvent or becomes legally unable
to act. Upon removal of the Lease Trustee, the Transferor or the Lease Trust
Certificateholders holding not less than a majority of the aggregate principal
balance of the Lease Trust Certificates will appoint a successor Lease Trustee.
The Transferor will be required to deliver written notice to the Rating Agencies
of any resignation or removal of the Lease Trustee. (Lease Trust Agreement,
Section 10.2).
The Lease Trustee, and any successor thereto, must at all times (i) be able
to exercise corporate trust powers, (ii) be subject to supervision or
examination by federal or state authorities, (iii) have a combined capital and
surplus of $50,000,000 and (iv) have a long-term debt rating of investment grade
by each of the Rating Agencies or be otherwise acceptable to the Rating
Agencies. (Lease Trust Agreement, Section 10.1). Any co-trustee or separate
trustee appointed for the purpose of meeting applicable state requirements will
not be required to meet these eligibility requirements. (Lease Trust Agreement,
Section 10.5).
Termination. The Lease Trust Agreement will terminate (i) upon the final
distribution of all funds or other property or proceeds of the Lease Trust
Estate in accordance with the terms of the Indenture and the final distribution
on the Subordinated Notes and the Lease Trust Certificates pursuant to the Lease
Trust Agreement, (ii) upon the occurrence of certain events of bankruptcy,
insolvency, receivership or liquidation with respect to the Transferor or Ford
Credit Leasing, or (iii) upon the exercise by the Administrative Agent of its
option to purchase the Series 1996-1 Certificates on any Payment Date on which
the Pool Balance has declined to less than 10% of the Initial Pool Balance. Upon
termination of the Lease Trust Agreement pursuant to clause (ii), the Lease
Trustee will direct the Indenture Trustee to sell the assets of the Lease Trust
Estate, other than amounts on deposit in the Payment Account, in a commercially
reasonable manner and on commercially reasonable terms. (Lease Trust Agreement,
Sections 9.1 and 9.2). The Indenture Trustee will apply the proceeds of such
sale to pay amounts owed to the Indenture Trustee and interest on and principal
of the Senior Notes, Subordinated Notes and Lease Trust Certificates in
accordance with the terms of the Indenture. See "Description of the Senior Notes
- -- Indenture -- Remedies."
Liabilities and Indemnification. The Transferor as holder of the Lease
Trust Certificates and a portion of the Subordinated Notes initially acquired by
it and Ford Credit Leasing as an assignee of an interest therein will each be
directly liable for any claims against the Issuer (not including payment of
principal and interest on the Senior Notes, Subordinated Notes and Lease Trust
Certificates), as if the Issuer were a partnership and the Transferor and Ford
Credit Leasing were general partners thereof. (Lease Trust Agreement, Section
2.7). The Transferor and Ford Credit Leasing, in such capacities, will indemnify
the Lease Trustee for any expenses incurred by the Lease Trustee in the
performance of its duties under the Lease Trust Agreement. The Transferor and
Ford Credit Leasing will not be entitled to make any claim upon the Lease Trust
Estate for the payment of any such liabilities or indemnified expenses. (Lease
Trust Agreement, Section 8.2). The Transferor and Ford Credit Leasing will not
indemnify the Lease Trustee for expenses resulting from the willful misconduct,
bad faith or negligence of the Lease Trustee, or for the inaccuracy of any
representation or warranty of the Lease Trustee in the Lease Trust Agreement.
The Lease Trustee will not be liable for (i) any error of judgment made by an
officer of the Lease Trustee, (ii) any action taken or omitted to be taken in
accordance with the instructions of any Lease Trust Certificateholder, the
Indenture Trustee, the Transferor or the Administrative Agent, (iii) the
interest on or principal of the Senior Notes, the Subordinated Notes or the
Lease Trust Certificates and (iv) the default or misconduct of the
Administrative Agent, the Transferor or the Indenture Trustee. (Lease Trust
Agreement, Section 7.1).
Subordinated Notes. The Subordinated Notes will be issued pursuant to the
Lease Trust Agreement and initially will be retained by the Transferor. The
Subordinated Notes are unsecured and are subordinated in
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right of payment to the Senior Notes to the extent described herein. See
"Description of the Senior Notes -- The Indenture Cash Flows." If a default
occurs with respect to the Issuer's obligations under the Subordinated Notes
while the Senior Notes are outstanding, the Subordinated Noteholders are not
permitted to declare the principal balance of the Subordinated Notes to be
immediately due and payable.
Lease Trust Certificates Owned by Issuer, Transferor, Administrative Agent
or their Affiliates. Any Lease Trust Certificates owned by the Issuer, the
Transferor, the Administrative Agent or any of their affiliates will be entitled
to benefits under the Lease Trust Agreement equal and proportionate to the Lease
Trust Certificates owned by others, except that such Lease Trust Certificates
owned by the Issuer, the Transferor, the Administrative Agent or any of their
affiliates will be deemed not to be outstanding for the purpose of determining
whether the requisite percentage of Lease Trust Certificateholders have given
any request, demand, authorization, direction, notice, consent or other action
under the Lease Trust Agreement and the other Basic Documents (other than the
commencement by the Issuer of a voluntary proceeding in bankruptcy as described
under "-- Bankruptcy Provisions -- Issuer").
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Administrative Agent, in the Series 1996-1 Supplement, and each of Ford
Credit and Ford Credit Leasing, in the Asset Contribution Agreement, will
represent and warrant that each Series 1996-1 Lease and Series 1996-1 Leased
Vehicle meet the Specific Eligibility Criteria set forth in "The Leases and the
Leased Vehicles -- Eligibility Criteria" and certain other eligibility criteria
(the "General Eligibility Criteria") including, among other things, that (i)
each Series 1996-1 Leased Vehicle was titled in the name of "Ford Credit Titling
Trust," "Ford Credit Titling Trust, Comerica Bank [or applicable co-trustee or
separate trustee], Trustee" or such substantially similar words acceptable to
the relevant governmental authority; (ii) the Residual Value of each Series
1996-1 Leased Vehicle does not exceed an amount established by the
Administrative Agent consistent with its policies and practices regarding the
setting of residual values as applied with respect to closed-end retail
automobile and light truck leases; (iii) all of the originating Dealer's right,
title and interest in such Series 1996-1 Lease and the related Series 1996-1
Leased Vehicle was validly assigned by such Dealer to FCTT; (iv) each Series
1996-1 Lease was originated by a Dealer in the ordinary course of its business
and in compliance with the Administrative Agent's normal credit and collection
policies and practices and contains customary and enforceable provisions; (v) at
its inception, and at the Series 1996-1 Cut-Off Date, each Series 1996-1 Lease
complied in all material respects with all requirements of applicable federal,
state, and local laws and regulations; (vi) each Series 1996-1 Lease represents
the genuine, legal, valid and binding payment obligation in writing of the
related Obligor, enforceable by the holder thereof in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, or other
similar laws affecting the enforcement of creditors' rights generally and
general principles of equity; (vii) none of the Series 1996-1 Leases is an
obligation of the United States of America or any state or of any agency,
department, or instrumentality of the United States of America or any state;
(viii) as of the date of the Series Specification Notice with respect to Series
1996-1, no Series 1996-1 Lease had been satisfied, subordinated, rescinded,
cancelled or terminated; (ix) no provision (other than the assessment of a
security deposit or reconditioning reserve) of a Series 1996-1 Lease has been
waived; (x) no right of rescission, setoff, counterclaim, or defense has been
asserted or threatened with respect to any Series 1996-1 Lease; (xi) each
Obligor, to the best knowledge of the Administrative Agent, has obtained or
agreed to obtain physical damage insurance and liability insurance covering the
Series 1996-1 Leased Vehicle as required under the related Series 1996-1 Lease;
(xii) no Series 1996-1 Asset has been sold, transferred, assigned, or pledged by
any Dealer to any person or entity other than FCTT; (xiii) the FCTT Trustee, for
the benefit of the Issuer, has good and marketable title to each Series 1996-1
Lease and each Series 1996-1 Leased Vehicle, free and clear of all liens,
encumbrances, security interests, and rights of others, including liens or
claims for work, labor or material relating to such Series 1996-1 Leased
Vehicle; (xiv) no Series 1996-1 Leased Vehicle or Series 1996-1 Lease is subject
to the laws of, and no Series 1996-1 Lease was originated in, any jurisdiction
under which the sale, transfer, and assignment of such Series 1996-1 Lease and
Series 1996-1 Leased Vehicle to FCTT or of a beneficial interest in such Series
1996-1 Lease or Series 1996-1 Leased Vehicle pursuant to transfers of Series
1996-1 Certificates is unlawful, void, or voidable; (xv) no Dealer has entered
into any agreement with any Obligor that prohibits, restricts or conditions the
assignment of any portion of the related
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Series 1996-1 Lease; (xvi) all filings (including, without limitation, UCC
filings) necessary in any jurisdiction to give the FCTT Trustee, on behalf of
FCTT, a first perfected ownership interest in each Series 1996-1 Lease have been
made; (xvii) each Series 1996-1 Lease constitutes "chattel paper" as defined in
the UCC; (xviii) there is only one original of each Series 1996-1 Lease, which
is held by the Administrative Agent on behalf of FCTT; and (xix) each Series
1996-1 Lease is a "true lease" for federal income tax purposes. (Series 1996-1
Supplement, Section 3.1; Asset Contribution Agreement, Section 3.2). See
"Description of the Administrative Agency Agreement -- Administrative Purchases"
for circumstances in which a breach of the foregoing representations will cause
a purchase of the beneficial interest in a Series 1996-1 Lease and Series 1996-1
Leased Vehicle.
AMENDMENT PROVISIONS
General. So long as any of the Senior Notes are outstanding, the Issuer's
rights in the Series 1996-1 Certificates will be subject to the lien of the
Indenture, and after the Senior Notes have been paid in full will be subject to
the Program Operating Lease. The Indenture Trustee will be the holder of the
Series 1996-1 Certificates for purposes of determining whether any proposed
amendment to the FCTT Agreement, the Administrative Agency Agreement, the Series
1996-1 Supplement and the RCL Trust Agreement will materially adversely affect
the interests of the holder of the Series 1996-1 Certificates.
The FCTT Agreement, the RCL Trust Agreement and the Administrative Agency
Agreement (including the Series 1996-1 Supplement) each may be amended without
the consent of the holder of the Series 1996-1 Certificates; provided, however,
(x) that such amendment may not, as evidenced by an Opinion of Counsel,
materially adversely affect the interests of the holder of the Series 1996-1
Certificates, (y) as confirmed by each Rating Agency, such amendment may not
cause the then current rating assigned to either Class of Senior Notes or the
Lease Trust Certificates to be withdrawn or reduced and (z) an Opinion of
Counsel as to certain tax matters is delivered. Notwithstanding the foregoing,
the FCTT Agreement, the RCL Trust Agreement and the Administrative Agency
Agreement may be amended at any time by the parties thereto to the extent
reasonably necessary to assure that none of FCTT, the Issuer or the Transferor
will be classified as an association (or publicly traded partnership) taxable as
a corporation for federal income tax purposes.
The Program Operating Lease and Asset Contribution Agreement each may be
amended without the consent of the Senior Noteholders or Lease Trust
Certificateholders; provided, however, (x) that such amendment may not, as
evidenced by an Opinion of Counsel, materially adversely affect the interests of
the Senior Noteholders or Lease Trust Certificateholders (unless 100% of the
Senior Noteholders and Lease Trust Certificateholders materially adversely
affected consent thereto), (y) as confirmed by each Rating Agency, that such
amendment may not cause the then current rating assigned to either Class of
Senior Notes or the Lease Trust Certificates to be withdrawn or reduced and (z)
an Opinion of Counsel as to certain tax matters is delivered. Notwithstanding
the foregoing, the Program Operating Lease and the Asset Contribution Agreement
may be amended at any time by the parties thereto to the extent reasonably
necessary to assure that none of FCTT, the Issuer or the Transferor will be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes.
Amendment of the Lease Trust Agreement and Lease Trust Paying Agent
Agreement. The Lease Trust Agreement and Lease Trust Paying Agent Agreement each
may be amended by the Transferor and the Lease Trustee, with prior written
notice to the Rating Agencies, without the consent of any of the Senior
Noteholders, the Subordinated Noteholders or the Lease Trust Certificateholders,
to cure any ambiguity or defect therein, to correct or supplement any provisions
therein, to add any provisions thereto or change in any manner or eliminate any
of the provisions therein or to modify in any manner the rights of the Senior
Noteholders, the Subordinated Noteholders or the Lease Trust Certificateholders;
provided, however, that (x) no such amendment may, as evidenced by an Opinion of
Counsel, materially adversely affect the interests of the Indenture Trustee, any
Senior Noteholder or Lease Trust Certificateholder (unless 100% of the Senior
Noteholders and Lease Trust Certificateholders materially adversely affected
consent thereto), (y) as confirmed by each Rating Agency, cause the then current
rating of either Class of Senior Notes or the Lease Trust Certificates to be
withdrawn or reduced and (z) an Opinion of Counsel as to certain tax matters is
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delivered. (Lease Trust Agreement, Section 12.1). Notwithstanding the foregoing,
the Lease Trust Agreement may be amended at any time by the Transferor, in its
capacity as holder of the Lease Trust Certificates initially acquired by it, and
the Lease Trustee to the extent reasonably necessary to assure that none of
FCTT, the Issuer or the Transferor will be classified as an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes.
The Lease Trust Agreement and Lease Trust Paying Agent Agreement each may
be amended by the Transferor and the Lease Trustee, with prior written notice to
each Rating Agency, with the consent of the Senior Noteholders holding not less
than a majority of the aggregate principal balance of each Class of Senior Notes
and, to the extent affected thereby, the consent of Lease Trust
Certificateholders holding not less than a majority of the aggregate principal
balance of the Lease Trust Certificates, to add any provisions thereto or change
in any manner or eliminate any of the provisions therein or modify in any manner
the rights of the Senior Noteholders, the Subordinated Noteholders or the Lease
Trust Certificateholders; provided, that (x) no such amendment may increase or
reduce in any manner the amount of, or accelerate or delay the timing of
distributions that are required to be made for the benefit of the Senior
Noteholders or the Lease Trust Certificateholders or reduce the percentage of
the aggregate principal balance of each Class of Senior Notes or the Lease Trust
Certificates required to consent to any such amendment, without the consent of
the holders of 100% of all outstanding Senior Notes or Lease Trust Certificates,
as the case may be, and (y) an Opinion of Counsel as to certain tax matters is
delivered. (Lease Trust Agreement, Section 12.1).
BANKRUPTCY PROVISIONS
Ford Credit Leasing. The FCTT Trustee, the Lease Trust Paying Agent, the
Lease Trustee, the Transferor, the Indenture Trustee, the RCL Trustee, Ford
Credit, the Administrative Agent, and each holder of an SBC, and each Lease
Trust Certificateholder (other than Ford Credit Leasing) by accepting a Lease
Trust Certificate, each Senior Noteholder by accepting a Senior Note and each
Subordinated Noteholder by accepting a Subordinated Note, will covenant that for
a period of one year and one day after payment in full of all amounts due to
each holder of an SBC, they will not institute, or join in instituting, any
bankruptcy, reorganization, insolvency or liquidation proceeding, or other
similar proceeding against Ford Credit Leasing without the consent of 100% of
the holders of the SBCs (excluding Ford Credit Leasing, the Transferor or any of
their affiliates). (RCL Trust Agreement, Section 10.8; Administrative Agency
Agreement, Section 8.9; FCTT Agreement, Section 9.8; Lease Trust Agreement,
Section 12.8).
FCTT. The FCTT Trustee and the Administrative Agent each will not have the
power to commence a voluntary bankruptcy proceeding with respect to FCTT unless
each holder of an EBC (Ford Credit and Ford Credit Leasing) and each holder of
an SBC (which with respect to Series 1996-1 for this purpose is the Indenture
Trustee) approves such commencement and certifies to the FCTT Trustee or the
Administrative Agent, as the case may be, that it reasonably believes that FCTT
is insolvent. (FCTT Agreement, Section 9.8; Administrative Agency Agreement,
Section 8.9).
The FCTT Trustee, the Lease Trustee, the Lease Trust Paying Agent, the
Transferor, the Indenture Trustee, the RCL Trustee, Ford Credit, Ford Credit
Leasing, the Administrative Agent, each holder of an EBC and each holder of an
SBC, will covenant that for a period of one year and one day after payment in
full of all distributions owing to each holder of an SBC, they will not
institute, or join in instituting, any bankruptcy, reorganization, insolvency or
liquidation proceeding, or other similar proceeding against FCTT without the
consent of 100% of the holders of the SBCs (excluding Ford Credit Leasing, the
Transferor or any of their affiliates). (RCL Trust Agreement, Section 10.8;
Administrative Agency Agreement, Section 8.9; FCTT Agreement, Section 9.8; Lease
Trust Agreement, Section 12.8).
The Transferor. The RCL Trustee will not commence a voluntary bankruptcy
proceeding with respect to the Transferor unless it reasonably believes that the
Transferor is insolvent and each beneficiary of the Transferor approves such
commencement and certifies to the RCL Trustee that it reasonably believes that
the Transferor is insolvent. (RCL Trust Agreement, Section 10.8).
The Lease Trustee, the Lease Trust Paying Agent, the Transferor, the
Indenture Trustee, each Lease Trust Certificateholder by accepting a Lease Trust
Certificate, each Senior Noteholder by accepting a Senior
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Note and each Subordinated Noteholder by accepting a Subordinated Note, will
covenant not to institute or join in the institution of any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
similar proceeding against the Transferor for a period of one year and a day
after the Series 1996-1 Certificates have been paid in full; provided, however,
that 100% of the Senior Noteholders (or, if no Senior Notes are then
outstanding, 100% of the Subordinated Noteholders), or if no Senior Notes or
Subordinated Notes are then outstanding, 100% of the Lease Trust
Certificateholders (in each case, excluding Ford Credit Leasing, the Transferor
or any of their affiliates) may at any time institute, or join in instituting,
any bankruptcy, reorganization, insolvency or liquidation proceeding against the
Transferor. (Lease Trust Agreement, Section 12.8; Indenture, Section 11.16).
The Issuer. The Lease Trustee will not commence a voluntary bankruptcy
proceeding with respect to the Issuer unless each Lease Trust Certificateholder,
each Senior Noteholder and each Subordinated Noteholder approves such
commencement and certifies to the Lease Trustee that it reasonably believes that
the Issuer is insolvent. (Lease Trust Agreement, Section 4.3).
The Lease Trustee, the Lease Trust Paying Agent, the Transferor, the
Indenture Trustee and each Lease Trust Certificateholder by accepting a Lease
Trust Certificate, each Senior Noteholder by accepting a Senior Note and each
Subordinated Noteholder by accepting a Subordinated Note, will covenant not to
institute, or join in instituting, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, against the Issuer for a period of one
year and a day after the Series 1996-1 Certificates have been paid in full;
provided, however, that 100% of the Senior Noteholders (or, if no Senior Notes
are then outstanding, 100% of the Subordinated Noteholders) may institute, or
join in instituting any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding against the Issuer. (Lease Trust Agreement, Section 12.8;
Indenture, Section 11.16).
FEES AND EXPENSES
FCTT Trustee. On each Payment Date, the FCTT Trustee will be entitled to a
fee for its services with respect to Series 1996-1 Assets, which will be paid by
the Administrative Agent on behalf of the holders of the EBCs. The amount of
such fee will equal a pro rata percentage of the total fees and expenses payable
to the FCTT Trustee with respect to all FCTT Assets (excluding any extraordinary
items relating only to specific Series or the EBCs), the amount of which will be
agreed upon from time to time by the FCTT Trustee and the holders of the EBCs.
(FCTT Agreement, Section 6.8; Series 1996-1 Supplement, Section 4.1).
The Administrative Agent. On each Payment Date, as compensation for
servicing the Series 1996-1 Assets and administering the distribution of funds
in respect thereof, the Administrative Agent will be paid the Administrative
Agent Fee (equal to the sum, for each of the three Collection Periods preceding
such Payment Date, of the product of 1/12 of 1.00% and the Pool Balance as of
the beginning of each such Collection Period) from the Available Funds
distributed on such Payment Date. The Administrative Agent also will receive the
Supplemental Administrative Agent Fee and certain other fees collected in
connection with Series 1996-1 Assets. (Administrative Agency Agreement, Section
4.8; Series 1996-1 Supplement, Section 4.3).
The Administrative Agent also will receive fees with respect to the
servicing and administration of the Non-Specified Assets and other Series
Specified Assets from payments and proceeds of such Non-Specified Assets and
other Series Specified Assets.
The Administrative Agent will pay all expenses incurred by it in the
performance of its duties under the Administrative Agency Agreement, including
fees and disbursements of independent accountants, taxes imposed on the
Administrative Agent and expenses incurred in connection with distributions and
reports to the FCTT Trustee, the Lease Trustee and the Indenture Trustee. The
Administrative Agent will pay the fees and expenses of the Lease Trustee, the
Indenture Trustee and the FCTT Trustee. The Administrative Agent will be
required to pay all expenses relating to the sale or disposition of any Series
1996-1 Leased Vehicle after the termination of the related Series 1996-1 Lease.
(Administrative Agency Agreement, Section 4.13).
The RCL Trustee. The RCL Trustee will receive such fees as Ford Credit,
Ford Credit Leasing and the RCL Trustee from time to time agree and will be
reimbursed for all reasonable expenses. Such fees and
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reimbursements will be paid first from amounts available for distribution to the
beneficiaries of the Transferor and second, to the extent such amounts are
insufficient, directly by Ford Credit and Ford Credit Leasing. (RCL Trust
Agreement, Section 6.9).
The Lease Trustee and Lease Trust Paying Agent. The Administrative Agent
will pay the Lease Trustee and Lease Trust Paying Agent such fees as have been
agreed among the Transferor, the Administrative Agent and the Lease Trustee or
the Lease Trust Paying Agent, and will reimburse the Lease Trustee and Lease
Trust Paying Agent for all reasonable expenses. The Administrative Agent will
not be entitled to be reimbursed from the Lease Trust Estate for the payment of
such expenses. (Lease Trust Agreement, Section 8.1).
GOVERNING LAW
The FCTT Agreement will be governed by the laws of the State of Michigan.
The Administrative Agency Agreement, the Series 1996-1 Supplement, the
Asset Contribution Agreement, the Transfer Agreement, the Program Operating
Lease, the Lease Trust Paying Agent Agreement and the Indenture each will be
governed by the laws of the State of New York.
The RCL Trust Agreement and the Lease Trust Agreement each will be governed
by the laws of the State of Delaware.
RATINGS OF THE SENIOR NOTES
It is a condition of the issuance of the Senior Notes that they be rated in
the highest investment rating category by at least one Rating Agency. The
ratings of the Senior Notes could be downgraded in the event of any unfunded
ERISA liability of the Ford affiliated group. See "Risk Factors -- ERISA
Liabilities; Effect on Ratings."
The rating assigned to either Class of Senior Notes is not a recommendation
to purchase, hold or sell such Class of Senior Notes, inasmuch as such rating
does not comment as to market price of suitability for a particular investor.
There is no assurance that the rating with respect to either Class of Senior
Notes will remain for any given period of time or that the rating will not be
lowered or withdrawn entirely by such Rating Agency if in its judgment
circumstances in the future so warrant.
CERTAIN LEGAL ASPECTS OF FCTT
AND THE SERIES 1996-1 CERTIFICATES
SERIES 1996-1 CERTIFICATES
The Series 1996-1 Certificates will be issued pursuant to the FCTT
Agreement and will evidence a beneficial interest in FCTT and the Series 1996-1
Assets. The Series 1996-1 Certificates will not represent a direct interest in
the Series 1996-1 Assets or any other assets of FCTT the beneficial interest in
which is represented by the EBCs or any other Series which may be issued
pursuant to the FCTT Agreement. Pursuant to the FCTT Agreement, the Lease
Trustee with the consent of the Indenture Trustee and the Transferor (or, upon
the occurrence of an Event of Default, with the consent of only the Indenture
Trustee) or the Transferor, with the consent of the Indenture Trustee and the
Lease Trustee, may at any time direct the FCTT Trustee to distribute the Series
1996-1 Assets to the Issuer. Any such distribution will be at the expense of the
Transferor, and following any such distribution the Series 1996-1 Assets will
remain subject to the lien of the Indenture and the rights of the Transferor
under the Program Operating Lease. Except in certain limited circumstances as
described in "Risk Factors -- Structural Considerations," proceeds from FCTT
Assets other than the Series 1996-1 Assets will not be available to make
payments with respect to the Series 1996-1 Certificates or to cover expenses and
liabilities of FCTT allocable to the Series 1996-1 Assets. See "FCTT --
Exchangeable Beneficial Certificates and Specified Beneficial Certificates."
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INSOLVENCY RELATED MATTERS
Each of Ford Credit, Ford Credit Leasing, FCTT (or the FCTT Trustee when
acting on its behalf) and the Transferor (or the RCL Trustee when acting on its
behalf) has taken steps in structuring the transactions described herein and has
undertaken to act throughout the life of such transactions in a manner intended
to ensure that the voluntary or involuntary commencement of a case or proceeding
by or against Ford Credit under the Bankruptcy Code or similar applicable state
laws ("Insolvency Laws") will not result in the commencement of a similar case
or proceeding under such Insolvency Laws with respect to any of Ford Credit
Leasing, FCTT or the Transferor, and that the separate legal existence of each
of Ford Credit Leasing, FCTT and the Transferor will be respected such that none
of their respective assets and liabilities will be consolidated with the assets
and liabilities of Ford Credit.
Ford Credit Leasing has been formed as a separate, limited-purpose
corporate subsidiary of Ford Credit pursuant to a certificate of incorporation
containing certain limitations (including restrictions on the nature of Ford
Credit Leasing's business and its ability to incur indebtedness, a requirement
that it have at least two "Independent Directors" and a restriction on its
ability to voluntarily commence a case or proceeding under any Insolvency Law
without the unanimous affirmative vote of all of its directors, including each
Independent Director). Ford Credit Leasing has represented that it has no
intention of voluntarily commencing a case or proceeding under any Insolvency
Law for so long as it is solvent and it does not reasonably foresee becoming
insolvent.
The activities of FCTT are limited by the terms of the FCTT Agreement which
also provides that FCTT is not intended to be and shall not constitute a
"business trust" within the meaning of the Bankruptcy Code (which provision, if
respected, would result in FCTT not being eligible to become a debtor in a case
under the Bankruptcy Code). To the extent that FCTT may be eligible for relief
under any Insolvency Law, the FCTT Trustee is not authorized to commence a case
or proceeding thereunder without the consent of each holder of an EBC and each
holder of an SBC. Each of the FCTT Trustee, Ford Credit, Ford Credit Leasing and
the holders from time to time of the Series 1996-1 Certificates have agreed not
to institute a case or proceeding against FCTT under any Insolvency Law for a
period of one year and a day after payment in full of all distributions to
holders of SBCs under the FCTT Agreement.
The activities of the Transferor are limited by the terms of the RCL Trust
Agreement. The Transferor has been formed as a Delaware business trust pursuant
to the applicable statute. To the extent that the Transferor may be eligible for
relief under any Insolvency Law, the RCL Trustee is not authorized to commence a
case or proceeding thereunder without the consent of Ford Credit and Ford Credit
Leasing, as the sole beneficiaries of the Transferor. Each of the RCL Trustee,
Ford Credit and Ford Credit Leasing has agreed not to institute a case or
proceeding against the Transferor under any Insolvency Law for a period of one
year and a day after payment in full of the Series 1996-1 Certificates.
There can be no assurance, however, that the limitations on the activities
of Ford Credit Leasing, FCTT and the Transferor, as well as the restrictions on
their respective abilities to obtain relief under Insolvency Laws or lack of
eligibility thereunder, as described above, would prevent a court from
concluding that their respective assets and liabilities should be consolidated
with those of Ford Credit if Ford Credit becomes the subject of a case or
proceeding under any Insolvency Law. Skadden, Arps, Slate, Meagher & Flom LLP
will deliver an opinion based on a reasoned analysis of analogous case law
(although there is no precedent based on directly similar facts) to the effect
that, subject to certain facts, assumptions and qualifications specified
therein, under present reported decisional authority and statutes applicable to
federal bankruptcy cases, if Ford Credit were to become the subject of a case
under the Bankruptcy Code, it would not be a proper exercise by a court of its
equitable discretion to disregard the separate legal existence of any of Ford
Credit Leasing, FCTT or the Transferor from that of Ford Credit and to require
the consolidation of the assets and liabilities of any of Ford Credit Leasing,
FCTT or the Transferor with the assets and liabilities of Ford Credit. Among
other things, such opinion will assume that each of Ford Credit Leasing, FCTT
(or the FCTT Trustee when acting on its behalf) and the Transferor (or the RCL
Trustee when acting on its behalf) 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 respective assets with
those of Ford Credit, doing
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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. In addition, such opinion will assume that other than as expressly
provided by the FCTT Agreement and the Administrative Agency Agreement (each of
which contains terms and conditions consistent with those that would be arrived
at on an arms' length basis between unaffiliated entities in the belief of the
parties thereto), Ford Credit will not generally guaranty the obligations of
Ford Credit Leasing, FCTT or the Transferor to third parties, and will not
conduct the day-to-day business or activities of any thereof other than in its
capacity as Administrative Agent acting under and in accordance with the
Administrative Agency Agreement. Each of Ford Credit, Ford Credit Leasing, FCTT
and the Transferor intends to follow and has represented to such counsel that it
will follow these and other procedures related to maintaining the separate
identity and legal existences of each of Ford Credit Leasing, FCTT and the
Transferor. Such a legal opinion, however, is not binding on any court.
If a case or proceeding under any Insolvency Law were to be commenced by or
against any of Ford Credit Leasing, FCTT or the Transferor, or if a court were
to conclude in favor of the consolidation of the assets and liabilities of any
thereof with those of Ford Credit, or if an attempt were made to litigate any of
the foregoing issues, delays in distributions on the Series 1996-1 Certificates
(and possible reductions in the amount of such distributions) to the Issuer
(either directly or, if the Program Operating Lease remains in effect,
indirectly to the extent resulting in delayed or reduced payments from the
Transferor to the Issuer under the Program Operating Lease), and therefore to
the Senior Noteholders, could occur. In addition, if a bankruptcy or insolvency
occurs with respect to Ford Credit Leasing, the FCTT Agreement provides that
FCTT will be terminated, and if the Transferor or the Issuer becomes bankrupt or
insolvent, or is terminated (which could occur as a result of the bankruptcy or
insolvency of Ford Credit Leasing or the bankruptcy, insolvency or termination
of the Transferor), the FCTT Agreement provides that FCTT will be terminated
with respect to holding the Series 1996-1 Assets. In each case the FCTT Trustee
is required to distribute the Series 1996-1 Assets to the holder of the Series
1996-1 Certificates. Because the Issuer has pledged its rights to the Series
1996-1 Certificates to the Indenture Trustee, such distribution would be made to
the Indenture Trustee who would be responsible for retitling the Series 1996-1
Leased Vehicles. The cost of such retitling would reduce the amounts payable
from the Series 1996-1 Assets which are available for payments of interest on
and principal of the Senior Notes, and in such event Senior Noteholders could
suffer a loss on their investment.
Each of Ford Credit and Ford Credit Leasing will treat its conveyance of
the Series 1996-1 Certificates to the Transferor as an absolute transfer of all
of its interest therein for all purposes, including without limitation tax and
financial accounting purposes. If such conveyances constitute absolute
transfers, the Series 1996-1 Certificates and the proceeds thereof would not be
part of Ford Credit's or Ford Credit Leasing's bankruptcy estate under Section
541 of the Bankruptcy Code should Ford Credit or Ford Credit Leasing become the
subject of a case thereunder. However, if a case or proceeding under any
Insolvency Law were commenced by or against Ford Credit or Ford Credit Leasing,
and a creditor, receiver or trustee-in-bankruptcy of Ford Credit or Ford Credit
Leasing were to take the position that the transfer of the Series 1996-1
Certificates by Ford Credit and Ford Credit Leasing to the Transferor should
instead be treated as a pledge of such Series 1996-1 Certificates to secure a
borrowing by Ford Credit and Ford Credit Leasing, delays in payments of proceeds
of such Series 1996-1 Certificates to the Issuer, and therefore to the Senior
Noteholders, could occur or (should the court rule in favor of such creditor,
receiver or trustee-in-bankruptcy) reductions in the amount of such payments
could result. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion
to the effect that, subject to certain facts, assumptions and qualifications
specified therein, in the event that either Ford Credit or Ford Credit Leasing
were to become the subject of a case under the Bankruptcy Code subsequent to the
transfer of the Series 1996-1 Certificates to the Transferor, the transfer of
the Series 1996-1 Certificates from Ford Credit and Ford Credit Leasing would be
respected as an absolute transfer (a "true sale") of the Series 1996-1
Certificates from Ford Credit and Ford Credit Leasing to the Transferor, and the
Series 1996-1 Certificates and the proceeds thereof would not be included in
Ford Credit's or Ford Credit Leasing's bankruptcy estate pursuant to Section 541
of the Bankruptcy Code. As indicated above, such a legal opinion is not binding
on any court.
As a precautionary measure, the Transferor will take the actions requisite
to obtaining a perfected security interest in the Series 1996-1 Certificates as
against Ford Credit and Ford Credit Leasing.
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Accordingly, if the conveyances of the Series 1996-1 Certificates by Ford Credit
and Ford Credit Leasing to the Transferor were not respected as absolute
transfers, the Transferor (and ultimately the Issuer and the Indenture Trustee
as successors in interest) should be treated as a secured creditor of Ford
Credit and Ford Credit Leasing, although a case or proceeding under any
Insolvency Law with respect to Ford Credit or Ford Credit Leasing could result
in delays or reductions in distributions under the Series 1996-1 Certificates as
indicated above notwithstanding such perfected security interest.
In the event that Ford Credit were to become subject to a case under the
Bankruptcy Code, certain payments made within one year of the commencement of
such case may be recoverable by Ford Credit as debtor-in-possession or by a
creditor or a trustee in bankruptcy as a preferential transfer from Ford Credit.
These payments include the portion of payments of Administrative Purchase
Amounts allocable to Ford Credit in respect of the purchase of beneficial
interests in certain Series 1996-1 Assets as to which an uncured breach of
certain representations and warranties or certain servicing covenants has
occurred. See "Description of the Administrative Agency Agreement --
Administrative Purchases."
In addition, the commencement of a case or proceeding under any Insolvency
Law with respect to Ford Credit is an Administrative Agent Event of Default, and
if so directed by the holders of the Series 1996-1 Certificates (which holder
for such purpose will be the Indenture Trustee so long as the Senior Notes are
outstanding), Ford Credit may be removed as the Administrative Agent, which may
have an adverse impact on timely payments to Senior Noteholders. However, if the
commencement of such a case or proceeding were the only default, Ford Credit (or
its trustee-in-bankruptcy) may have the power to prevent any such removal. See
"Description of the Administrative Agency Agreement -- Administrative Agent
Events of Default" and "-- Removal of the Administrative Agent."
INSURANCE
Each Obligor is required to maintain liability, collision and comprehensive
insurance coverage in certain amounts on its Leased Vehicle at all times during
the term of the related Lease. The cost of such insurance is borne solely by the
Obligor. Failure to comply with stipulated insurance requirements may result in
early termination of the Lease.
The failure of Obligors to maintain the required insurance coverage for
claims arising from injuries caused by the Series 1996-1 Leased Vehicles could
result in reductions in distributions on the Series 1996-1 Certificates and
losses to Senior Noteholders on their investment.
To protect against such losses, Ford Credit self-insures against the first
$5 million per occurrence for property damage or personal liability suffered by
third persons caused by any vehicle owned by Ford Credit or FCTT. Additionally,
Ford maintains excess insurance policies which name FCTT as an additional
insured party. These policies cover claims in excess of $5 million per
occurrence (together with the self-insurance of Ford Credit, the "Contingent and
Excess Liability Insurance"). The Administrative Agent will covenant that, so
long as the Series 1996-1 Certificates are outstanding, it will (i) maintain or
cause to be maintained Contingent and Excess Liability Insurance with respect to
third party claims relating to the Series 1996-1 Leased Vehicles, FCTT or the
FCTT Trustee in such amounts as it deems reasonable and prudent and (ii) not
amend or terminate any such Contingent and Excess Liability Insurance unless (x)
after giving effect to such amendment or termination, there remains coverage of
at least $25 million per occurrence and $50 million annually in the aggregate or
(y) as confirmed by each Rating Agency, such amendment or termination will not
cause the rating of any of the Senior Notes or Lease Trust Certificates to be
reduced or withdrawn. To the extent the Contingent and Excess Liability
Insurance is insufficient to cover the full amount of any claims and no third
party reimbursement for such claims is available and Ford Credit and Ford Credit
Leasing fail to perform their obligations to indemnify the Issuer, the Senior
Noteholders could incur a loss on their investment to the extent that payment of
such claims reduce the amounts otherwise distributable to the Senior Noteholders
from the Series 1996-1 Certificates.
In the event that a Series 1996-1 Leased Vehicle is damaged, the failure of
the related Obligor to maintain the required collision insurance coverage could
result in a reduction of amounts distributable with respect to the related
Series 1996-1 Assets and therefore a reduction in the aggregate amount
distributable on
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the Series 1996-1 Certificates. In the event that collision coverage is
exhausted and no third-party reimbursement for such damage to a Series 1996-1
Leased Vehicle is available, the Senior Noteholders could incur a loss on their
investment.
Ford Credit provides Obligors with Guaranteed Automobile Protection ("GAP")
coverage on Leased Vehicles, including the Series 1996-1 Leased Vehicles. In the
event a Leased Vehicle is destroyed or stolen, GAP coverage would reimburse the
Obligor for the difference between the insurance valuation of the Leased Vehicle
and the remaining amount required to be paid under the Lease.
CERTAIN LEGAL ASPECTS OF THE LEASES
AND LEASED VEHICLES
UCC FILINGS
The Series 1996-1 Certificates are either certificated securities or
general intangibles under the UCC. To the extent that the Series 1996-1
Certificates are certificated securities, the Indenture Trustee has perfected
its interest by possession. To the extent that the Series 1996-1 Certificates
are general intangibles and the transfer thereof is deemed to be a transfer for
security, the Transferor will file UCC-1 financing statements against both Ford
Credit and Ford Credit Leasing to perfect its interest in such Series 1996-1
Certificates. The Transferor will assign its perfected security interest to the
Issuer and the Indenture Trustee, and the Issuer in turn will assign its
interest to the Indenture Trustee. Financing statements covering the Series
1996-1 Certificates will also be filed naming (i) the Transferor as debtor and
the Issuer as secured party, which financing statement will be assigned to the
Indenture Trustee, (ii) the Transferor as debtor and the Indenture Trustee as
secured party and (iii) the Issuer as debtor and the Indenture Trustee as
secured party.
The FCTT Assets consist principally of the Leases and the ownership
interest in the Leased Vehicles (subject to the rights of the Obligors under the
Leases). To the extent that the Series 1996-1 Certificates were viewed as
representing a transfer of the assets of FCTT, the Series 1996-1 Leases would be
"chattel paper" as defined in the UCC. Pursuant to the UCC, a non-possessory
security interest in chattel paper may be perfected by filing a UCC-1 financing
statement with the appropriate filing office in the state where the debtor has
its chief executive office. Accordingly, as a precaution, UCC-1 financing
statements relating to the Series 1996-1 Leases will be filed naming: (i) FCTT
as debtor and Ford Credit and Ford Credit Leasing as secured parties, which
financing statements will be assigned to the Transferor, the Issuer and then the
Indenture Trustee; (ii) each of Ford Credit and Ford Credit Leasing as debtors
and the Transferor as secured party, which financing statement will be assigned
to the Issuer and then the Indenture Trustee; (iii) the Transferor as debtor and
the Issuer as secured party, which financing statement will be assigned to the
Indenture Trustee, (iv) the Transferor as debtor and the Indenture Trustee as
secured party and (v) the Issuer as debtor and the Indenture Trustee as secured
party. Perfection and the effect of perfection or non-perfection of a security
interest in the Series 1996-1 Leased Vehicles are governed by the certificate of
title statutes of the states in which such Series 1996-1 Leased Vehicles are
located. Because of the administrative burden and expense of perfecting an
interest in motor vehicles under the certificate of title statutes in the
fifteen states in which the Series 1996-1 Leases were originated, the Indenture
Trustee's interest in the Series 1996-1 Leased Vehicles will be unperfected, and
if the transfer of the Series 1996-1 Certificates were viewed as a transfer of
the Series 1996-1 Assets, the Indenture Trustee would only have a perfected
security interest in the Series 1996-1 Leases. However, the Indenture Trustee's
security interest in the Series 1996-1 Leases could be subordinate to persons
who take actual possession of the Series 1996-1 Leases without knowledge of such
security interest. The Series 1996-1 Leases will not be stamped to indicate
these precautionary security arrangements.
VICARIOUS TORT LIABILITY
The Series 1996-1 Leased Vehicles will be operated by the Obligors and
their respective invitees. State laws differ as to whether anyone suffering
injury to person or property as a result of an accident involving a leased
vehicle may bring an action against the person who, holding title to the
vehicle, is its legal owner.
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In California, under Section 17150, California Vehicle Code, the owner of a
motor vehicle that is subject to a lease is responsible for injuries to persons
or property resulting from the negligent or wrongful operation of the vehicle by
any person using the vehicle with the owner's permission. The owner's liability
for personal injuries is limited to $15,000 per person and $30,000 in total per
accident and for property damage is limited to $5,000 per accident. Recourse for
any judgment arising out of the operation of the vehicle must first be had
against the operator's property, if the operator is within the court's
jurisdiction.
In New York, under Section 388, New York Vehicle and Traffic Law, the owner
of a motor vehicle that is subject to a lease is responsible for injuries to
persons or property resulting from the negligent operation of the vehicle by any
person using the vehicle with the owner's permission. A lessee of a motor
vehicle is considered an owner of the vehicle if the lessee has the exclusive
use of the vehicle for a period greater than 30 days. In situations involving
more than one owner of the same vehicle, the liability of the owners for
negligent operation of the vehicle is joint and several.
In Nebraska, under Section 25-21,239, Revised Statutes of Nebraska, the
owner of a light truck that is subject to a lease is responsible for injuries to
persons or property resulting from the negligent or wrongful operation of the
light truck by any person using the light truck with the owner's permission. In
Nebraska, the owner of a leased automobile is not generally liable for the
negligent operation of such leased automobile unless the owner has negligently
entrusted or negligently continues to entrust the automobile to an inappropriate
lessee.
In each of the other 12 states in which the Series 1996-1 Leases were
originated, a victim of such an accident has no cause of action against the
owner of a leased vehicle arising from the negligent operation of such leased
vehicle unless the owner has negligently entrusted or negligently continues to
entrust the vehicle to an inappropriate lessee.
Following an accident involving a Series 1996-1 Leased Vehicle, under
certain circumstances FCTT may be the subject of an action for damages as a
result of its ownership of such Series 1996-1 Leased Vehicle. In the event that
liability on FCTT were imposed and the coverage provided by the Contingent and
Excess Liability Insurance was insufficient to cover the full amount of such
claims (or, in certain circumstances claims arising from ownership of Leased
Vehicles that are not Series 1996-1 Leased Vehicles), claims could be imposed
against the assets of FCTT, including the Series 1996-1 Leased Vehicles. The
Senior Noteholders could incur a loss on their investment to the extent that
payment of such claims reduced the amounts otherwise distributable to the Senior
Noteholders.
REPOSSESSION OF LEASED VEHICLES
In the event of a default by an Obligor, the Administrative Agent will
notify the Obligor and, after affording the Obligor an opportunity to cure, will
repossess the Series 1996-1 Leased Vehicle if the Obligor remains in default.
Under the laws of the states in which the Series 1996-1 Leases were originated,
generally repossession may take place without notice, but only if it can be
accomplished without a breach of the peace. If repossession cannot be achieved
peaceably, court action would be required. In Pennsylvania, a writ of replevin
may be necessary to accomplish repossession.
After repossession, the Administrative Agent may afford the Obligor an
opportunity to cure the default. Absent cure, the Administrative Agent will
ordinarily attempt to sell the Series 1996-1 Leased Vehicle. There is no
assurance that the proceeds from such a sale will equal or exceed the remaining
amounts due under the related Series 1996-1 Lease at the time of the Obligor's
default.
DEFICIENCY JUDGMENTS
Once a repossessed Series 1996-1 Leased Vehicle is sold, the proceeds from
the sale will be used to cover the expenses of repossession and resale and then
to satisfy any remaining amounts due under the related Series 1996-1 Lease. If
the proceeds from the sale of the Series 1996-1 Leased Vehicle are insufficient
to satisfy the remaining amount due under the related Series 1996-1 Lease, the
amount of such shortfall will be reported as a Series 1996-1 Credit Loss in the
Collection Period in which the related Series 1996-1 Lease
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became a Liquidated Lease. The Administrative Agent may seek a deficiency
judgment for the amount of any such shortfall. To the extent such deficiency
judgment is collected in a Collection Period other than the Collection Period in
which such Series 1996-1 Lease became a Liquidated Lease, such amount shall be
treated as a Recovery.
However, each of the states in which the Series 1996-1 Leases were
originated places limits on a secured party's ability to obtain a deficiency
judgment. In these states, a deficiency judgment may be prohibited or reduced in
amount if the Obligor was not given proper notice of the resale or if the terms
of the resale were not commercially reasonable. Even if a deficiency judgment is
obtained, there is no assurance that the full amount of the judgment would
ultimately be collected. A deficiency judgment is a personal judgment against
the defaulting Obligor, who generally has few remaining assets or sources of
income after repossession. As a result, obtaining a deficiency judgment may not
be useful in that only a small portion of it, or perhaps none of it, will ever
be collected.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and regulations impose
requirements on retail lease contracts such as the Series 1996-1 Leases. The
federal Consumer Leasing Act of 1976 and Regulation M promulgated by the Board
of Governors of the Federal Reserve System, for example, require that a number
of disclosures be made at the time a vehicle is leased, including the amount of
any periodic payments and the circumstances under which the lessee may terminate
the lease prior to the end of the lease term. The various consumer protection
laws would apply to FCTT as the assignee of each Series 1996-1 Lease and may
also apply to the Issuer as holder of the Series 1996-1 Certificates which
represent a beneficial interest in the Series 1996-1 Leases, among other things.
The failure of FCTT, or the Administrative Agent acting on behalf of FCTT, to
comply with such laws and regulations may give rise to liabilities on the part
of FCTT, and claims by FCTT or the Administrative Agent acting on behalf of FCTT
with respect to Obligors may be subject to set-off as a result of non-compliance
with such laws and regulations.
Courts have applied general equitable principles in litigation relating to
repossession and deficiency balances. These equitable principles may have the
effect of relieving a lessee from some or all of the legal consequences of a
default.
In several cases, consumers have asserted that the self-help remedies of
lessors violate the due process protection provided under the Fourteenth
Amendment to the Constitution of the United States. Courts have generally found
that repossession and resale by a lessor do not involve sufficient state action
to afford constitutional protection to consumers.
Each of the states in which the Series 1996-1 Leases were originated has
adopted a law (each, a "Lemon Law") providing redress to consumers who purchase
or in some cases lease a vehicle which remains out of conformance with its
manufacturer's warranty after a specified number of attempts to correct a
problem or after a specific time period. A successful claim under a Lemon Law
with respect to a Series 1996-1 Leased Vehicle could result in, among other
things, the termination of the related Series 1996-1 Lease and/or the refunding
to the related Obligor of some portion of the Total Monthly Payments paid by
such Obligor. To the extent an Obligor is no longer required to make Total
Monthly Payments with respect to a Series 1996-1 Lease subject to a Lemon Law,
or amounts are refunded to such Obligor, such Series 1996-1 Lease will be deemed
to be a Liquidated Lease and the amounts received with respect to such lease
will be limited to Liquidation Proceeds and Recoveries. The net amount lost will
be reported as a Series 1996-1 Credit Loss. Although FCTT or the Administrative
Agent acting on behalf of FCTT may be able to assert a claim against the
manufacturer of any such defective Series 1996-1 Leased Vehicle, there can be no
assurance that any such claim would be successful.
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FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a general summary of material anticipated United States
federal income tax consequences of the purchase, ownership and disposition of
the Senior Notes. This discussion is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations thereunder, current administrative rulings, judicial
decisions and other applicable authorities in effect as of the date hereof, all
of which are subject to change, possibly with retroactive effect. There can be
no assurance that the Internal Revenue Service ("IRS") will not challenge the
conclusions reached herein, and no ruling from the IRS has been or will be
sought on any of the issues discussed below.
This summary does not purport to deal with all aspects of federal income
taxation that may be relevant to Senior Note Owners in light of their personal
investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of Senior Note Owners subject to special
treatment under the federal income tax laws (e.g., financial institutions,
broker-dealers, life insurance companies and tax-exempt organizations). This
information is directed to Senior Note Owners who hold the Senior Notes as
"capital assets" within the meaning of Section 1221 of the Code.
GENERAL
Tax Status of the Senior Notes, FCTT, the Transferor and the Issuer. In the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("Special Tax Counsel"),
subject to the assumptions and qualifications contained in such opinion, for
federal income tax purposes under existing law: (i) the Senior Notes will be
treated as debt and (ii) none of FCTT, the Transferor or the Issuer will be
classified as an association (or publicly traded partnership) taxable as a
corporation. This opinion is based on the assumption, among other things, that
the Senior Notes, the Subordinated Notes and the Lease Trust Certificates will
be issued pursuant to the terms of the Basic Documents and that such terms will
be complied with.
Tax Status of the Lease Trust Certificates. In the opinion of Special Tax
Counsel, subject to the assumptions and qualifications contained in such
opinion, although no specific authority exists as to the characterization for
federal income tax purposes of securities having the same terms as the Lease
Trust Certificates and accordingly, although the matter is not free from doubt,
under current law the Lease Trust Certificates (other than the Lease Trust
Certificates initially acquired by the Transferor) should properly be treated as
debt for federal income tax purposes. Further, in the opinion of Special Tax
Counsel, if the Lease Trust Certificates (other than the Lease Trust
Certificates initially acquired by the Transferor) were found not to constitute
indebtedness for federal income tax purposes, such Lease Trust Certificates
would be classified as interests in a partnership (other than a publicly traded
partnership taxable as a corporation). These opinions are based on the
assumption, among other things, that the Senior Notes, the Subordinated Notes
and the Lease Trust Certificates will be issued pursuant to the terms of the
Basic Documents and that such terms will be complied with.
Stated Interest. Stated interest on the Senior Notes will be taxable as
ordinary income for federal income tax purposes when received or accrued in
accordance with a Senior Note Owner's method of tax accounting.
Original Issue Discount. A Class A-2 Senior Note will be treated as issued
with Original Issue Discount ("OID") if the excess of the Class A-2 Senior
Note's "stated redemption price at maturity" over its issue price equals or
exceeds a de minimis amount equal to 1/4 of 1 percent of the Class A-2 Senior
Note's stated redemption price at maturity multiplied by the number of complete
years (based on the anticipated weighted average life of a Class A-2 Senior
Note) to its maturity. The Class A-2 Senior Notes will be issued with de minimis
OID. Generally, the issue price of a Class A-2 Senior Note should be the first
price at which a substantial amount of the Class A-2 Senior Notes included in
the issue of which the Class A-2 Senior Note is a part is sold to other than
bond houses, brokers or similar persons or organizations acting in the capacity
of underwriters, placement agents or wholesalers. The stated redemption price at
maturity of a Class A-2 Senior Note is expected to equal the principal amount of
the Class A-2 Senior Note. Any amount not treated as OID because it is de
minimis OID must be included in income as principal payments are received on the
Class A-2 Senior Notes in the proportion that each such payment bears to the
original principal balance of the Class A-2 Senior Note.
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If the Class A-2 Senior Notes are treated as issued with OID, a Senior Note
Owner of a Class A-2 Senior Note will be required to include OID in income
before the receipt of cash attributable to such income using the constant-yield
method. The amount of OID includible in income is the sum of the daily portions
of OID with respect to a Class A-2 Senior Note for each day during the taxable
year or portion of the taxable year in which the Senior Note Owner holds the
Class A-2 Senior Note. The amount of OID includible in income by a Senior Note
Owner of a Class A-2 Senior Note will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant "accrual period." Such OID is generally equal to the product of the
yield to maturity of the Class A-2 Senior Note (adjusted for the length of the
accrual period) and its adjusted issue price at the beginning of the accrual
period, reduced by any payments of "qualified stated interest." Accrual periods
with respect to a Class A-2 Senior Note may be any set of periods (which may be
of varying lengths) selected by the Senior Note Owner of such Class A-2 Senior
Note as long as (i) no accrual period is longer than one year and (ii) each
scheduled payment of interest or principal on the Class A-2 Senior Note occurs
on either the final or first day of an accrual period.
The adjusted issue price of a Class A-2 Senior Note is the sum of its issue
price plus prior accruals of OID, reduced by the total payments made with
respect to such Class A-2 Senior Note in all prior periods, other than
"qualified stated interest payments." Qualified stated interest payments are
interest payments on the Class A-2 Senior Notes that are unconditionally payable
at least annually at a single fixed rate applied to the outstanding principal
amount of the obligation.
Market Discount. The Class A-2 Senior 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 Senior Note Owner purchases a Class
A-2 Senior Note at a market discount (that is, a discount from its stated
redemption price at maturity or, if the Class A-2 Senior Notes were issued with
OID, its original issue price plus any accrued original issue discount, 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 Class A-2 Senior Note multiplied by a
fraction, the numerator of which is the number of days the Senior Note Owner
held the Class A-2 Senior Note and the denominator of which is the number of
days from the date the Senior Note Owner acquired the Class A-2 Senior Note
until its maturity date. The Senior Note Owner of a Class A-2 Senior Note 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
Class A-2 Senior Note with accrued market discount. A Senior Note Owner of a
Class A-2 Senior Note may elect to include market discount in gross income as it
accrues and, if such Senior 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 Class A-2 Senior 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.
Short-Term Obligations. Under the Code, special rules apply to notes that
have a maturity of one year or less from their date of original issue, such as
the Class A-1 Senior 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 Class A-1 Senior Notes over their
issue price. In general, an individual or other cash basis holder of a short-
term obligation (such as a Class A-1 Senior Note) is not required to accrue
acquisition discount for federal income tax purposes unless it elects to do so.
Accrual basis Senior Note Owners and certain other Senior Note Owners, including
banks, regulated investment companies, dealers in securities and cash basis
Senior Note Owners who so elect, are required to accrue acquisition discount on
the Class A-1 Senior Notes on either a straight-line basis or under a constant
yield method (based on daily compounding), at the election of the Senior Note
Owner. In the case of a Senior Note Owner not required and not electing to
include acquisition discount in income currently, any gain realized on the sale
or retirement of the Class A-1 Senior Note will be
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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. Senior Note
Owners who are not required and do not elect to accrue acquisition discount on
Class A-1 Senior 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.
Total Accrual Election. A Senior Note Owner may elect to include in gross
income all interest that accrues on a Senior Note using the constant-yield
method described above under the heading "-- Original Issue Discount," with
modifications described below. For purposes of this election, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium (described below under "-- Amortizable Bond Premium") or
acquisition premium.
In applying the constant-yield method to a Senior Note with respect to
which this election has been made, the issue price of the Senior Note will equal
the electing Senior Note Owner's adjusted basis in the Senior Note immediately
after its acquisition, the issue date of the Senior Note will be the date of its
acquisition by the electing Senior Note Owner, and no payments on the Senior
Note will be treated as payments of qualified stated interest. This election
will generally apply only to the Senior Note with respect to which it is made
and may not be revoked without the consent of the IRS. Senior Note Owners should
consult with their own tax advisers as to the effect in their circumstances of
making this election.
Amortizable Bond Premium. In general, if a Senior Note Owner purchases a
Senior Note at a premium (that is, an amount in excess of the amount payable
upon the maturity thereof), such Senior Note Owner will be considered to have
purchased such Senior Note with "amortizable bond premium" equal to the amount
of such excess. Such Senior 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 Senior
Note. Such Senior Note Owner's tax basis in the Senior 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 Senior 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 Senior Note held
by a Senior 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
Senior Note.
Disposition of Senior Notes. A Senior Note Owner's adjusted tax basis in a
Senior Note will be its cost, increased by the amount of any OID, market
discount, acquisition discount and gain previously included in income with
respect to the Senior Note, and reduced by the amount of any payments on the
Senior Note that is not qualified stated interest and the amount of bond premium
previously amortized with respect to the Senior Note. A Senior Note Owner will
generally recognize gain or loss on the sale or retirement of a Senior Note
equal to the difference between the amount realized on the sale or retirement
and the tax basis of the Senior Note. Such gain or loss will be capital gain or
loss (except to the extent attributable to accrued but unpaid interest or as
described above under "-- Market Discount") and will be long-term capital gain
or loss if the Senior Note was held for more than one year.
WAIVERS AND AMENDMENTS
The Indenture permits the Senior Noteholders to waive an Event of Default
in some circumstances upon a vote of the requisite percentage of Senior
Noteholders. Such a waiver, if it were to continue for a period that exceeds two
years and any additional period during which the Senior Noteholders conduct good
faith negotiations, or certain amendments to the terms of the Senior Notes,
would be treated for federal income tax purposes as a constructive exchange by a
Senior Noteholder of the Senior Notes for new notes, upon which gain or loss
would be recognized.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS, and
to each Senior Note Owner, the amount of interest paid on the Senior Notes (and
the amount withheld for federal income taxes, if any) for each calendar year,
except as to exempt recipients (generally, corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to their
status). Each Senior Note Owner (other than Senior Note Owners who are not
subject to the reporting requirements) will be required to provide, under
penalties of perjury, a certificate containing the Senior Note Owner's name,
address, correct federal taxpayer identification number (which includes a social
security number) and a statement that the Senior Note Owner is not subject to
backup withholding. Should a non-exempt Senior Note Owner fail to provide the
required certification or should the IRS notify the Indenture Trustee or the
Issuer that the Senior Note Owner has provided an incorrect federal taxpayer
identification number or is otherwise subject to backup withholding, the
Indenture Trustee will be required to withhold (or cause to be withheld) 31% of
the interest otherwise payable to the Senior Note Owner, and remit the withheld
amounts to the IRS as a credit against the Senior Note Owner's federal income
tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the U.S. federal income tax treatment
of investors that are not U.S. persons (each, a "Foreign Person"). The term
"Foreign Person" means any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof or
(iii) an estate or trust the income of which is includible in gross income for
U.S. federal income tax purposes, regardless of its source.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business within the
United States by the Foreign Person, will generally be considered
"portfolio interest" and generally will not be subject to United States
federal income tax and withholding tax, as long as the Foreign Person (i)
is not actually or constructively a "10 percent shareholder" of the Issuer
or a "controlled foreign corporation" with respect to which the Issuer is a
"related person" within the meaning of the Code, and (ii) provides an
appropriate statement (Form W-8), signed under penalties of perjury,
certifying that the Senior Note Owner is a Foreign Person and providing
that Foreign Person's name and address. If the information provided in this
statement changes, the Foreign Person must so inform the Indenture Trustee
within 30 days of such change. The statement generally must be provided in
the year a payment occurs or in either of the two preceding years. If such
interest were not portfolio interest, then it would be subject to United
States federal income and withholding tax at a rate of 30 percent unless
reduced or eliminated pursuant to an applicable income tax treaty.
(b) Any capital gain realized on the sale or other taxable disposition
of a Senior Note by a Foreign Person will be exempt from United States
federal income and withholding tax, provided that (i) the 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 and certain other requirements are met.
(c) If the interest, gain or income on a Senior Note held by a Foreign
Person is effectively connected with the conduct of a trade or business in
the United States by the Foreign Person, the Senior Note Owner (although
exempt from the withholding tax previously discussed if a duly executed
Form 4224 is furnished) generally will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax
rates. In addition, if the Foreign Person is a foreign corporation, it may
be subject to a branch profits tax equal to 30 percent of its "effectively
connected earnings and profits" within the meaning of the Code for the
taxable year, as adjusted for certain items, unless it qualifies for a
lower rate under an applicable tax treaty.
On April 15, 1996, the IRS issued proposed Treasury regulations (the
"Proposed Regulations") which, if enacted in their proposed form, would
substantially revise some aspects of the current system for withholding on, and
reporting of, amounts paid to Foreign Persons. For example, the certification
procedures described above (i.e., Forms W-8, 4224, etc.) would be unified and
combined into a single form (Form W-8) under the
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Proposed Regulations. As a general rule, the Proposed Regulations are proposed
to be effective for payments to Foreign Persons made after December 31, 1997.
There is no assurance that the Proposed Regulations will be adopted or, if
adopted, will be adopted in their proposed form.
CERTAIN STATE TAX CONSEQUENCES
Set forth below is a summary of certain state income tax consequences of
the purchase, ownership and disposition of the Senior Notes. This discussion is
based upon current law, administrative rulings, judicial decisions and other
applicable authorities in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect. There can be no assurance that
state income tax authorities will not challenge the conclusions reached herein,
and no ruling from state income tax authorities has been or will be sought on
any of the issues discussed below. Because of the variation in each state's
income tax laws, it is impossible to predict tax consequences to Senior Note
Owners in all states. Senior Note Owners are urged to consult their own tax
advisors with respect to state tax consequences arising out of the purchase,
ownership and disposition of Senior Notes.
Michigan. In general, state tax laws conform to federal income tax
principles, and partnerships, grantor trusts and mere security devices are not
subject to tax at the entity level. The State of Michigan, however, imposes a
single business tax on corporations, partnerships and other entities doing
business in Michigan. Because the Administrative Agent is headquartered in
Michigan, tax authorities in Michigan may attempt to assert that FCTT, the
Transferor or the Issuer is subject to an entity level tax.
In the opinion of J. D. Bringard, Esq., the Vice President -- General
Counsel of Ford Credit ("Michigan Tax Counsel"), assuming that the Senior Notes
will be treated as debt for federal income tax purposes, (i) the Senior Notes
will be treated as debt for Michigan income and single business tax purposes and
(ii) Senior Note Owners not otherwise subject to taxation in Michigan would not
become subject to taxation in Michigan solely because of a Senior Note Owner's
ownership of a Senior Note. Assuming further that the Lease Trust Certificates
(other than the Lease Trust Certificates initially acquired by the Transferor)
will be treated as debt for federal income tax purposes and that none of FCTT,
the Transferor or the Issuer will be classified as an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes,
none of FCTT, the Transferor or the Issuer should be subject to Michigan income
and single business tax at the entity level.
Delaware. The Transferor has been organized as a Delaware business trust.
In the opinion of Special Tax Counsel, assuming that the Senior Notes are
treated as debt for federal income tax purposes, the Senior Notes will be
treated as debt for Delaware state income tax purposes. Assuming further that
none of FCTT, the Transferor or the Issuer will be classified as an association
(or publicly traded partnership) taxable as a corporation for federal income tax
purposes, none of FCTT, the Transferor or the Issuer will be subject to the
Delaware state income tax at the entity level. Further, in the opinion of
Special Tax Counsel, Senior Note Owners not otherwise subject to taxation in
Delaware would not become subject to taxation in Delaware solely because of a
Senior Note Owner's ownership of a Senior Note.
* * *
In the event that any state or locality imposes a tax on FCTT, the
Transferor or the Issuer at the entity level, Ford Credit and Ford Credit
Leasing have agreed to indemnify the holders of the SBCs for the full amount of
such taxes. If Ford Credit and Ford Credit Leasing should fail to fulfill their
respective indemnification obligations, amounts otherwise distributable to them
as holders of the EBCs will be used to satisfy such indemnification obligations.
However, it is possible that the Senior Noteholders could incur a loss on their
investment in the event Ford Credit and Ford Credit Leasing did not have
sufficient assets available (including distributions on the EBCs) to satisfy
such state or local tax liabilities.
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY, DO NOT PURPORT TO ADDRESS THE APPLICABILITY OF STATE
TAX LAWS OTHER THAN THE TREATMENT OF THE TRUSTS AND THE
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SENIOR NOTE OWNERS UNDER THE LAWS OF MICHIGAN AND DELAWARE AND MAY NOT BE
APPLICABLE DEPENDING UPON A SENIOR NOTE OWNER'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 SENIOR NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
LEGAL INVESTMENT
The Class A-1 Senior 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
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and/or Section 4975 of the Code, prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and Keogh Plans (each a "Benefit Plan") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons. Title
I of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA
make investments that are prudent, diversified (except if prudent not to do so)
and in accordance with governing plan documents.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Issuer would be treated as plan assets of a Benefit Plan for purposes of ERISA
and the Code only if the Benefit Plan acquires an "Equity Interest" in the
Issuer and none of the exceptions contained in the Plan Assets Regulation
(discussed below) 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 Transferor believes that the Senior Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. However, without regard to whether the Senior Notes are treated as
an Equity Interest for such purposes, the acquisition or holding of Senior Notes
by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Issuer, the Lease Trustee, the RCL Trustee, the
Indenture Trustee, the FCTT Trustee, any Lease Trust Certificateholder, or any
of their respective affiliates, is or becomes a party in interest or a
disqualified person with respect to such Benefit 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 Senior Note. Included among these exemptions are: 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 Benefit
Plan by an "in house" asset manager; and PTCE 84-14, which exempts certain
transactions effected on behalf of a Benefit Plan by a "qualified professional
asset manager."
Employee benefit plans that are 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 ERISA requirements.
A plan fiduciary considering the purchase of Senior Notes should consult
its tax and/or legal advisors regarding whether the assets of the Issuer would
be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential consequences.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Transferor has agreed to cause the Issuer to
sell to the underwriters named below (the "Underwriters") and each of the
Underwriters has severally agreed to purchase the initial principal balance of
Senior Notes as set forth opposite its name:
<TABLE>
<CAPTION>
INITIAL PRINCIPAL BALANCE INITIAL PRINCIPAL BALANCE
UNDERWRITERS OF CLASS A-1 SENIOR NOTES OF CLASS A-2 SENIOR NOTES
- -------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
J.P. Morgan Securities Inc........................ $ 30,000,000 $ 132,843,000
CS First Boston Corporation....................... 30,000,000 132,000,000
Goldman, Sachs & Co. ............................. 30,000,000 132,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... 30,000,000 132,000,000
Salomon Brothers Inc.............................. 30,000,000 132,000,000
------------- -------------
Total........................................ $ 150,000,000 $ 660,843,000
============= =============
</TABLE>
The Transferor has been advised by the several Underwriters that the
several Underwriters propose initially to offer the Class A-1 Senior Notes and
Class A-2 Senior Notes to the public at the respective prices set forth on the
cover page of this Prospectus, and to certain dealers at such prices less an
initial concession not in excess of 0.140% per Class A-1 Senior Note and 0.175%
per Class A-2 Senior Note. The several Underwriters may allow and such dealers
may reallow a concession not in excess of 0.075% per Class A-1 Senior Note and
0.100% per Class A-2 Senior Note to certain other dealers. After the initial
public offering of the Senior Notes, the public offering prices and such
concessions may be changed.
The closing of the sale of the Senior Notes is conditioned on the closing
of the issuance of the Subordinated Notes and the issuance and sale of the Lease
Trust Certificates.
The Indenture Trustee may, from time to time, invest the funds in the
Collection Account, the Payahead Account, the Cash Collateral Account, the
Payment Account and the Certificate Distribution Account in Eligible Investments
acquired from the Underwriters.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and commercial banking
transactions with Ford and its affiliates.
The Transferor, Ford Credit and Ford Credit Leasing have agreed to jointly
and severally 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.
LEGAL MATTERS
Certain legal matters relating to the Senior Notes will be passed upon for
the Issuer and Ford Credit by J.D. Bringard, Esq., Vice President -- General
Counsel of Ford Credit, and for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Certain federal income tax and other
matters will be passed upon for the Issuer by Skadden, Arps, Slate, Meagher &
Flom LLP. Certain Michigan income tax and other matters will be passed upon for
the Issuer by Mr. Bringard.
Mr. Bringard is a full time employee of Ford Credit and owns and holds
options to purchase shares of Common Stock of Ford. Skadden, Arps, Slate,
Meagher & Flom LLP has from time to time represented Ford and Ford Credit in
connection with certain transactions.
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GLOSSARY OF TERMS
"Accepted Servicing Practices" is defined on page 57 in "Description of the
Administrative Agency Agreement -- Duties of the Administrative Agent."
"Accrual Period" means, (i) with respect to any Payment Date other than the
first Payment Date, the period from and including the first day of the third
preceding Collection Period up to and including the last day of the preceding
Collection Period, and (ii) with respect to the first Payment Date, the period
from and including the Series 1996-1 Cut-Off Date up to and including the last
day of the preceding Collection Period, in each case whether or not such day is
a business day.
"Additional Fee" is defined on page 37 in footnote 2 to the Composition of
the Series 1996-1 Assets in "The Leases and Leased Vehicles -- Characteristics
of the Series 1996-1 Assets."
"Additional Payment" is defined on page 5 in "Summary -- Overview" and on
page 29 in "Series 1996-1 Certificates -- Lease of the Series 1996-1
Certificates to the Transferor."
"Adjusted Balance Subject to Lease Charges" means, with respect to any
Leased Vehicle as of any date, the Balance Subject to Lease Charges minus the
sum of the principal portion of all Constant Yield Payments which have been
scheduled to have been received as of such date; provided that the Adjusted
Balance Subject to Lease Charges of a Leased Vehicle shall be zero as of the
date on which the related Lease terminates, whether on or after the Scheduled
Lease End Date or earlier, or if an Administrative Purchase Amount has been
received with respect to such Lease and Leased Vehicle.
"Administrative Agency Agreement" means the agreement dated as of January
31, 1994 among Comerica Bank, as trustee, Ford Credit, as Administrative Agent,
and Ford Credit and Ford Credit Leasing, as beneficiaries.
"Administrative Agent" is Ford Credit.
"Administrative Agent Event of Default" is defined on page 61 in
"Description of the Administrative Agency Agreement -- Administrative Agent
Events of Default."
"Administrative Agent Fee" means as of any Payment Date the fee payable to
the Administrative Agent equal to the sum, for each of the three Collection
Periods preceding such Payment Date, of the product of 1/12 of 1.00% and the
Pool Balance as of the beginning of each such Collection Period.
"Administrative Purchase Amount" is defined on page 47 in "Description of
the Senior Notes -- The Indenture Cash Flows."
"Advance Payment Plan" means, with respect to any lease originated under
the Red Carpet Lease Plan, a payment option of the related lessee pursuant to
which such lessee prepays all monthly payments in a single advance payment,
generally discounted to reflect the present value of such single advance payment
and the reduction in the risk of credit loss.
"Aggregate Net Monthly Payment Advances" is defined on page 48 in
"Description of the Senior Notes -- The Indenture Cash Flows."
"Aggregate Net Sale Proceeds Advances" is defined on page 48 in
"Description of the Senior Notes -- The Indenture Cash Flows."
"Asset Contribution Agreement" means the agreement dated as of November 26,
1996 among Ford Credit, as a contributor, Ford Credit Leasing, as a contributor
and the Transferor, as contributee.
"Available Funds" is defined on page 7 in "Summary -- Principal" and on
page 49 in "Description of the Senior Notes -- The Indenture Cash Flows."
"Available Sale Proceeds" is defined on page 7 in "Summary -- Principal"
and on page 48 in "Description of the Senior Notes -- The Indenture Cash Flows."
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"Balance Subject to Lease Charges" means the amount paid by FCTT to the
Dealer in connection with the acquisition of the Lease and Leased Vehicle, which
is the total acquisition cost used to calculate the Monthly Payment.
"Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C.
sec.sec.101-1330.
"Basic Documents" means the FCTT Agreement, the Administrative Agency
Agreement, the Series 1996-1 Supplement, the Program Operating Lease, the Asset
Contribution Agreement, the Transfer Agreement, the RCL Trust Agreement, the
Lease Trust Agreement, the Lease Trust Paying Agent Agreement, the Indenture,
and each instrument and certificate delivered in connection therewith.
"Benefit Plan" is defined on page 82 in "ERISA Considerations."
"Cash Collateral Account" means the Cash Collateral Account established
pursuant to the Program Operating Lease.
"Cash Collateral Account Investments" means (i) the Vista 100% U.S.
Treasury Securities Fund, (ii) if the Vista 100% U.S. Treasury Securities Fund
is not available, the Vista Treasury Plus Fund or (iii) if the Vista 100% U.S.
Treasury Securities Fund and the Vista Treasury Plus Fund both are not
available, the Fidelity U.S. Government Reserve Fund.
"Cash Collateral Additional Draw Amount" is defined on page 8 in "Summary
- -- Principal" and on page 51 in "Description of the Senior Notes -- Cash
Collateral Account Withdrawals and Deposits."
"Cash Collateral Amount" is defined on page 13 in "Summary -- Cash
Collateral Account" and on page 50 in "Description of the Senior Notes -- Cash
Collateral Account Withdrawals and Deposits."
"Cash Collateral Required Draw Amount" is defined on page 8 in "Summary --
Principal" and on page 50 in "Description of the Senior Notes -- Cash Collateral
Account Withdrawals and Deposits."
"Cede" means Cede & Co.
"Certificate Distribution Account" means the Certificate Distribution
Account established pursuant to the Lease Trust Agreement.
"Certificate Distribution Draw Amount" is defined on page 50 in
"Description of the Senior Notes -- The Indenture Cash Flows."
"Class" means a class of Senior Notes; as the case may be, the Class A-1
Senior Notes or the Class A-2 Senior Notes.
"Class A-1 Senior Notes" means the Class A-1 5.45125% Asset Backed Notes of
the Issuer.
"Class A-2 Senior Notes" means the Class A-2 5.80% Asset Backed Notes of
the Issuer.
"Closing Date" means November 26, 1996, or such other day as the
Underwriters and the Transferor shall determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means the Series 1996-1 Collection Account established
pursuant to the Series 1996-1 Supplement.
"Collection Period" means any calendar month.
"Collections" is defined on page 47 in "Description of the Senior Notes --
The Indenture Cash Flows."
"Commission" means the Securities and Exchange Commission.
"Constant Yield Payment" means the payment made by the Obligor which
provides a fixed internal rate of return equal to the Retail Operating Lease
Factor and amortizes the Balance Subject to Lease Charges of the related Leased
Vehicle to the Residual Value over the term of the Lease.
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"Contingent and Excess Liability Insurance" is defined on page 73 in
"Certain Legal Aspects of FCTT and the Series 1996-1 Certificates -- Insurance."
"Dealer" means a motor vehicle dealer who, in the ordinary course of
business, leases automobiles and light trucks to lessees pursuant to the Red
Carpet Lease Plan or such other plan as Ford Credit or its affiliates may
implement from time to time.
"Definitive Senior Notes" is defined on page 43 in "Description of the
Senior Notes -- General."
"Distribution Date" means the date on which distributions are made with
respect to the Series 1996-1 Certificates, which shall be the 15th day of each
month or, if such day is not a business day, the next succeeding business day.
"DTC" means The Depository Trust Company.
"EBC" means an Exchangeable Beneficial Certificate.
"Eligible Account" means a segregated trust account at a financial
institution having a long-term debt rating by each Rating Agency of at least
"Baa3" or the equivalent.
"Eligible Institution" means a depository institution organized under the
laws of the United States of America or any one of the states thereof or
incorporated under the laws of a foreign jurisdiction with a branch or agency
located in the United States of America or one of the States thereof and subject
to supervision and examination by federal or state banking authorities which at
all times has a short-term deposit rating of P-1 and a long-term deposit rating
of A2 by Moody's Investors Service, Inc. and a short-term deposit rating of A-1+
by Standard and Poor's Ratings Group and, in the case of any such institution
organized under the laws of the United States of America, whose deposits are
insured by the Federal Deposit Insurance Corporation or any successor thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Events of Default" means any of the events of default under the Indenture
as set forth on page 52 in "Description of the Senior Notes -- Indenture."
"Excess Deferred Gross" means, with respect to any Lease and Leased
Vehicle, the amount, if any, withheld from the total amount paid to the related
Dealer in connection with assignment of such Lease and Leased Vehicle. Excess
Deferred Gross is withheld if the acquisition cost of a Leased Vehicle exceeds
the MSRP of a Leased Vehicle, if the Residual Value of a Leased Vehicle as set
forth in the related Lease exceeds the maximum amount permitted for such Leased
Vehicle by the Administrative Agent, or the security deposit or reconditioning
reserve for such Lease is waived by the Dealer.
"Excess Wear and Tear and Excess Mileage" means, with respect to any Lease
and Leased Vehicle, amounts due from an Obligor upon termination of such Lease
on or after the Scheduled Lease End Date (i) as a result of excess wear and tear
with respect to the related Leased Vehicle and (ii) mileage charges incurred in
excess of the amount permitted pursuant to the related Lease.
"Exchangeable Beneficial Certificate" or "EBC" means a certificate of
beneficial interest in FCTT and the Non-Specified Assets.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCTT" means Ford Credit Titling Trust, formed pursuant to the FCTT
Agreement.
"FCTT Agreement" means the Amended and Restated Trust Agreement dated as of
January 31, 1994 among the FCTT Trustee, Ford Credit and Ford Credit Leasing.
"FCTT Assets" means (i) each Lease and related Leased Vehicle, (ii) all
collections of monies with respect to such Lease and related Leased Vehicle,
(iii) the related certificates of title, (iv) the rights of the lessor to any
security deposit or reconditioning reserve, (v) any recourse to Dealers with
respect to such Leases and Leased Vehicles and (vi) all proceeds of the
foregoing.
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"FCTT Trustee" means Comerica Bank, in its capacity as trustee of FCTT, and
any co-trustee or separate trustee appointed for the purpose of meeting
applicable state requirements.
"Ford" means Ford Motor Company.
"Ford Credit" means Ford Motor Credit Company.
"Ford Credit Leasing" means Ford Credit Leasing Company, Inc.
"Foreign Person" is defined on page 80 in "Federal Income Tax Consequences
- -- Tax Consequences to Foreign Investors."
"GAP" is defined on page 74 in "Certain Legal Aspects of FCTT and the
Series 1996-1 Certificates -- Insurance."
"General Eligibility Criteria" is defined on page 66 in "Additional
Document Provisions -- Representations, Warranties and Covenants."
"Indenture" means the Indenture dated as of November 26, 1996 between the
Issuer and the Indenture Trustee.
"Indenture Trustee" is The Chase Manhattan Bank.
"Indirect Participants" is defined on page 43 in "Description of the Senior
Notes -- Book-Entry Registration."
"Initial Cash Collateral Deposit" is defined on page 13 in "Summary -- Cash
Collateral Account" and on page 50 in "Description of the Senior Notes -- Cash
Collateral Account Withdrawals and Deposits."
"Initial Pool Balance" is defined on page 10 in "Summary -- The Series
1996-1 Assets."
"Insolvency Laws" is defined on page 71 in "Certain Legal Aspects of FCTT
and the Series 1996-1 Certificates -- Insolvency Related Matters."
"IRS" means the Internal Revenue Service.
"Issuer" is Ford Credit Auto Lease Trust 1996-1.
"Lease" means any retail lease contract for an automobile or a light truck
which has been entered into between an Obligor and a Dealer and assigned by the
Dealer to FCTT.
"Leased Vehicle" means any automobile or light truck which is subject to a
Lease.
"Lease Files" means the certificate of title (or application therefor), the
original of the Lease and related documentation with respect to a Lease and
Leased Vehicle.
"Lease Term" is defined on page 31 in "The Leases and Leased Vehicles --
Origination Procedures."
"Lease Trust Agreement" means the Ford Credit Auto Lease Trust 1996-1 Trust
Agreement dated as of November 26, 1996 between the RCL Trustee and the Lease
Trustee.
"Lease Trust Certificateholders" means the holders of any Lease Trust
Certificates.
"Lease Trust Certificates" means the 6.10% Asset Backed Lease Trust
Certificates of the Issuer.
"Lease Trustee" is PNC Bank, Delaware.
"Lease Trust Estate" is defined on page 12 in "Summary -- Property of the
Issuer; Pledge to the Indenture Trustee" and on page 24 in "Property of the
Issuer."
"Lease Trust Paying Agent" is The Chase Manhattan Bank.
"Lease Trust Paying Agent Agreement" means the agreement dated as of
November 26, 1996 between the Issuer and the Lease Trust Paying Agent.
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"Lemon Law" is defined on page 76 in "Certain Legal Aspects of the Leases
and Leased Vehicles -- Consumer Protection Laws."
"Liquidated Lease" means a Lease which is in default and with respect to
which the Administrative Agent has repossessed or attempted to repossess the
related Leased Vehicle or the related Obligor is the subject of a bankruptcy
proceeding, or a Lease subject to a Lemon Law with respect to which amounts have
either been refunded to the related Obligor or such Obligor is no longer
obligated to make Total Monthly Payments.
"Liquidation Proceeds" is defined on page 48 in "Description of the Senior
Notes -- The Indenture Cash Flows."
"Michigan Tax Counsel" is J.D. Bringard, Esq., Vice President -- General
Counsel of Ford Credit.
"Monthly Payment" is defined on page 47 in "Description of the Senior Notes
- -- The Indenture Cash Flows."
"Monthly Payment Advance" is defined on page 60 in "Description of the
Administrative Agency Agreement -- Monthly Payment Advances."
"Monthly Remittance Condition" means that (i) Ford Credit is the
Administrative Agent, (ii) the rating of Ford Credit's short-term unsecured debt
is at least P-1 by Moody's Investors Service, Inc. and A-1 by Standard & Poor's
Ratings Group and (iii) no Administrative Agent Event of Default with respect to
Series 1996-1 shall have occurred under the Administrative Agency Agreement.
"Monthly Scheduled Termination Sale Proceeds" is defined on page 48 in
"Description of the Senior Notes -- The Indenture Cash Flows."
"MSRP" means the Manufacturer's Suggested Retail Price.
"Net Credit Losses" is defined on page 35 in footnote 4 to the Red Carpet
Lease Portfolio table in "The Leases and Leased Vehicles -- Delinquency,
Repossession, Residual Value and Loss Data."
"Non-Specified Assets" is defined on page 26 in "FCTT -- Exchangeable
Beneficial Certificates and Specified Beneficial Certificates."
"Note Pool Factor" is defined on page 42 in "Pool Factors and Trading
Information."
"Obligor" means the lessee under a Lease.
"OID" means Original Issue Discount.
"Opinion of Counsel" means a written opinion of counsel which may be
counsel to Ford Credit.
"Participants" is defined on page 43 in "Description of the Senior Notes --
Book-Entry Registration."
"Payahead Account" means the Series 1996-1 Payahead Account established
pursuant to the Series 1996-1 Supplement.
"Payahead Credits" is defined on page 47 in "Description of the Senior
Notes -- The Indenture Cash Flows."
"Payaheads" are amounts received in a Collection Period from Obligors in
excess of the amount required to be currently applied against such Obligor's
current and past due Monthly Payments and which are not proceeds from the
disposition of the related Leased Vehicle.
"Payment Account" means the Series 1996-1 Payments Account established
pursuant to the Series 1996-1 Supplement.
"Payment Date" means February 15, May 15, August 15 and November 15 of each
year or, if any such day is not a business day, the next succeeding business
day, commencing February 17, 1997.
"Payment Extension" is defined on page 57 in "Description of the
Administrative Agency Agreement -- Collection of Total Monthly Payments;
Extension of Leases."
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"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Investments" means that amounts to be invested up to the greater
of (i) $25,000,000 or (ii) 25% of the amounts to be invested will be invested in
time deposits of one or more of the following banks, as required, in the order
of priority indicated so long as at the time of the investment (or commitment to
invest) therein, the commercial paper or other short-term unsecured debt
obligations of such bank are rated at least P-1 by Moody's Investors Service,
Inc. and A-1 by Standard and Poor's Ratings Group: (1) The Bank of
Tokyo-Mitsubishi, Ltd., (2) Societe Generale, (3) The Hong Kong & Shanghai Bank,
Ltd., (4) The Canadian Imperial Bank of Commerce, (5) The Sumitomo Bank,
Limited, (6) The Industrial Bank of Japan, Ltd., (7) The Sanwa Bank, Limited,
(8) Bank of Montreal, (9) National Westminster Bank plc and (10) Kredietbank.
For purposes of this definition of "Permitted Investments," the amounts to be
invested as of any date of determination will include amounts invested or to be
invested as of such date in the Collection Account, the Payahead Account, the
Payment Account and the Certificate Distribution Account.
"Plan Assets Regulation" is defined on page 82 in "ERISA Considerations."
"Pool Balance" means, as of any date of determination, the aggregate
Adjusted Balance Subject to Lease Charges of the Series 1996-1 Leased Vehicles
as of such date.
"Program Operating Lease" means the agreement dated as of November 26, 1996
between the Issuer as lessor and the Transferor as lessee.
"Program Operating Lease Payments" is defined on page 5 in "Summary --
Overview."
"Proposed Regulations" is defined on page 80 in "Federal Income Tax
Consequences -- Tax Consequences to Foreign Investors."
"Prospectus" means this prospectus relating to the Senior Notes.
"PTCE" means Prohibited Transaction Class Exemption.
"Rating Agency" means a nationally recognized rating agency rating the
Senior Notes and/or the Lease Trust Certificates at the request of the Issuer.
"RCL Trust Agreement" means the Amended and Restated Trust Agreement dated
as of November 19, 1996 by and among Ford Credit, Ford Credit Leasing and the
RCL Trustee.
"RCL Trustee" is First Union Bank of Delaware.
"Record Date" means, with respect to any Payment Date or Redemption Date,
the close of business on the fourteenth day of the calendar month in which such
Payment Date or Redemption Date occurs (or, if Definitive Senior Notes are
issued, the last day of the preceding calendar month).
"Recoveries" is defined on page 48 in "Description of the Senior Notes --
The Indenture Cash Flows."
"Red Carpet Lease Plan" is defined on page 31 in "The Leases and Leased
Vehicles -- Origination Procedures."
"Red Carpet Lease Portfolio" is defined on page 32 in "The Leases and
Leased Vehicles -- Delinquency, Repossession, Residual Value and Loss Data."
"Redemption Date" means the Payment Date on which the Series 1996-1
Certificates are purchased by the Administrative Agent pursuant to the Series
1996-1 Supplement, which Payment Date shall be the date on which the Senior
Notes are redeemed pursuant to the Indenture.
"Redemption Price" means the outstanding principal amount of the Senior
Notes plus accrued and unpaid interest thereon to but not including the
Redemption Date.
"Required Cash Collateral Amount" is defined on page 14 in "Summary -- Cash
Collateral Account" and on page 51 in "Description of the Senior Notes -- Cash
Collateral Account Withdrawals and Deposits."
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"Required Interest Payment" with respect to any Payment Date means the
Administrative Agent Fee plus the amount of interest accrued on the outstanding
Senior Notes, Subordinated Notes and Lease Trust Certificates since the
preceding Payment Date (or, in the case of the first Payment Date, since the
Closing Date) plus any overdue interest and interest on such overdue interest at
the interest rate of the applicable security.
"Residual Loss" is defined on page 36 in footnote 5 to the Red Carpet Lease
Portfolio table in "The Leases and Leased Vehicles -- Delinquency, Repossession,
Residual Value and Loss Data."
"Residual Value" means the value of the Leased Vehicle at its Scheduled
Lease End Date as calculated by the Administrative Agent at the inception of the
related Lease and set forth in the related Lease.
"Retail Operating Lease Factor" means the per annum yield of a Lease
determined by the Administrative Agent.
"Sale Proceeds" means all amounts realized from the sale of Leased
Vehicles.
"Sale Proceeds Advance" is defined on page 59 in "Description of the
Administrative Agency Agreement -- Advances of Sale Proceeds."
"SBC" means a Specified Beneficial Certificate.
"Scheduled Lease End Date" means with respect to any Lease, the date set
forth in such Lease as the termination date for such Lease.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Noteholder" means, as of any date, the individual or entity in
whose name a Senior Note is registered on the Senior Note Register.
"Senior Note Owner" is defined on page 43 in "Description of the Senior
Notes -- General."
"Senior Note Register" means the Senior Note register maintained pursuant
to the Indenture.
"Senior Note Registrar" means, initially, the Indenture Trustee.
"Senior Notes" means the Class A-1 Senior Notes and the Class A-2 Senior
Notes.
"Series" means any series of Specified Beneficial Certificates.
"Series 1995-1" means the Series 1995-1 Certificates and the related Series
1995-1 Assets.
"Series 1995-1 Assets" are the Series Specified Assets with respect to
Series 1995-1.
"Series 1995-1 Certificates" means the series of Specified Beneficial
Certificates designated as Series 1995-1 representing an interest in the Series
1995-1 Assets.
"Series 1996-1" means the Series 1996-1 Certificates and the related Series
1996-1 Assets.
"Series 1996-1 Assets" are the Series Specified Assets with respect to
Series 1996-1, including the Series 1996-1 Leases and Series 1996-1 Leased
Vehicles.
"Series 1996-1 Certificates" means the series of Specified Beneficial
Certificates designated as Series 1996-1 representing an interest in the Series
1996-1 Assets.
"Series 1996-1 Credit Loss" means with respect to any Collection Period and
Series 1996-1 Assets, (i) the aggregate Adjusted Balance Subject to Lease
Charges of all Series 1996-1 Leases and Series 1996-1 Leased Vehicles which
become Liquidated Leases during such Collection Period, plus the aggregate
amount of Uncollected Excess Wear and Tear and Excess Mileage relating to Series
1996-1 Leased Vehicles which were sold in such Collection Period with respect to
which Sale Proceeds of the related Series 1996-1 Leased Vehicle were received
plus any uncollected Monthly Payments minus (ii) Liquidation Proceeds and
Recoveries received during such Collection Period.
"Series 1996-1 Cut-Off Date" means October 31, 1996.
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"Series 1996-1 Leased Vehicles" means the Leased Vehicles designated in the
Series Specification Notice relating to Series 1996-1 and the Series 1996-1
Supplement.
"Series 1996-1 Leases" means the Leases designated in the Series
Specification Notice relating to Series 1996-1 and in the Series 1996-1
Supplement.
"Series 1996-1 Residual Loss" means the aggregate Residual Values of all
Series 1996-1 Leased Vehicles the related Series 1996-1 Leases of which
terminated on or after their respective Scheduled Lease End Dates in a
Collection Period minus Sale Proceeds of such Series 1996-1 Leased Vehicles (but
in no event for any Series 1996-1 Leased Vehicle, an amount greater than the
Transferor Purchase Option Price) minus amounts assessed against Obligors with
respect to Excess Wear and Tear and Excess Mileage with respect to such Series
1996-1 Leased Vehicles.
"Series 1996-1 Supplement" means the Series 1996-1 Supplement to the
Administrative Agency Agreement.
"Series Issue Date" is defined on page 26 in "FCTT -- Exchangeable
Beneficial Certificates and Specified Beneficial Certificates."
"Series Specification Notice" means a notice delivered by the
Administrative Agent, acting at the unanimous direction of the holders of the
EBCs, to the FCTT Trustee directing such FCTT Trustee to (i) designate certain
FCTT Assets as Series Specified Assets, (ii) designate a date on which SBCs
representing the interest in such Series Specified Assets are to be issued to
the holders of the EBCs and (iii) set the date on which payments related to such
Series Specified Assets shall be allocated to the related SBCs. The Series
Specification Notice relating to Series 1996-1 shall contain such additional
information as is reasonably necessary for the FCTT Trustee to identify
separately the Series 1996-1 Assets and to allocate proceeds from such Series
1996-1 Assets.
"Series Specified Assets" means the Leases and Leased Vehicles designated
in the Series Specification Notice and the Supplement to the Administrative
Agency Agreement relating to such Series, including the related certificates of
title and all other FCTT Assets relating to such Leases and Leased Vehicles.
"Special Tax Counsel" is Skadden, Arps, Slate, Meagher & Flom LLP.
"Specific Eligibility Criteria" is defined on page 36 in "The Leases and
Leased Vehicles -- Eligibility Criteria."
"Specified Beneficial Certificate" or "SBC" means a certificate
representing a beneficial interest in FCTT and certain designated Series
Specified Assets.
"Stated Maturity" means with respect to the Class A-1 Senior Notes, the
November 15, 1997 Payment Date and with respect to the Class A-2 Senior Notes,
the May 15, 1999 Payment Date.
"Subordinated Noteholder" means, as of any date, the individual or entity
in whose name a Subordinated Note is registered pursuant to the Lease Trust
Agreement.
"Subordinated Notes" means the 6.00% Asset Backed Subordinated Notes of the
Issuer.
"Supplemental Administrative Agent Fee" means, with respect to any
Collection Period, all late fees, prepayment charges and certain other
administrative fees and expenses or similar charges allowed by applicable law
with respect to Leases and Leased Vehicles, and interest on amounts invested in
the Payment Account.
"Term Extension" is defined on page 57 in "Description of the
Administrative Agency Agreement -- Collection of Total Monthly Payments;
Extension of Leases."
"Total Monthly Payment" is defined on page 10 in "Summary -- The Series
1996-1 Assets."
"Transfer Agreement" means the Transfer Agreement dated as of November 26,
1996 between the Transferor, as transferor, and the Issuer, as transferee.
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"Transferor" is RCL Trust 1996-1.
"Transferor Leased Vehicle Purchase Option" is defined on page 12 in
"Summary -- Transferor Leased Vehicle Purchase Option."
"Transferor Purchase Option Net Proceeds" is defined on page 12 in "Summary
- -- Transferor Leased Vehicle Purchase Option" and on page 30 in "Series 1996-1
Certificates -- Lease of the Series 1996-1 Certificates to the Transferor."
"Transferor Purchase Option Price" is defined on page 12 in "Summary --
Transferor Leased Vehicle Purchase Option" and on page 30 in "Series 1996-1
Certificates -- Lease of the Series 1996-1 Certificates to the Transferor."
"UCC" means the Uniform Commercial Code.
"Uncollected Excess Wear and Tear and Excess Mileage" means, with respect
to any Payment Date and the related Accrual Period, all amounts which are due
but not collected from an Obligor with respect to a Series 1996-1 Lease which
terminated on its Scheduled Lease End Date as a result of (i) excess wear and
tear with respect to such Series 1996-1 Leased Vehicle and (ii) mileage charges
incurred in excess of the amount permitted pursuant to the related Series 1996-1
Lease.
"Underwriters" are J.P. Morgan Securities Inc., CS First Boston
Corporation, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc.
"Underwriting Agreement" is defined on page 83 in "Underwriting."
"Use and Lease Tax Amounts" is defined on page 31 in "The Leases and Leased
Vehicles -- Origination Procedures."
"VCR" is defined on page 32 in "The Leases and Leased Vehicles -- Servicing
Procedures."
"Vehicle Insurance and Maintenance Amounts" means, with respect to any
Lease, any payment due in connection with a Monthly Payment for remittance to
the related Dealer in connection with servicing of the related Leased Vehicle or
the provision of vehicle insurance.
"Voluntary Early Termination" is defined on page 31 in "The Leases and
Leased Vehicles -- Servicing Procedures."
"Voluntary Early Termination Proceeds" is defined on page 48 in
"Description of the Senior Notes -- The Indenture Cash Flows."
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