As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
Form S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------------
NationsFinancial Auto Owner Trust 1996-1
(Issuer of the Securities)
NationsFinancial Funding Corporation
(Seller)
-----------------------------
Delaware
(State or other jurisdiction of incorporation or organization)
-----------------------------
Applied for
(I.R.S. Employer Identification Number)
-----------------------------
2 Concourse Parkway, NE
Suite 745
Atlanta, Georgia 30328
(770) 394-1900
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive
office)
John B. Stockton, Esq.
Senior Vice President
NationsCredit Commercial Corporation
One Canterbury Green
Stamford, Connecticut 06901
(203) 352-4134
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Reed D. Auerbach, Esq. Robert T. Long
Stroock & Stroock & Lavan NationsBank Corporation
Seven Hanover Square 100 North Tryon Street
New York, New York 10004-2696 Charlotte, North Carolina 28255
-----------------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. X
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
Proposed
Amount Maximum Proposed Maximum Amount of
Title of Securities to be Aggregate Price Aggregate Registration
Being Registered Registered(1) per Unit(2) Offering Price Fee
- ------------------------------------------------------------------------------------------------------------
Asset Backed Securities $1,000,000 100% $1,000,000 $344.83
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</TABLE>
(1) This Registration Statement also relates to market making transactions
that will be made by NationsBanc Capital Markets, Inc., an affiliate of the
Registrant.
(2) Estimated solely for purposes of calculating the registration fee.
-----------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement contains (i) a Prospectus relating to a public
offering by NationsFinancial Auto Owner Trust 1996-1 (the "Trust") of
$__________ aggregate principal amount of Class A-1 ___% Money Market Asset
Backed Notes, $________ aggregate principal amount of Class A-2 Floating Rate
Asset Backed Notes, $_______ aggregate principal amount of Class A-3 ___% Asset
Backed Notes and $__________ aggregate principal amount of ___% Asset Backed
Certificates (collectively, the "Securities"); and (ii) certain pages of a
second Prospectus to be used in connection with offers and sales relating to
market-making transactions in the Securities by an affiliate of the Registrant.
The Prospectus relating to the Securities follows immediately after this
Explanatory Note. Following such Prospectus are alternate pages of the
market-making Prospectus relating to the Securities. All other pages of the
public offering Prospectus for the Securities are also to be used for the
market-making Prospectus.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1996
$------------
NATIONSFINANCIAL AUTO OWNER TRUST 1996-1
$_________ Class A-1 % Money Market Asset Backed Notes
$__________ Class A-2 Floating Rate Asset Backed Notes
$___________ Class A-3 % Asset Backed Notes
$___________ % Asset Backed Certificates
NationsFinancial Funding Corporation
Seller
SunStar Acceptance Corporation
Servicer
The NationsFinancial Auto Owner Trust 1996-1 (the "Trust") will be formed
pursuant to a Trust Agreement to be entered into between NationsFinancial
Funding Corporation, as seller (the "Seller"), and ____________, as Owner
Trustee, and will issue $_______________ aggregate principal amount of Class A-1
% Money Market Asset Backed Notes (the "Class A-1 Notes"), $________________
aggregate principal amount of Class A-2 Floating Rate Asset Backed Notes (the
"Class A-2 Notes") and $______________ aggregate principal amount of Class A-3 %
Asset Backed Notes (the "Class A-3 Notes" and, together with the Class A-1 Notes
and the Class A-2 Notes, the "Notes"). The Notes will be issued pursuant to an
Indenture, to be dated as of October 31, 1996 (the "Indenture"), between the
Trust and __________________, as Indenture Trustee and as Indenture Collateral
Agent (the "Indenture Trustee" and the "Indenture Collateral Agent"). The Trust
also will issue $______________ aggregate principal amount of % Asset Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities").
The assets of the Trust will include a pool of non-prime motor vehicle
retail installment sales contracts (the "Receivables") secured by new and used
automobiles, light trucks and vans financed thereby (the "Financed Vehicles"),
certain amounts received under each Receivable after October 31, 1996 (the
"Cutoff Date"), security interests in the Financed Vehicles, the Certificate
Policy and certain other property, as more fully described herein. (Cover
continued on next page)
For a discussion of certain factors which should be considered by
prospective purchasers of the Securities, see "Risk Factors" at page __ herein.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY, THE SELLER, THE SERVICER OR
NATIONSBANK CORPORATION OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public (1) Discount Trust(1)(2)
Per Class A-1 Note................ % % %
Per Class A-1 Note................ % % %
Per Class A-2 Note................ % % %
Per Class A-3 Note................ % % %
Per Certificate................... % % %
Total(3).......................... $ $ $
(1) Plus interest at the applicable Interest Rates from ______________,
1996.
(2) Before deduction of expenses payable by the Seller, estimated to
be $______________.
(3) Excludes certain Certificates not offered hereby. See "Summary--The
Certificates."
The Notes and the Certificates are offered by the Underwriter when, as and
if issued by the Trust, delivered to and accepted by the Underwriter, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Securities in book-entry form will be made through the
facilities of The Depository Trust Company ("DTC") on the Same Day Funds
Settlement System on or about November __, 1996.
NationsBanc Capital Markets, Inc.
The date of this Prospectus is ________ , 1996.
<PAGE>
(Continued from preceding page)
The Notes will be secured by the assets of the Trust pursuant to the
Indenture. Interest on the Class A-1 and Class A-3 Notes will accrue at the per
annum interest rates specified above. The per annum rate of interest on the
Class A-2 Notes for each monthly interest period will equal one-month LIBOR (as
defined herein) plus 0. %, subject to a maximum rate equal to ___% per annum.
Interest on the Notes will generally be payable on the twentieth day of each
month (each, a "Distribution Date"), commencing in ________ 1996. Principal on
the Notes will be payable on each Distribution Date to the extent described
herein, except that no principal will be paid on a Class of Notes until each
Class of Notes having a lower numerical Class designation has been paid in full.
The Certificates represent fractional undivided interests in the Trust.
Interest, to the extent of the Certificate Rate of % per annum, will be
distributed to the Certificateholders on each Distribution Date. Distributions
of interest on the Certificates will be subordinated in priority of payment to
interest on and principal of the Notes. No principal will be paid on the
Certificates until all of the Notes have been paid in full. The Final Scheduled
Distribution Date for the Class A-1 Notes will be ______________, 199_, for the
Class A-2 Notes will be the _____________ 200_ Distribution Date, and for the
Class A-3 Notes will be the ______________ 200_ Distribution Date. The Final
Scheduled Distribution Date for the Certificates will be the ________________
200_ Distribution Date. However, payment in full of a Class of Notes or the
Certificates may occur earlier than such dates as described herein. In addition,
the Class A-3 Notes will be subject to redemption in whole, but not in part, and
the Certificates will be subject to prepayment in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the aggregate
principal balance of the Receivables shall have declined to 5% or less of the
Original Pool Balance.
Full and timely payment of the Guaranteed Note Distributions in respect of
the Notes and the Guaranteed Certificate Distributions in respect of the
Certificates (each as defined herein) on each Distribution Date is
unconditionally and irrevocably guaranteed pursuant to financial guaranty
insurance policies (the "Policies") to be issued by
[INSURER LOGO]
There currently is no secondary market for the Notes or the Certificates.
The Underwriter expects to make a market in the Securities but has no obligation
to do so. There is no assurance that any such market will develop or continue or
that it will provide Securityholders with sufficient liquidity of investment.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Seller, as sponsor of the Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Securities offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement which is available for inspection without charge at the
office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, the Registration Statement may be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
unaudited monthly and annual reports containing information concerning the
Receivables will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC. See
"Description of the Purchase Agreement and the Trust Documents--Statements to
Securityholders" and "Description of the Securities-- Book-Entry Registration."
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. None of the Seller, the Servicer
or the Insurer intends to send any of its financial reports to Securityholders.
The Servicer, on behalf of the Trust, will file with the Securities and Exchange
Commission ("the Commission") periodic reports concerning the Trust to the
extent required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of the Trust with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Securities shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the respective dates of filing of
such documents. Any statement contained herein or in a document all or any
portion of which is deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Servicer will provide without charge to each person to whom this
Prospectus is delivered, on the written or verbal request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits). Requests for such copies should be directed to Donald Combs,
President, and Chief Operating Officer, SunStar Acceptance Corporation, 2
Concourse Parkway, NE, Suite 745, Atlanta, Georgia 30328 (telephone (770)
394-1900).
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used herein and not otherwise defined herein shall have the respective meanings
ascribed to such terms elsewhere in this Prospectus.
Issuer............. NationsFinancial Auto Owner Trust 1996-1 (the "Trust" or the
"Issuer"), a Delaware business trust to be formed pursuant
to a Trust Agreement, dated as of October 31, 1996 (the
"Trust Agreement"), between the Seller and the Owner
Trustee.
Seller............. NationsFinancial Funding Corporation (the "Seller"), a
Delaware corporation and a wholly-owned subsidiary of
NationsBank Corporation ("NationsBank"). See "The Seller."
Servicer........... SunStar Acceptance Corporation (in its individual capacity,
"SunStar" and, as servicer, the "Servicer"), a Delaware
corporation and a wholly-owned subsidiary of NationsBank.
See "SunStar Acceptance Corporation".
Insurer............ _____________________ (the "Insurer"), a ________ financial
guaranty insurance company. See "The Insurer."
Indenture Trustee.. _____________________ (the "Indenture Trustee").
See "The Notes -- The Indenture Trustee."
Owner Trustee...... _____________________ (the "Owner Trustee").
See "The Trust -- The Owner Trustee."
Cutoff Date........ October 31, 1996.
Closing Date....... November __, 1996.
The Notes.......... The Trust will issue Class A-1 % Money Market Asset
Backed Notes (the "Class A-1 Notes") in the aggregate
original principal amount of $_____________, Class A-2
Floating Rate Asset Backed Notes (the "Class A-2 Notes") in
the aggregate original principal amount of $____________,
and Class A-3 % Asset Backed Notes (the "Class A-3 Notes")
in the aggregate original principal amount of $___________.
The Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes (collectively, the "Notes") will be issued pursuant to
an Indenture, dated as of October 31, 1996, between the
Issuer, the Indenture Trustee and ________________, as
Indenture Collateral Agent (the "Indenture Collateral
Agent"). The Notes will be offered for purchase in
denominations of $1,000 and integral multiples thereof in
book-entry form only. Persons acquiring beneficial interests
in the Notes will hold their interests through DTC. See
"Description of the Securities -- Book-Entry Registration."
The Notes will be secured by the assets of the Trust (other
than the Certificate Distribution Account and the
Certificate Policy) pursuant to the Indenture.
The Certificates. . The Trust will issue % Asset Backed Certificates (the
"Certificates") with an aggregate initial Certificate
Balance (as defined herein) of $______________. The
Certificates will represent fractional undivided interests
in the Trust and will be issued pursuant to the Trust
Agreement. The Certificates will be offered for purchase in
denominations of $1,000 and integral multiples thereof in
book-entry form only (other than the Certificates sold to
the Seller, as described in "The Trust - - General"). See
"Description of the Securities -- Book-Entry Registration."
Trust Property... Each Note will represent an obligation of, and
each Certificate will represent a fractional undivided
interest in, the Trust. The Trust's assets (the "Trust
Property") will include, among other things, certain non-
prime motor vehicle retail installment sales contracts (the
"Receivables"), secured by new and used automobiles, light
trucks and vans financed thereby (the "Financed Vehicles"),
certain monies received thereunder after the Cutoff Date
and, with respect to Receivables which are Precomputed
Receivables, monies received thereunder on or prior to the
Cutoff Date that are due after the Cutoff Date, an
assignment of the security interests in the Financed
Vehicles securing the Receivables, the related Receivables
Files, all rights to proceeds from claims on certain
physical damage, credit life and disability insurance
policies covering the Financed Vehicles or the Obligors, as
the case may be, all rights to liquidation proceeds with
respect to the Receivables, certain proceeds from the
exercise of rights against Dealers under agreements between
SunStar or an affiliate and such Dealers, certain bank
accounts, all proceeds of the foregoing, the Certificate
Policy, and certain rights under the Trust Documents. The
Receivables will be purchased by the Seller from SunStar
pursuant to a purchase agreement (the "Purchase Agreement")
between the Seller and SunStar on or prior to the date of
issuance of the Securities. The Trust Property also will
include an assignment of the Seller's rights against SunStar
under the Purchase Agreement upon the occurrence of certain
breaches of representations and warranties.
Receivables...... The Receivables consist of non-prime motor vehicle retail
installment sales contracts originated by Dealers and then
acquired by SunStar or an affiliate. Non-prime motor vehicle
retail installment sales contracts are contracts with
obligors or borrowers with less than perfect credit due to
various factors, including, among other things, the manner
in which such individuals have handled previous credit,
limited prior credit history, prior declarations of personal
bankruptcy and/or limited financial resources. See "SunStar
Acceptance Corporation -- General."
The Receivables have, as of the Cutoff Date, a weighted
average annual percentage rate ("APR") of approximately
_____%, a weighted average original maturity of _______
months and a weighted average remaining maturity of _______
months. The Receivables have an aggregate principal balance
of $_______________ as of the Cutoff Date. See "The
Receivables." Each of the Receivables also will have a
remaining term of not more than __ months and not less than
__ months as of the Cutoff Date.
Terms of the Notes..The principal terms of the Notes will be as described below:
A.Distribution
Dates.............Payments of interest and principal on the Notes will
be made on the twentieth day of each month or, if the
twentieth day is not a Business Day, on the next following
Business Day (each, a "Distribution Date") commencing
___________, 1996. Payments will be made to holders of
record of the Notes (the "Noteholders") as of the Business
Day immediately preceding such Distribution Date (a "Record
Date"). A "Business Day" is a day other than a Saturday,
Sunday or other day on which commercial banks located in the
states of Texas, Delaware or New York are
authorized or obligated to be closed.
B.Interest Rates....The Class A-1 Notes and the Class A-3 Notes will bear
interest at the respective fixed per annum rates set forth
on the cover page hereof. The Class A-2 Notes will bear
interest at a floating rate equal to the London interbank
offered rates for one-month U.S. dollar deposits ("LIBOR")
plus 0. %, subject to a maximum rate equal to __% per annum.
Each such interest rate for a Class of Notes is referred to
as the "Interest Rate."
C. Interest.........Interest on the principal amount of the Notes of each Class
outstanding immediately prior to a Distribution Date will
accrue at the applicable Interest Rate from and including
the most recent Distribution Date on which interest has been
paid (or, in the case of the first Distribution Date, from
and including the Closing Date) to, but excluding, the
following Distribution Date (each, an "Interest Period").
Interest on the Notes for any Distribution Date due but not
paid on such Distribution Date will be due on the next
Distribution Date together with, to the extent permitted by
law, interest on such amount at the applicable Interest
Rate. The amount of interest distributable on the Notes on
each Distribution Date will equal interest accrued during
the related Interest Period. Interest on the Class A-1 Notes
and the Class A-2 Notes will be calculated on the basis of a
360-day year and the actual number of days elapsed in the
applicable Interest Period. Interest on the Class A-3 Notes
will be calculated on the basis of a 360-day year consisting
of twelve 30-day months. See "Description of the Securities
-- Payments of Interest" herein.
D. Principal...... Principal of the Notes will be payable on each Distribution
Date in an amount equal to the Noteholders' Principal
Distributable Amount for the calendar month (the "Monthly
Period") preceding such Distribution Date. The Noteholders'
Principal Distributable Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal Distributable
Amount and (y) any unpaid portion of the amount described in
clause(x) with respect to a prior Distribution Date. The
"Principal Distributable Amount" with respect to any
Distribution Date will be an amount equal to the sum of the
following amounts with respect to the related Monthly
Period, computed, with respect to Simple Interest
Receivables, in accordance with the simple interest method,
and, with respect to Precomputed Receivables, in accordance
with the actuarial method: (i) that portion of all
collections on Receivables allocable to principal, including
full and, with respect to Simple Interest Receivables,
partial principal prepayments, received during such Monthly
Period with respect to such Monthly Period, (ii) the
principal balance of each Receivable that was repurchased by
the Seller or the Servicer as of the last day of such
Monthly Period, (iii) at the option of the Insurer, the
outstanding principal balance of those Receivables that were
required to be repurchased by the Seller and/or SunStar
during such Monthly Period but were not so repurchased, (iv)
the principal balance of each Receivable that became a
Liquidated Receivable during such Monthly Period and (v) the
aggregate amount of Cram Down Losses during such Monthly
Period. See "Description of the Purchase Agreement and the
Trust Documents -- Distributions" herein.
The Noteholders' Percentage means (i) for each Distribution
Date to the Distribution Date on which the Class A-3 Notes
are paid in full, 100%, (ii) on the Distribution Date on
which the Class A-3 Notes are paid in full, the percentage
equivalent of a fraction, the numerator of which is the
outstanding principal amount of the Class A-3 Notes
immediately prior to such Distribution Date, and the
denominator of which is the Principal Distributable Amount
for such Distribution Date, and (iii) for any Distribution
Date thereafter, zero.
E. Optional
Redemption.......The Class A-3 Notes, to the extent still outstanding, may
be redeemed in whole, but not in part, on any Distribution
Date on which the Servicer exercises its option to purchase
the Receivables, which, subject to certain provisions in the
Sale and Servicing Agreement, can occur after the Pool
Balance declines to 5% or less of the Original Pool Balance,
at a redemption price equal to the unpaid principal amount
of the Notes of such Class plus accrued and unpaid interest
thereon. See "Description of the Securities -- Optional
Redemption." The Original Pool Balance will equal the
aggregate principal balance of the Receivables as of the
Cutoff Date.
F. Mandatory
Redemption.......The Notes may be accelerated and subject to immediate
payment at par upon the occurrence of an Event of Default
under the Indenture. So long as no Insurer Default shall
have occurred and be continuing, an Event of Default under
the Indenture will occur only upon delivery by the Insurer
to the Indenture Trustee of notice of the occurrence of
certain events of default under the Insurance and Indemnity
Agreement, dated as of October 31, 1996 (the "Insurance
Agreement"), among the Insurer, the Trust, the Seller and
SunStar. In the case of such an Event of Default, the Notes
will automatically be accelerated and subject to immediate
payment at par. See "Description of the Securities -- The
Indenture -- Events ofDefault" herein. The Note Policy does
not guarantee payment of any amounts that become due on an
accelerated basis, unless the Insurer elects, in its sole
discretion, to pay such amounts in whole or in part. See
"The Policies -- Note Policy."
G. Class A-1 Final
Scheduled
Distribution... Notwithstanding anything to the contrary contained herein,
on ________, 1997 (the "Class A-1 Final Scheduled
Distribution Date") holders of record as of the Business Day
preceding such date shall be entitled to receive from funds
available therefor interest on the outstanding principal
amount of the Class A-1 Notes immediately prior to such date
at a rate of % per annum for the period (the "Final Class
A-1 Interest Period") from and including the most recent
Distribution Date on which interest has been paid on the
Class A-1 Notes to but excluding the Class A-1 Final
Scheduled Distribution Date (together with interest due but
not paid on a prior Distribution Date and, to the extent
permitted by law, interest on such amount at a rate of % per
annum) plus the unpaid principal amount of the Class A-1
Notes. Interest will be calculated on the basis of a 360-day
year and the actual number of days elapsed in the Final
Class A-1 Interest Period.
Terms of the
Certificates.......The principal terms of the Certificates will be as described
below:
A. Distribution
Dates............Distributions with respect to the Certificates will be made
on each Distribution Date, commencing __________, 1996.
Distributions will be made to holders of record of the
Certificates (the "Certificateholders" and, together with
the Noteholders, the "Securityholders") as of the related
Record Date.
B. Certificate Rate. % per annum payable monthly at one-twelfth of the annual
rate, calculated on the basis of a 360-day year consisting
of twelve 30-day months.
C. Subordination of
Certificates.....The Certificates will not receive any distribution
with respect to a Distribution Date until the full amount of
the Noteholders' Distributable Amount with respect to such
Distribution Date has been deposited in the Note
Distribution Account.
D. Interest.........On each Distribution Date, the Owner Trustee will
distribute to Certificateholders their pro rata share of
interest distributable with respect to the Certificates. The
amount of interest distributable on the Certificates on each
Distribution Date will equal interest accrued during the
related Interest Period at the Certificate Rate on the
Certificate Balance immediately prior to such Distribution
Date. Interest on the Certificates for any Distribution Date
due but not paid on such Distribution Date will be due on
the next Distribution Date together with, to the extent
permitted by law, interest on such amount at one-twelfth of
the Certificate Rate. Distributions of interest on the
Certificates are subordinate to payments of interest and
principal on the Notes, as described under "Risk Factors--
Subordination of Certificates; Limited Assets." See
"Description of the Securities -- Distributions of
Interest."
E. Principal........On each Distribution Date on or after the date on which the
Class A-3 Notes have been paid in full, principal of the
Certificates will be payable in an amount equal to the
Certificateholders' Principal Distributable Amount for the
Monthly Period preceding such Distribution Date. The
Certificateholders' Principal Distributable Amount will
equal the sum of (x) the Principal Distributable Amount and
(y) any unpaid portion of the amount described in clause (x)
with respect to a prior Distribution Date; provided,
however, that the Certificateholders' Principal
Distributable Amount on the Distribution Date on which the
Class A-3 Notes are paid in full will be reduced by the
amount of principal necessary to pay the Class A-3 Notes in
full. See "Description of the Purchase Agreement and Trust
Documents -- Distributions."
The remaining Certificate Balance, if any, will be payable
in full on the Final Scheduled Distribution Date for the
Certificates.
F. Optional
Prepayment.......If the Servicer exercises its option to purchase the
Receivables as described above, the Certificateholders shall
receive an amount equal to the remaining Certificate Balance
together with accrued interest at the Certificate Rate, and
the Certificates will be retired. See "Description of the
Securities -- Optional Prepayment."
Spread Account......On the Closing Date, the Seller will make an initial
deposit of an amount to be agreed upon by the Seller and the
Insurer to an account (the "Spread Account") which will be
established with the Indenture Collateral Agent for the
benefit of the Indenture Trustee, on behalf of the
Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer pursuant to a certain
Spread Account Agreement, dated as of October 31, 1996 (the
"Spread Account Agreement"). The Spread Account will not be
an asset of the Trust. The amount initially deposited in the
Spread Account is referred to as the "Spread Account Initial
Deposit." On each Distribution Date, additional amounts may
be required to be deposited into the Spread Account from
payments on the Receivables as described under "Description
of the Purchase Agreement and the Trust Documents --
Distributions." Amounts, if any, on deposit in the Spread
Account will be available to the extent provided in the
Spread Account Agreement to fund any Deficiency Claim Amount
or Class A-1 Deficiency Claim Amount otherwise required to
be made on a Distribution Date or the Class A-1 Final
Scheduled Distribution Date, as applicable. The aggregate
amount required to be on deposit at any time in the Spread
Account (the "Specified Spread Account Requirement") will be
determined in accordance with the Insurance Agreement and
the Spread Account Agreement. The Specified Spread Account
Requirement may increase or decrease over time as a result
of floors, caps and triggers set forth in the Insurance
Agreement or the Spread Account Agreement. Amounts in the
Spread Account on any Distribution Date (after giving effect
to all distributions made on such Distribution Date, as
reconciled on such Distribution Date) in excess of the
Specified Spread Account Requirement for such Distribution
Date will be released to the Seller. Amounts on deposit or
to be deposited in the Spread Account may be distributed to
persons other than the Insurer or the Securityholders
without the consent of the Securityholders.
In addition, the Seller and the Insurer may amend the Spread
Account Agreement (and any provisions in the Insurance
Agreement relating to the Spread Account) in any respect
(including, without limitation, reducing or eliminating the
Specified Spread Account Requirement and/or reducing or
eliminating the funding requirements of the Spread Account
or permitting such funds to be used for the benefit of
persons other than Securityholders) without the consent of,
or notice to, the Indenture Trustee, the Owner Trustee or
the Securityholders. Notwithstanding any reduction in or
elimination of the funding requirements of the Spread
Account or the depletion thereof, the Insurer will be
obligated on each Distribution Date to fund the full amount
of each Guaranteed Note Distribution and each Guaranteed
Certificate Distribution otherwise required to be made on
such Distribution Date.
The Policies........On the Closing Date, the Insurer will issue a financial
guaranty insurance policy (the "Note Policy") to the
Indenture Trustee and a financial guaranty insurance policy
(the "Certificate Policy") to the Owner Trustee pursuant to
the Insurance Agreement. Pursuant to the Note Policy, the
Insurer will unconditionally and irrevocably guarantee to
the Noteholders payment of the Guaranteed Note Distributions
(as defined herein) for each Distribution Date. Pursuant to
the Certificate Policy, the Insurer will unconditionally and
irrevocably guarantee to the Certificateholders payment of
the Guaranteed Certificate Distributions (as defined
herein). See "The Policies" and "Description of the Purchase
Agreement and the Trust Documents -- Distributions."
Collection Account..The Servicer will establish one or more accounts in the
name of the Indenture Collateral Agent (the "Collection
Account") for the benefit of the Indenture Trustee, on
behalf of the Noteholders, the Owner Trustee, on behalf of
the Certificateholders, and the Insurer. All payments from
Obligors that are received by the Servicer on behalf of the
Trust will be deposited in the Collection Account no later
than two Business Days after receipt thereof except under
certain conditions described herein. Pursuant to the Sale
and Servicing Agreement, the Indenture Trustee will, on each
Distribution Date, apply the Distribution Amount with
respect to such Distribution Date to the following (in the
priority indicated): (i) to the Owner Trustee and the
Indenture Trustee, any accrued and unpaid trustee fees and
expenses and any accrued and unpaid fees and expenses of the
Indenture Collateral Agent (in each case, to the extent such
fees have not been previously paid by the Servicer), (ii) to
the Servicer, the Servicing Fee for the related Monthly
Period and any overdue Servicing Fees, (iii) into the Note
Distribution Account, the Noteholders' Interest
Distributable Amount, (iv) into the Note Distribution
Account, the Noteholders' Principal Distributable Amount,
(v) into the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount and, on
and after the Distribution Date on which the Class A-3 Notes
have been paid in full, the Certificateholders' Principal
Distributable Amount, (vi) to the Insurer, amounts owing and
not paid to it under the Insurance Agreement, (vii) to the
Spread Account, up to the Specified Spread Account
Requirement for such Distribution Date, and (viii) the
remaining balance, if any, to the Seller. See "Description
of the Purchase Agreement and the Trust Documents --
Distributions."
Tax Status..........In the opinion of Stroock & Stroock & Lavan, special federal
tax counsel to the Trust, for federal income tax purposes,
the Notes will be characterized as debt, and the Trust will
not be characterized as an association (or a publicly traded
partnership) taxable as a corporation. Each Noteholder, by
the acceptance of a Note, will agree to treat the Notes as
debt. Each Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust as a partnership
in which the Certificateholders are partners for federal
income tax purposes. See "Certain Federal Income Tax
Consequences."
ERISA
Considerations......Subject to the conditions and considerations discussed under
"ERISA Considerations," the Notes are eligible for purchase
by pension, profit-sharing or other employee benefit plans
as well as individual retirement accounts and certain types
of Keogh Plans (each, a "Benefit Plan"). See "ERISA
Considerations."
The Certificates may not be acquired (directly or
indirectly) by or on behalf of any Benefit Plan or any
entity (including an insurance company general account)
whose underlying assets include plan assets of a Benefit
Plan by reason of a plan's investment in the entity. See
"ERISA Considerations."
Legal Investment....The Class A-1 Notes will be eligible securities for
purchase by money market funds under Rule 2a-7 under the
Investment Company Act of 1940, as amended.
Ratings............ It is a condition to issuance that the Class A-1 Notes be
rated A-1+ by Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("S&P"), and P-1 by
Moody's Investors Service, Inc. ("Moody's" and together with
S&P, the "Rating Agencies"), and that the Class A-2 Notes,
the Class A-3 Notes and the Certificates be rated AAA by S&P
and Aaa by Moody's. The ratings by the Rating Agencies of
the Securities will be based primarily on the Policies.
There is no assurance that the ratings initially assigned to
the Notes and the Certificates will not subsequently be
lowered or withdrawn by the Rating Agencies. See "Risk
Factors -- Ratings on Securities."
<PAGE>
RISK FACTORS
Prospective Noteholders and Certificateholders should consider the
following risk factors in connection with the purchase of the Notes or the
Certificates.
Limited Liquidity
There is currently no secondary market for the Securities. The
Underwriter currently intends to make a market in the Securities, but it has no
obligation to do so. There can be no assurance that a secondary market for the
Securities will develop or, if such a market does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of the Securities.
Nature of Receivables; Underwriting Process; Subjective Credit Standards and
Sufficiency of Interest Rates to Cover Losses
The underwriting standards applied by SunStar may not be as stringent
as those of other financial institutions or the finance companies of motor
vehicle manufacturers, since SunStar actively solicits dealers to purchase and
purchases primarily non-prime motor vehicle retail installment sales contracts
which may not meet the credit standards of prime lenders. Although SunStar
believes that it carefully reviews and evaluates each credit before acceptance,
no assurance can be given that the standards employed by SunStar will be
sufficient to protect the Securityholders from loss due to default by the
Obligors if the Insurer fails to satisfy its obligations under the Policies.
Because of the greater credit risk associated with non-prime motor
vehicle retail installment sales contracts, the interest rates charged on such
contracts are generally higher than those rates charged on prime motor vehicle
retail installment sales contracts. The range of APRs of the Receivables are set
forth below under "The Receivables." There can be no assurance, however, that
the interest rates on the Receivables will be sufficient to cover losses on the
Receivables. See "SunStar Acceptance Corporation -- General."
Risk of Loss
The Trust will not have any significant assets or sources of funds
other than the Receivables. The Notes represent obligations solely of, and the
Certificates represent interests solely in, the Trust, and neither the Notes nor
the Certificates are insured or guaranteed by the Seller, the Servicer, the
Owner Trustee or the Indenture Trustee. Consequently, Securityholders must rely
for payment upon payments on the related Receivables and the Policies.
Distributions with respect to Certificates are subordinated in priority of
payment to distributions on the Notes, and should the Insurer fail to make any
Guaranteed Distributions, the Certificateholders and, to the extent Realized
Losses exceed the initial principal amount of the Certificates, Noteholders will
suffer a loss.
Reinvestment Risks From Prepayments; Affect on Yield of Securities
The weighted average life of the Securities will be reduced by full
and partial prepayments on the Receivables. The Receivables are prepayable at
any time without penalty. Prepayments (or, for this purpose, equivalent payments
to the Trust) may result from payments by Obligors, liquidations due to default,
the receipt of proceeds from physical damage or credit insurance, repurchases by
the Seller or SunStar as a result of certain uncured breaches of the warranties
made by either with respect to the Receivables, purchases by the Servicer as a
result of certain uncured breaches of the covenants made by it in the Sale and
Servicing Agreement with respect to the Receivables, or the Servicer exercising
its option to purchase all of the remaining Receivables when the Pool Balance is
less than 5% of the Original Pool Balance.
The Servicer has limited historical experience with respect to
prepayments, has not prepared data on prepayment rates and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for retail installment sales contracts similar to the Receivables.
For these reasons, neither the Servicer nor the Seller can make any prediction
as to the actual prepayment rates that will be experienced on the Receivables.
The amounts paid to Securityholders with respect to any Distribution
Date will include all prepayments on the Receivables received thereon during the
related Monthly Period. As a result, the Securities may be paid in full prior to
their respective Final Scheduled Distribution Dates. The Securityholders will
bear all reinvestment risk resulting from the timing of payments of principal on
the Securities. See "Weighted Average Life."
Concentration of Receivables
Economic conditions where Obligors reside may affect the delinquency,
loan loss and repossession experience of the Trust with respect to the
Receivables. As of the Cutoff Date, Obligors with respect to ____% of the
Receivables (based on the principal balance of the Receivables and mailing
addresses of the Obligors thereon as of the Cutoff Date) were located in
__________.
Subordination of Certificates
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
Consequently, the Certificateholders will not receive any distributions with
respect to a Monthly Period until the full amount of interest and principal
payable on the Notes on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any distributions
of principal before the Distribution Date on which the Class A-3 Notes have been
paid in full.
If the Notes are accelerated following an Event of Default under the
Indenture, the Notes must be paid in full prior to the distribution of any
amounts on the Certificates.
Limited Assets
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables, the Spread
Account and the Policies. Holders of the Notes and the Certificates must rely
for repayment upon payments on the Receivables and, if and to the extent
available, amounts on deposit in the Spread Account and payments of claims made
under the Policies. Amounts on deposit or to be deposited in the Spread Account
may be distributed to persons other than Securityholders. Similarly, although
the Policies will be available on each Distribution Date to cover shortfalls in
distributions of the Noteholders' Distributable Amount and the
Certificateholders' Distributable Amount on such Distribution Date, if the
Insurer defaults in its obligations under the applicable Policy, the Trust will
depend on current distributions on the Receivables and, amounts, if any,
available therefor in the Spread Account to make payments on the Notes and the
Certificates. See "The Insurer" and "The Policies."
Ratings on Securities
A rating is not a recommendation to purchase, hold or sell Notes or
Certificates. The ratings of the Notes and Certificates address the likelihood
of the payment of principal and interest on the Securities pursuant to their
terms. There is no assurance that a rating will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if in its judgment circumstances in the future so warrant. In the
event that any ratings initially assigned to the Notes and the Certificates were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the claims-paying ability of the Insurer, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Notes or the Certificates. Any reduction or withdrawal of a rating may have
an adverse effect on the liquidity and market price of the Notes and the
Certificates.
Events of Default Under the Indenture
So long as no Insurer Default shall have occurred and be continuing,
neither the Indenture Trustee nor the Noteholders may declare an Event of
Default under the Indenture. So long as an Insurer Default shall not have
occurred and be continuing, an Event of Default will occur only upon delivery by
the Insurer to the Indenture Trustee of notice of the occurrence of certain
events of default under the Insurance Agreement. Upon the occurrence of an Event
of Default under the Indenture (so long as an Insurer Default shall not have
occurred and be continuing), the Insurer will have the right, but not the
obligation, to cause the liquidation, in whole or in part, of the Trust
Property, which will result in redemption, in whole or in part, of the Notes,
and prepayment, in whole or in part, of the Certificates. Following the
occurrence of an Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Policies as necessary to enable the
Trust to continue to make payments of the Noteholders' Distributable Amount and
the Certificateholders' Distributable Amount on each Distribution Date. However,
following the occurrence of an Event of Default, the Insurer may elect to pay
all or any portion of the outstanding amount of the Notes, plus accrued interest
thereon, and may elect to cause the prepayment, in whole or in part, of the
Certificates.
Insolvency Considerations
The Trust Agreement provides that, in the event that the Seller
becomes insolvent, or is terminated or dissolved (a "Dissolution Event") and the
Owner Trustee is unable to obtain an opinion of counsel satisfactory to the
Insurer to the effect that the Trust will not thereafter be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes, the Trust will terminate in 90 days and effect redemption of the Notes
and prepayment of the Certificates following the winding-up of the affairs of
the Trust, unless within such 90 days the Certificate Owners of a majority of
the remaining principal balance of the Certificates agree in writing to continue
the business of the Trust and the Owner Trustee is able to obtain the opinion of
counsel described above. See "Description of the Purchase Agreement and the
Trust Documents -- Termination."
Risk of Unperfected Security Interests in Financed Vehicles
As part of the sale and assignment of Receivables to the Trust,
security interests in the related Financed Vehicles will be assigned by the
Seller to the Trust. In most states, such an assignment is an effective
conveyance of a security interest without amendment of any such security
interest noted on a vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. Such notation of a secured
party's security interest is generally effected in such states by depositing
with the applicable state motor vehicle registrar or similar state authority,
the vehicle's certificate of title, an application containing the name and
address of such secured party, and the necessary registration fees.
Because of the administrative burden and expense that would be
entailed in doing so, the certificates of title for the Financed Vehicles
related to the Trust will not be endorsed to identify the Owner Trustee as the
secured party, and will not be deposited with the motor vehicle registrar or
other state authorities in any state. In the absence of such action, the Owner
Trustee or the Indenture Trustee, as the case may be, may not have a perfected
security interest in the Financed Vehicles related to the Trust in certain
states and, in the event that another person obtains a perfected security
interest in such a Financed Vehicle subsequent to the transfer of the
Receivables to the Trust, such person might acquire rights in such Financed
Vehicle prior to the rights of the Trust. The Seller will covenant to repurchase
any Receivable if, on the date of transfer of a Receivable to the Trust, a
valid, subsisting and enforceable first priority security interest shall not
have been perfected in favor of SunStar, which shall have been assigned to the
Trust, in the related Financed Vehicle. The Servicer will covenant to repurchase
any Receivable if, after the transfer of such Receivable to the Trust, a valid,
subsisting and enforceable first priority interest in the name of the Servicer
is not maintained on behalf of the Trust in the related Financed Vehicle. If the
Trust does not have a perfected security interest in a Financed Vehicle, its
ability to realize on such Financed Vehicle in the event of a default may be
adversely affected. To the extent the security interest is perfected, the Trust
will have a prior claim over subsequent purchasers of such Financed Vehicles and
holders of subsequently perfected security interests. However, as against liens
for repairs of Financed Vehicles or for taxes unpaid by an Obligor under a
Receivable, or through fraud or negligence, the Trust could lose the priority of
its security interest or its security interest in a Financed Vehicle. Neither
the Seller nor SunStar will have any obligation to repurchase a Receivable as to
which any of the aforementioned occurrences result in the Trust's losing the
priority of its security interest or its security interest in such Financed
Vehicle after the date such security interest was conveyed to the Trust. Federal
and state consumer protection laws impose requirements upon creditors in
connection with extensions of credit and collections of retail installment loans
and certain of these laws make an assignee of such a loan (such as the Trust)
liable to the related borrower for any violation by the lender. The Seller will
be obligated to repurchase any Receivable which fails to comply with such
requirements. See "Certain Legal Aspects of the Receivables -- Security
Interests in Vehicles."
Insolvency Risks
SunStar will intend that any transfer of Receivables to the Seller
will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of SunStar. However, if SunStar were to become a debtor under the
federal bankruptcy code or similar applicable state laws (collectively, the
"Insolvency Laws"), a creditor or trustee in bankruptcy thereof, or SunStar as
debtor-in-possession, might argue that such sale of Receivables was a pledge of
Receivables rather than a sale and/or that the assets and liabilities of the
Seller should be consolidated with the assets and liabilities of SunStar. This
position, if presented to or accepted by a court, could result in a delay in or
reduction of distributions to Securityholders. In addition, a delay in or
reduction of distributions to Securityholders could result if the Seller were to
become a debtor under any Insolvency Law and a creditor or trustee-in-bankruptcy
of such debtor or such debtor itself were to take the position that the sale of
Receivables to the Trust should instead
be treated as a pledge of such Receivables to secure a borrowing of such debtor.
In addition, if the transfer of any Receivables is recharacterized as a pledge,
a tax lien, other governmental lien, or other lien created by operation of law
on the property of the Servicer, the holder of such lien may have priority over
the Trust's interest in such Receivables.
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, Octagon Gas System, Inc. v. Rimmer, such Circuit
Court found that "accounts," a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If SunStar or the Seller were to become a debtor in
a bankruptcy proceeding and a court applied the reasoning of the Circuit Court
reflected in the case described above, delays in payments to Securityholders
could occur or reductions in the amounts of such payments could result.
If an Insolvency Event with respect to the Affiliated Purchaser
occurs, the Receivables will be sold, disposed of or otherwise liquidated,
except under certain limited circumstances. If the proceeds from the liquidation
of the Receivables and any amounts on deposit in the Collection Account are not
sufficient to pay the Notes and the Certificates in full, and the Insurer is
insolvent, the amount of principal returned to any Noteholders or
Certificateholders will be reduced, and such Noteholders and Certificateholders
will incur a loss. See "Certain Legal Aspects of the Receivables -- Insolvency
Matters."
Social, Economic and Other Factors Affecting the Receivables
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the related Receivables. The performance by Obligors may be affected by a
variety of social and economic factors. Economic factors include, but are not
limited to, interest rates, unemployment levels, the rate of inflation and
consumer perception of economic conditions, generally. However, the Seller is
unable to determine and has no basis to predict whether or to what extent social
and economic factors will affect the performance by any Obligors. See "SunStar
Acceptance Corporation."
Commingling Risk
While SunStar or an entity (a) into which SunStar is merged or
consolidated, (b) which succeeds to the properties and assets of the Servicer
substantially as a whole or (c) more than 50% of the voting stock of which is
owned by NationsBank which has executed an agreement of assumption to perform
the obligations of the Servicer under the Agreement, is the Servicer, the
Servicer may commingle collections held by it and may use such funds for its own
purposes prior to the business day preceding each Distribution Date provided
that all of the following conditions are satisfied: (i) there exists no Event of
Default (as described below), (ii) if the Servicer does not have a short term
debt rating or deposit rating, as applicable, of at least A-1 from S&P and P-1
from Moody's, a guaranty, letter of credit, surety bond or other similar
instrument is issued covering collections held by SunStar or such successor
servicer, which is acceptable to the Rating Agencies and is issued by an entity
which has a short term debt or deposit rating of at least A-1 from S&P and P-1
from Moody's, and (iii) the Servicer, the Owner Trustee, the Indenture Trustee,
the Seller or the Issuer shall not have received notice from S&P or Moody's that
failure to separate such funds will result in a reduction or withdrawal of the
then current rating on the Notes or Certificates by either S&P or Moody's. If
all the conditions contained in the preceding sentence are not met the Servicer
will deposit all payments on Receivables (from whatever source) and all proceeds
of Receivables collected during each Collection Period into the Collection
Account not later than the second business day after receipt. In the event that
the Servicer commingles collections, Securityholder will be subject to risk of
loss of such collections, including as a result of the bankruptcy or insolvency
of the Servicer. It is anticipated that on the Closing Date NationsBank
will furnish a guaranty that will permit SunStar to commingle funds.
Risks of Securityholders Upon Servicer Default
In the event a Servicer Default occurs, the Insurer (so long as no
Insurer Default has occurred and is continuing), Indenture Trustee or the
Noteholders may remove the Servicer without the consent of the Owner Trustee or
any of the Certificateholders. The Owner Trustee and the Certificateholders will
not have the ability to remove the Servicer if a Servicer Default occurs. In
addition, the Insurer (so long as no Insurer Default has occurred and is
continuing), and the Noteholders, in the event of an Insurer Default, have the
ability, with certain specified exceptions, to waive defaults by the Servicer,
including defaults that could materially adversely affect the
Certificateholders. See "Description of the Securities -- The Indenture."
Book-Entry Registration
Each class of Securities will be initially represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), as nominee for The
Depository Trust Company ("DTC") and will not be registered in the names of the
holders of the Securities or their nominees. Because of this, unless and until
Definitive Securities for such series are issued, holders of Securities will not
be recognized by the Trustee or the Indenture Trustee as "Certificateholders,"
"Noteholders" or "Securityholders," as the case may be (as such terms are used
herein or in the Indenture and Trust Agreement, as applicable). Hence, until
Definitive Securities are issued, holders of Securities will only be able to
exercise the rights of Securityholders indirectly through DTC and its
participating organizations. See "Description of the Securities -- Book-Entry
Registration."
USE OF PROCEEDS
The net proceeds to be received by the Trust from the sale of the
Securities will be used to pay to the Seller, and in turn, SunStar, the purchase
price for the Receivables, and to make the initial deposits into the Spread
Account. The net proceeds to be received by SunStar will be used for general
corporate purposes.
THE TRUST
General
The Issuer, NationsFinancial Auto Owner Trust 1996-1, is a business
trust to be formed under the laws of the State of Delaware pursuant to the Trust
Agreement for the transactions described in this Prospectus. After its
formation, the Trust will not engage in any activity other than (i) acquiring,
holding and managing the Receivables and the other assets of the Trust and
proceeds therefrom, (ii) issuing the Notes and the Certificates, (iii) making
payments on the Notes and the Certificates and (iv) engaging in other activities
that are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Trust will initially be capitalized with equity equal to $______.
Certificates with an aggregate original Certificate Balance of $___________ will
be sold to an entity affiliated with NationsBank, and Certificates representing
the remainder of the Certificate Balance will be sold to third party investors
that are expected to be unaffiliated with the Seller, the Servicer or their
affiliates. The equity of the Trust, together with the proceeds of the initial
sale of the Notes, will be used by the Trust to purchase the Receivables from
the Seller pursuant to the Sale and Servicing Agreement and to fund the deposit
in the Spread Account.
The Trust's principal offices are in Wilmington, Delaware, in care of
_________________, as Owner Trustee, at the address listed below under "-- The
Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of
the Cutoff Date, as if the issuance and sale of the Notes and Certificates had
taken place on such date:
Class A-1 Notes...................................$
Class A-2 Notes...................................$
Class A-3 Notes...................................$
Certificates......................................$
-------------
Total.........................................$
=============
The Owner Trustee
___________________ is the Owner Trustee under the Trust Agreement, is
a ________ banking corporation and its principal offices are located at
__________________________________. The Seller, the Servicer and their
respective affiliates may maintain commercial banking relations with the Owner
Trustee and its affiliates. The Owner Trustee will perform limited
administrative functions under the Trust Agreement, including making
distributions from the Certificate Distribution Account. The Owner Trustee's
liability in connection with the issuance and sale of the Certificates and the
Notes is limited solely to the express obligations of the Owner Trustee set
forth in the Trust Agreement and the Sale and Servicing Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, the following: (a)
non-prime motor vehicle retail installment sales contracts secured by new and
used vehicles, light trucks and vans; (b) all payments received thereunder after
the Cutoff Date and, with respect to Precomputed Receivables, certain monies
received thereunder on or prior to the Cutoff Date that are due after the Cutoff
Date; (c) such amounts as from time to time may be held in the Collection
Account; (d) an assignment of the security interests of SunStar in the Financed
Vehicles; (e) certain proceeds from the exercise of rights against Dealers under
Dealer Agreements; (f) an assignment of the right to receive proceeds from
claims on certain physical damage, credit life and disability insurance policies
covering the Financed Vehicles or the Obligors; (g) the rights of the Seller
under the Purchase Agreement; (h) the Receivables Files; (i) the Certificate
Policy; and (j) certain other rights under the Trust Documents.
The Receivables were originated by Dealers and sold to SunStar and
evidence financing made available to the Obligors. Although SunStar's rights
under the Dealer Agreements have not been assigned to the Trust, and the Trust
will not have any rights against any Dealer, SunStar will assign to the Seller,
and the Seller will assign to the Trust, the proceeds from any Receivable
repurchased by a Dealer as a result of a breach of a representation or warranty
in the related Dealer Agreement.
The "Pool Balance" at any time represents the aggregate principal balance
of the Receivables at the end of the preceding Monthly Period, after giving
effect to all payments received from Obligors and any Purchase Amounts to be
remitted by SunStar or the Seller, as the case may be, for such Monthly Period
and all losses, including Cram Down Losses, realized on Receivables liquidated
during such Monthly Period. The Pool Balance on the Cutoff Date (the "Original
Pool Balance") will be approximately $------------.
Each Certificate will represent a fractional undivided interest in the
Trust Property. Pursuant to the Indenture, the Trust will grant a security
interest in the Trust Property (other than the Certificate Distribution Account
and Certificate Policy) in favor of the Indenture Collateral Agent for the
benefit of the Indenture Trustee on behalf of the Noteholders and for the
benefit of the Insurer in support of the obligations owing to it under the
Insurance Agreement. Any proceeds of such security interest in the Trust
Property would be distributed according to the Indenture, as described below
under "Description of the Purchase Agreement and the Trust Documents --
Distributions." The Insurer would be entitled to such distributions only after
payment of amounts owing to, among others, holders of the Notes and
Certificates.
NATIONSBANK CORPORATION
General
SunStar is a subsidiary of NationsBank. NationsBank is a bank holding
company established as a North Carolina corporation in 1968 and is registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), with its
principal assets being the stock of its subsidiaries. Through its banking
subsidiaries and its various non-banking subsidiaries, NationsBank
provides banking and banking related services primarily throughout the Southeast
and Mid-Atlantic states and Texas. The principal executive offices of
NationsBank are located at NationsBank Corporate Center, 100 North
Tryon Street, Charlotte, North Carolina 28255. Its telephone number is (704)
386-5000.
Operations
NationsBank provides a diversified range of banking and certain non-banking
financial services and products through its various subsidiaries. NationsBank
manages its business activities through three major internal management groups
or business units: the General Bank, the Global Finance Unit and the Financial
Services Unit. SunStar is a part of the Financial Servicers Unit, which also
includes NationsCredit Corporation and its subsidiaries.
THE SELLER
The Seller, a wholly-owned subsidiary of SunStar, was incorporated
in the State of Delaware in September 1996. The Seller was organized for limited
purposes, which include purchasing receivables from SunStar and transferring
such receivables to third parties and any activities incidental to and necessary
or convenient for the accomplishment of such purposes. The principal executive
offices of the Seller are located at North Tower Suite 1301, 222 West Las
Colinas Boulevard, Irving, Texas 75039. The telephone number of such offices is
(215) 501- ----.
The Seller has taken and will take steps in structuring the
transactions contemplated hereby that are intended to make it unlikely that the
voluntary or involuntary application for relief by SunStar under any Insolvency
Law will result in the consolidation of the assets and liabilities of the Seller
with those of SunStar. These steps include the creation of the Seller as a
separate, limited-purpose subsidiary pursuant to its Certificate of
Incorporation containing certain limitations (including restrictions on the
nature of the Seller's business and a restriction on the Seller's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
unanimous affirmative vote of all of its directors). The Seller's Certificate of
Incorporation include a provision that requires the Seller to have at least one
director who qualifies under the Certificate of Incorporation as an "Independent
Director."
If, notwithstanding the foregoing measures, a court concluded that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of SunStar in the event of the application of any Insolvency Law to
SunStar or a filing were made under any Insolvency Law by or against the Seller,
or if an attempt were made to litigate any of the foregoing issues, delays in
the distributions on the Securities (and possible reductions in the amount of
such distributions) could occur.
The Seller will also take certain steps in structuring the
transactions contemplated hereby to help ensure that an Insolvency Event with
respect to the Affiliated Purchaser will not occur. These steps include the
creation of the Affiliated Purchaser as a separate, limited purpose corporation
pursuant to articles of incorporation containing certain limitations (including
restrictions on the nature of the Affiliated Purchaser's business and a
restriction on the Affiliated Purchaser's ability to commence a voluntary case
or proceeding under any Insolvency Law without the prior affirmative unanimous
vote of its directors). However, there can be no assurance that the activities
of the Affiliated Purchaser would not result in an Insolvency Event.
SUNSTAR ACCEPTANCE CORPORATION
SunStar was incorporated in September 1992 under the name Saturn Financial
Services, Inc. as a wholly-owned subsidiary of U S WEST Financial Services, Inc.
SunStar became a wholly-owned indirect subsidiary of NationsCredit Commercial
Corporation ("NationsCredit Commercial"), a wholly-owned subsidiary of
NationsBank, in December 1993 through NationsCredit Commercial's purchase of
substantially all of the assets of U S WEST Financial Services, Inc. SunStar
began conducting business under its current name in September 1994 and became a
direct subsidiary of NationsBank in August 1996.
SunStar has two wholly-owned subsidiaries, SunStar Acceptance
Corporation (Hawaii) and SunStar Acceptance Corporation (California), through
which it conducts a portion of its business. References to SunStar in the
following description of SunStar's activities also include reference to both
such subsidiaries.
SunStar's executive offices are located at Two Concourse Parkway,
Suite 745, Atlanta, Georgia, 30328.
General
SunStar is engaged in the indirect financing (i.e. the purchase of
motor vehicle retail installment sales contracts from automotive dealers) of new
and used automobiles, vans and light duty trucks purchased by individuals with
non-prime credit.
The non-prime market segment of the automotive lending industry is
comprised of individuals who are deemed to be higher than average credit risks
due to various factors including, among other things, the manner in which they
have handled previous credit, limited prior credit history, prior declarations
of personal bankruptcy and/or limited financial resources. Due to the risk
profile of borrowers in the non-prime market, contracts acquired by companies
providing financing to such borrowers have higher annual percentage rates than
those that would be charged to more credit-worthy borrowers. Commensurate with
the higher annual percentage rate on non-prime contracts is the increased risk
and probability that an obligor will default on his or her obligations under a
contract. Furthermore, lenders to such obligors may experience an increased
frequency of delinquent payments than they would to obligors with a better
credit history or who are otherwise perceived to be a lower credit risk. The
range of APRs and other portfolio statistics for the Receivables are described
under "The Receivables."
SunStar acquires retail installment sales contracts through a network
of approximately 126 branch offices located in the following 26 jurisdictions:
Alabama, Arizona, California, Florida, Georgia, Hawaii, Illinois, Indiana,
Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nevada, New
Jersey, New York, Ohio, Oregon, South Carolina, Tennessee, Texas, Virginia,
Washington, Wisconsin and the U.S. Territory of Guam. SunStar's dealer network
is composed of approximately 4,000 franchised new car dealers and 400
independent used car dealers. Each branch is responsible for soliciting and
maintaining dealer relationships, as well as originating, servicing and
collecting motor vehicle retail installment sales contracts.
Origination of Receivables
Dealer Relationships. SunStar has targeted its financing program to
franchised new car dealerships and selected independent used car dealerships
(collectively, "Dealers") in selected markets. Markets are chosen by SunStar's
central management based on the population of an area, maximum interest rates
permitted by state law, collection regulations as they pertain to consumer
finance and management's past operating experience in the state.
In most instances, Dealers are solicited, and relationships with
Dealers are maintained, by SunStar's local branches. By maintaining local Dealer
relationships, SunStar is able to customize its programs to Dealer needs,
promptly respond to Dealer requests and develop working relationships with
Dealers to enhance the level of service provided by SunStar.
Each prospective new Dealer relationship is evaluated at SunStar's
headquarters after completion and review of a completed dealer application and
branch evaluation of the Dealer. Once approved, the Dealer and SunStar usually
enter into a non-exclusive Dealer Agreement. SunStar's Dealer Agreements
generally provide that contracts are sold by the Dealer to SunStar "without
recourse" to the Dealer, except in limited circumstances including, among
others, that (i) the financed vehicle is not properly registered showing SunStar
as lienholder; (ii) unless otherwise specified in the related motor vehicle
retail installment sales contract, the full down payment specified in the
contract was not received by the Dealer in cash; (iii) certain representations
and warranties by the Dealer regarding the contract, the financed vehicle, the
contract process and manner of sale are breached or untrue; and (iv) the Dealer
has failed to comply with applicable law.
Subsequent to execution of a Dealer Agreement, each Dealer relationship
is evaluated on a monthly basis through standardized reports which track
delinquency and loss rates on a Dealer-by-Dealer basis. SunStar controls its
Dealer relationships by providing economic disincentives to those Dealers that
provide low levels of customer service or whose originations perform below
acceptable levels.
Credit Application Process. SunStar has developed procedures and
controls for investigating, verifying and analyzing credit applications at the
branch level. For applications that are exceptions to SunStar policies, the
branch level analysis will be augmented and reviewed by centralized underwriters
at SunStar's executive offices in Atlanta, Georgia. The credit approval process
identifies applicants who satisfy SunStar's risk profile and have an acceptable
probability of repaying the contract.
All loan applications are faxed from the Dealer to the local SunStar
branch for evaluation and processing. For each applicant, SunStar obtains a
credit bureau report and attempts to verify the information contained in the
application. SunStar's evaluation of the credit application will commence at the
branch and under certain circumstances be sent to SunStar's central underwriting
department. Each branch manager is assigned an approval limit by central
management based on the manager's experience level and historical loan
performance. The approval authority will specify maximum loan amounts and
minimum FICO scores required for the applicant to be approved by the branch
manager. All applications for amounts in excess of a branch manager's approval
authority or exceptions to policy will be centrally underwritten at SunStar's
Atlanta headquarters. Based upon SunStar's underwriting policies, the
underwriter will decide to approve the application, approve the application
subject to a specified set of terms or reject the application. The underwriter's
decision will be conveyed to the dealer by fax from the branch.
Underwriting Compliance. In order to ensure consistent loan
underwriting in the branches and to reinforce the importance of adhering to
underwriting policies, each week all booked contract files are forwarded from
the branches to a central compliance unit. The contracts are reviewed and all
exceptions to policy are noted. Employees in branches with significant
exceptions may receive additional training, be given certain compliance goals to
reach or be dismissed if improvement does not occur.
Loan Terms: All contracts purchased by SunStar are fully amortizing and
provide for level monthly payments over the term of the contracts which is not
to exceed 60 months. Interest accrual methods are based on the laws of the state
in which the contract was originated.
SunStar requires that the obligor maintain appropriate physical damage
insurance on the vehicle with SunStar listed as the loss payee. In the event
that the obligor fails to maintain such insurance, SunStar will purchase
collateral protection insurance ("CPI") on behalf of the obligor and the premium
for the CPI plus interest will be added to the amount owed by the obligor.
SunStar has engaged American Bankers Insurance Company to track the maintenance
of insurance policies and provide collateral protection insurance. The premium
amount of any CPI added to any contract as of the Cutoff date will not be
included in the amount securitized.
Contract Verification and Funding
Prior to funding a contract, a SunStar branch employee contacts the
borrower to confirm delivery of the automobile being purchased and certain terms
and conditions of the retail installment sales contract. In addition, prior to
funding, the branch will verify the existence of property and casualty insurance
on the vehicle, inform the obligor of the first payment due date and SunStar's
collection policies and obtain a copy of the registration application showing
SunStar's security interest in the financed vehicle. Once such verification is
complete, the branch will remit the appropriate amount to the Dealer.
Servicing of Receivables
SunStar issues a monthly billing statement to each obligor ten days
prior to the next due date on his or her contract. Borrowers are instructed to
remit payments to a centralized lockbox, but payments will also be accepted at
the branch which services the contract. Partial payments of less than 75% of the
scheduled payment are usually returned to the borrower to emphasize the
importance of meeting the required payment schedule.
SunStar services its receivables, prior to repossession or charge-off,
on a decentralized basis, with the branch that originated a contract responsible
for customer service and collection activity. However, once a contract is
repossessed or its otherwise charged-off, one of two centralized units will
become involved. The centralized remarketing unit oversees the remarketing of
repossessed collateral to obtain the most profitable method of disposition of
the collateral. The asset management unit is responsible for collecting
deficiency balances and other charged off contracts.
Delinquencies, Charge-off Policies and Net Losses
SunStar measures delinquency on a contractual basis which classifies
the accounts into 30, 60 and 90+ categories based on monthly payment cycles
elapsed from the date a payment is due under the motor vehicle retail
installment sales contract (the "due date"). Installment payments must be within
$0.99 of the scheduled payment due, after application of any portion of such
installment payment necessary to satisfy any prior shortfalls, for a contract to
be re-aged.
Collection activities with respect to delinquent motor vehicle retail
installment sales contracts generally begin one day after the due date for
payment defaults, with a phone call to the delinquent borrower. If needed, a
branch employee will follow up on a regular basis with a delinquent borrower
until payment is received.
Under certain circumstances, SunStar will grant obligors a deferral
when a one-time event has caused the obligor to default on a scheduled payment.
SunStar only permits a deferral if a customer has made a minimum of six
scheduled payments, is less than 60 days past due, and has paid a deferral fee.
In either case, only one deferral may be granted in a twelve month period, and
the total number of deferrals allowed over the life of any loan is limited to
one deferral for each year of the term of the contract.
SunStar's collectors are assigned to specific delinquent accounts and
attempt to contact the delinquent borrower by telephone, letter, or field
contact based on the duration of the delinquency and history of the account.
SunStar's current charge-off policy charges accounts off monthly if:
(i) no full payment in has been received in six months (on a recency basis)
(primarily used to capture skip pays or accounts involved in litigation); (ii)
if a deficiency balance remains after repossession and liquidation of the
vehicle; and/or (iii) SunStar believes the account has little or no collection
potential.
Repossession procedures typically begin when a motor vehicle retail
installment sales contract becomes thirty (30) days delinquent. SunStar
endeavors to repossess collateral no later than 60 days following the missed
payment due date if branch personnel feel that future payments are unlikely.
Repossessions are referred to independent, licensed, insured and bonded
repossession agencies. Sale procedures for repossessed collateral are conducted
by a centralized remarketing department, which determines the sale channel that
will provide the maximum value for the collateral. After making such
determination, the remarketing department will direct the delivery of the
collateral to the desired outlet and ensure successful completion of the sale.
THE RECEIVABLES
General
The Receivables were purchased by SunStar in the ordinary course of
business from Dealers. The Receivables consist of non-prime motor vehicle retail
installment sales contracts. Non-prime motor vehicle retail installment sales
contracts are contracts with individuals with less than perfect credit due to
various factors, including, among other things, the manner in which such
individuals have handled previous credit, limited prior credit history, prior
declarations of personal bankruptcy and/or limited financial resources. See
"Risk Factors -- Nature of Receivables; Underwriting Process; Subjective Credit
Standards and Sufficiency of Interest Rates to Cover Losses," "SunStar --
General" and "-- Credit Evaluation Procedures."
Eligibility Criteria
The Seller will warrant in the Sale and Servicing Agreement that, among
other things, each of the Receivables to be held by the Trust (i) will be
originated in the United States; (ii) will be secured by a new or used
automobile, light truck or van; (iii) will provide for level monthly payments
which fully amortize the amount financed over its original term to maturity
(except for the last payment which may be minimally different); (iv) will be
either a Precomputed Receivable or Simple Interest Receivable (each as defined
below); below (v) has an APR equal to or greater than ____%; (vi) has an
original term to maturity of not more than 60 months; (vii) as of the Cutoff
Date, had the most recent Scheduled Payment made by or on behalf of the Obligor
or not contractually delinquent more than 30 days; (viii) had no related
Financed Vehicle repossessed without reinstatement as of the Cutoff Date; and
(ix) as of the Cutoff Date the related Obligor is not the subject of any pending
bankruptcy proceeding. For purposes of clause (vii), a Receivable is considered
30 days delinquent as of the end of the month following the month in which a
Scheduled Payment has not been made. No selection procedures believed to be
adverse to the Securityholders have been utilized in selecting the Receivables
from qualifying non-prime motor vehicle retail installment sales contracts owned
by SunStar.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed, level-payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the Annual
Percentage Rate ("APR") of the loan multiplied by the unpaid principal balance
of the loan, and an amount of principal equal to the remainder of the monthly
payment. A Rule of 78's Receivable provides for the payment by the borrower of a
specified total amount of payments, payable in equal monthly installments on
each due date, which total represents the principal amount financed and add-on
interest in an amount calculated on the stated APR for the term of the
receivable. The rate at which such amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal are calculated in accordance with the "Rule of
78's."
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of fixed
level monthly payments except that the last payment may be a different amount.
However, unlike the monthly payment under an Actuarial Receivable, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater, thereby having the effect of a prepayment. Conversely,
if an obligor pays a fixed monthly installment after its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be greater than it would have been had the payment been
made as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In either case, the obligor pays
a fixed monthly installment until the final scheduled payment date, at which
time the amount of the final installment is increased or decreased as necessary
to repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by
acceleration) of a Rule of 78's Receivable, under the terms of the motor vehicle
retail installment sales contract, a "refund" or "rebate" will be made to the
borrower of the portion of the total amount of payments then due and payable
under such motor vehicle retail installment sales contract allocable to
"unearned" add-on interest, calculated in accordance with a method equivalent to
the Rule of 78's unless otherwise provided by law. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the borrower is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78's Receivable generally will be less than the amount of a rebate on an
Actuarial Receivable and generally will be less than the remaining scheduled
payments of interest that would have been due under a Simple Interest Receivable
for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables were Actuarial Receivables. Amounts received upon prepayment in full
of a Rule of 78's Receivable in excess of the then outstanding Principal Balance
of such Receivable and accrued interest thereon (calculated pursuant to the
actuarial method) will not be paid to Noteholders or passed through to
Certificateholders but will be paid to the Servicer as additional servicing
compensations.
Composition
The statistical information presented in this Prospectus, including
the summary statistical information set forth below, is based on the Receivables
as of October 31, 1996 (the "Cutoff Date").
<TABLE>
<CAPTION>
Composition of the Receivables as of the Cutoff Date
<S> <C> <C> <C> <C> <C>
Weighted Average Aggregate Principal Number of Weighted Average Weighted Average Average Principal
APR of Receivables Balance Receivables Remaining Term Original Term Balance
- ------------------- ------------------- ----------- ---------------- ---------------- -----------------
</TABLE>
The geographic distribution, the distribution of Receivables which are
Precomputed Receivables and Simple Interest Receivables, the distribution of the
Receivables secured by new and used vehicles, the distribution by remaining
principal balance, the distribution by APR and the distribution by remaining
term, in each case of the Receivables as of the Cutoff Date, are set forth
below. (Percentages may not add to 100% due to rounding.)
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cutoff Date
<S> <C> <C> <C>
Aggregate Percentage
Number of Principal of Aggregate
State(1) Receivables Balance Principal Balance
- ----- ----------- ----------- -----------------
Alabama...........................................
Alaska............................................
Arizona...........................................
Arkansas..........................................
California........................................
Colorado..........................................
Connecticut.......................................
Florida...........................................
Georgia...........................................
Illinois..........................................
Indiana...........................................
Iowa..............................................
Kansas............................................
Kentucky..........................................
Louisiana.........................................
Maine.............................................
Maryland..........................................
Massachusetts.....................................
Michigan..........................................
Minnesota.........................................
Mississippi.......................................
Missouri..........................................
Nebraska..........................................
Nevada............................................
New Hampshire.....................................
New Jersey........................................
New Mexico........................................
New York..........................................
North Carolina....................................
North Dakota......................................
Ohio..............................................
Oklahoma..........................................
Oregon............................................
Pennsylvania......................................
Rhode Island......................................
South Carolina....................................
Tennessee.........................................
Texas.............................................
Vermont...........................................
Virginia..........................................
Washington........................................
Wisconsin.........................................
Wyoming...........................................
Total....................................
- ---------------------
(1) Based on [billing] addresses of the Obligors as of the Cutoff Date.
</TABLE>
<PAGE>
Distribution by Interest Allocation Method of the Receivables as
of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of
Aggregate Aggregate
Number of Principal Principal
Interest Allocation Method Receivables Balance Balance
- -------------------------- ----------- --------- -------------
Precomputed Receivables ..........................
Simple Interest Receivables.......................
Total....................................
</TABLE>
Distribution of the Receivables by New and Used Financed Vehicles as
of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of
Aggregate Aggregate
Number of Principal Principal
Collateral Type Receivables Balance Balance
- --------------- ----------- --------- -------------
New ..............................................
Used..............................................
Total....................................
</TABLE>
Distribution by Remaining Principal Balance of the Receivables as
of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage
Aggregate of Aggregate
Range of Remaining Number of Principal Principal
Principal Balance Receivables Balance Balance
- ------------------ ----------- --------- ------------
$ 0,000.00 to $ 2,499.99..........................
$ 2,500.00 to $ 4,999.99..........................
$ 5,000.00 to $ 7,499.99..........................
$ 7,500.00 to $ 9,999.99..........................
$10,000.00 to $12,499.99..........................
$12,500.00 to $14,999.99..........................
$15,000.00 to $17,499.99..........................
$17,500.00 to $19,999.99..........................
$20,000.00 to $22,499.99..........................
$22,500.00 to $24,999.99..........................
$25,000.00 to $27,499.99..........................
$27,500.00 to $29,999.99..........................
$30,000.00 to $39,999.99..........................
Total....................................
</TABLE>
Distribution by Annual Percentage Rate of the Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of
Aggregate Aggregate
Range of Annual Number of Principal Principal
Percentage Rate Receivables Balance Balance
- --------------- ----------- --------- -------------
9.000% to 9.999%................................
10.000% to 10.999%................................
11.000% to 11.999%................................
12.000% to 12.999%................................
13.000% to 13.999%................................
14.000% to 14.999%................................
15.000% to 15.999%................................
16.000% to 16.999%................................
17.000% to 17.999%................................
18.000% to 18.999%................................
19.000% to 19.999%................................
20.000% to 20.999%................................
21.000% to 21.999%................................
22.000% to 22.999%................................
23.000% to 23.999%................................
24.000% to 24.999%................................
25.000% to 25.999%................................
26.000% to 26.999%................................
27.000% to 27.999%................................
28.000% to 28.999%................................
29.000% to 29.999%................................
Total........................................
</TABLE>
Distribution by Year of Origination of the Receivables
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of
Aggregate Aggregate
Number of Principal Principal
Year of Origination Receivables Balance Balance
- ------------------- ----------- --------- -------------
1993......................
1994......................
1995......................
1996......................
Total....................................
- --------------------
</TABLE>
Distribution by Remaining Term of the Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Aggregate Percentage
Number of Principal of Aggregate
Range of Remaining Terms Receivables Balance Principal Balance
- ------------------------ ----------- --------- -----------------
7 to 11 Months...................................
12 to 17 Months...................................
18 to 23 Months...................................
24 to 29 Months...................................
30 to 35 Months...................................
36 to 41 Months...................................
42 to 47 Months...................................
48 to 53 Months...................................
54 to 59 Months...................................
60 to 65 Months...................................
66 to 71 Months...................................
72 Months.........................................
Total ...................................
</TABLE>
Delinquency and Loss Experience
SunStar began operations in February 1993. In mid-1994 and early 1995,
SunStar employed pricing and underwriting standards which were less stringent
than those employed thereafter. Beginning in 1995, and again in early 1996,
SunStar tightened its underwriting standards, and in August 1996 SunStar adopted
a formal set of underwriting guidelines to be uniformly applied by each SunStar
branch. The table below sets forth the delinquency and loss experience as of the
end of each of the periods indicated. The information set forth in the following
table may be affected by the size, rapid growth and relative lack of seasoning
of the Receivables. Accordingly, no assurances can be given that the delinquency
and loss experience presented in the table below will be indicative of such
experience on the Receivables.
SunStar
Historical Delinquency and Loss Experience
(Dollar Amounts in Thousands)
------------------------------------------
Principal Amount Outstanding
Average Principal Amount Outstanding
For the Quarter Ended
Number of Loans Outstanding
Average Number of Loans Outstanding
Number of Repossessions
For the Quarter Ended
Principal Amount of Repossessions
For the Quarter Ended
Number of Repossessions as a
Percent of Average Number of
Loans Outstanding
Principal Amount of Repossessions
as a Percent of Average
Principal Amount Outstanding
Net Losses
For the Quarter Ended
Net Losses as a Percent of
Principal
Amount Outstanding (Annualized)
Delinquencies
31-60 Days
61-90 Days
Over 90 Days
THE INSURER
The following information has been obtained from
__________________________ ( hereinafter in this section,
"_____________________") and has not been verified by the Seller or the
Underwriter. No representations or warranty is made by the Seller or the
Underwriter with respect thereto.
[Insert description of Insurer]
DESCRIPTION OF THE SECURITIES
The Notes
The Notes will be issued pursuant to the terms of the Indenture, a
form of which has been filed as an exhibit to the Registration Statement. The
following summary describes certain terms of the Notes and the Indenture. The
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
The Notes will be offered for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. Persons acquiring beneficial
interests in the Notes will hold their interests through DTC.
Payments of Interest
Interest on the principal amount of each Class of Notes will accrue at
the applicable Interest Rate and will be payable to the Noteholders of such
Class monthly on each Distribution Date, commencing ________ __, 1996. Interest
will accrue from and including the most recent Distribution Date on which
interest has been paid (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding the following Distribution Date
(each, an "Interest Period"). Interest on the Class A-1 Notes and the Class A-2
Notes will be calculated on the basis of a 360-day year and the actual number of
days elapsed in the related Interest Period. Interest on the Class A-3 Notes
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Interest accrued as of any Distribution Date but not paid on such
Distribution Date will be due on the next Distribution Date, together with, to
the extent permitted by law, interest on such amount at the applicable Interest
Rate. In the event that the interest rate for the Class A-2 Notes for any
Interest Period calculated without giving effect to the maximum rate would
exceed the interest rate for such Interest Period after giving effect to the
maximum rate, the amount of such excess will not be due as additional interest
to the Class A-2 Noteholders on the related Distribution Date nor will it be
carried forward and payable as additional interest to the Class A-2 Noteholders
on any subsequent Distribution Date. Interest payments on the Notes will be made
from the Distribution Amount (as defined herein) after payment of accrued and
unpaid trustees' fees and other administrative fees of the Trust and payment of
the Servicing Fee. See "Description of the Purchase Agreement and the Trust
Documents -- Distributions."
Interest on the Class A-2 Notes will accrue during each Interest
Period at a rate per annum equal to the sum of LIBOR plus 0. %, subject to a
maximum rate equal to ___% per annum.
Determination of LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine LIBOR
for purposes of calculating the Interest Rate for the Class A-2 Notes for each
given Interest Period on the second business day prior to the commencement of
each Interest Period (each, a "LIBOR Determination Date"). For purposes of
calculating LIBOR, a business day means a Business Day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of one
month commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on the Telerate Page 3750, the
rate for that day will be determined on the basis of the rates at which deposits
in U.S. dollars, having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on
such LIBOR Determination Date to prime banks in the London interbank market by
the Reference Banks. The Indenture Trustee will request the principal London
office of each of such Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for that day will be the
arithmetic mean, rounded upward, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward, of
all such quotations. If fewer than two such quotations are provided, the rate
for that day will be the arithmetic mean, rounded upward, if necessary, to the
nearest 1/100,000 of 1% (.0000001), with five one-millionths of a percentage
point rounded upward, of the offered per annum rates that one or more leading
banks in New York City, selected by the Indenture Trustee, are quoting as of
approximately 11:00 a.m., New York City time, on such LIBOR Determination Date
to leading European banks for United States dollar deposits for the Index
Maturity; provided that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, LIBOR in effect for the applicable Interest Period
will be LIBOR in effect for the previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank
market selected by the Indenture Trustee.
Payments of Principal
Principal payments will be made to the Noteholders on each
Distribution Date in an amount equal to the Noteholders' Principal Distributable
Amount for the calendar month (the "Monthly Period") preceding such Distribution
Date. The Noteholders' Principal Distributable Amount will equal the sum of (x)
the Noteholders' Percentage of the Principal Distributable Amount and (y) any
unpaid portion of the amount described in clause (x) with respect to a prior
Distribution Date. The "Principal Distributable Amount" with respect to any
Distribution Date will be an amount equal to the sum of the following amounts
with respect to the related Monthly Period, computed, with respect to Simple
Interest Receivables, in accordance with the simple interest method, and, with
respect to Precomputed Receivables, in accordance with the actuarial method: (i)
that portion of all collections on Receivables allocable to principal, including
full and, with respect to Simple Interest Receivables, partial principal
prepayments, received during such Monthly Period with respect to such Monthly
Period, (ii) the principal balance of each Receivable that was repurchased by
the Seller or the Servicer as of the last day of such Monthly Period, (iii) at
the option of the Insurer, the outstanding principal balance of those
Receivables that were required to be repurchased by the Seller and/or SunStar
during such Monthly Period but were not so repurchased, (iv) the principal
balance of each Receivable that became a Liquidated Receivable during such
Monthly Period, and (v) the aggregate amount of Cram Down Losses during such
Monthly Period. Principal payments on the Notes will be made from the
Distribution Amount after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and after
distribution of the Noteholders' Interest Distributable Amount. See "Description
of the Purchase Agreement and the Trust Documents -- Distributions" herein.
The Noteholders' Percentage will be (i) for each Distribution Date to
the Distribution Date on which the Class A-3 Notes are paid in full, 100%, (ii)
on the Distribution Date on which the Class A-3 Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the outstanding
principal amount of the Notes immediately prior to such Distribution Date, and
the denominator of which is the Principal Distributable Amount for such
Distribution Date, and (iii) for any Distribution Date thereafter, zero.
Principal payments on the Notes will be applied on each Distribution Date
sequentially, to the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes, in that order, until the respective principal amount of each such Class
of Notes has been paid in full so that no principal will be paid on a Class of
Notes until the principal of all Classes of Notes having a lower numerical Class
designation has been paid in full. In addition, the outstanding principal amount
of the Notes of any Class, to the extent not previously paid, will be payable on
the respective Final Scheduled Distribution Date for such Class. The actual date
on which the aggregate outstanding principal amount of any Class of Notes is
paid may be earlier than the Final Scheduled Distribution Date for such Class,
depending on a variety of factors.
Optional Redemption
The Class A-3 Notes, to the extent still outstanding, may be redeemed
in whole, but not in part, on any Distribution Date on which the Servicer
exercises its option to purchase the Receivables. The Servicer may purchase the
Receivables on the Distribution Date on which the Pool Balance has declined to
5% or less of the Original Pool Balance, and on each Distribution Date
thereafter. Such redemption will effect early retirement of the Notes of such
Class. The redemption price will be equal to the unpaid principal amount of the
Notes of such Class, plus accrued and unpaid interest thereon (the "Redemption
Price").
Class A-1 Final Scheduled Distribution Date
Notwithstanding anything to the contrary contained herein, on _____
__, 1997 (the "Class A-1 Final Scheduled Distribution Date") holders of record
as of the Business Day preceding such date shall be entitled to receive from
funds available therefor interest on the outstanding principal amount of the
Class A-1 Notes immediately prior to such date at a rate of % per annum for the
period (the "Final Class A-1 Interest Period") from and including the most
recent Distribution Date on which interest has been paid on the Class A-1 Notes
to but excluding the Class A-1 Final Scheduled Distribution Date (together with
interest due but not paid on a prior Distribution Date and, to the extent
permitted by law, interest on such amount at %) plus the unpaid principal amount
of the Class A-1 Notes. Interest will be calculated on the basis of a 360-day
year and the actual number of days elapsed in the Final Class A-1 Interest
Period.
The Indenture
Modification of Indenture Without Noteholder Consent. Without the
consent of the Noteholders, but with the consent of the Insurer (so long as no
Insurer Default has occurred and is continuing) and with notice to the Rating
Agencies, the Indenture Trustee and the Owner Trustee may enter into one or more
supplemental indentures for any of the following purposes: (i) to correct or
amplify the description of the collateral or add additional collateral; (ii) to
evidence and provide for the assumption of the Note and the Indenture
obligations by a permitted successor to the Trust; (iii) to add additional
covenants for the benefit of the Noteholders, or to surrender any rights or
power conferred upon the Trust: (iv) to convey, transfer, assign, mortgage or
pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity
or correct or supplement any provision in the Indenture or in any supplemental
indenture; (vi) to evidence and provide for the acceptance of the appointment of
a successor Indenture Trustee or to add to or change any of the provisions of
the Indenture as shall be necessary and permitted to facilitate the
administration by more than one trustee; (vii) to modify, eliminate or add to
the provisions of the Indenture in order to comply with the Trust Indenture Act
of 1939, as amended; and (viii) to add any provisions to, change in any manner,
or eliminate any of the provisions of, the Indenture or modify in any manner the
rights of Noteholders under such Indenture; provided that any action specified
in this clause (viii) shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any Noteholder.
Modifications of Indenture With Noteholder Consent. With the consent
of the holders representing a majority of the aggregate principal balance of the
outstanding related Notes (a "Note Majority"), with the consent of the Insurer
(so long as no Insurer Default has occurred and is continuing) and with notice
to the Rating Agencies, the Indenture Trustee and the Owner Trustee may execute
a supplemental indenture to add provisions to change in any manner or eliminate
any provisions of, the Indenture, or modify in any manner the rights of the
Noteholders.
Without the consent of the Insurer (so long as no Insurer Default has
occurred and is continuing) and the holder of each outstanding related Note
affected thereby, however, no supplemental indenture may: (i) change the due
date of any installment of principal of or interest on any Note or reduce the
principal amount thereof, the interest rate thereon or the redemption price with
respect thereto, change the provisions of the Indenture relating to the
application of collections on or the proceeds of the sale of, the collateral for
the Notes to payment of principal of or interest on the Notes or change any
place of payment where or the coin or currency in which any 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 amount of the outstanding 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 Notes held by the Trust, the
Seller, an affiliate of either of them or any obligor on the Notes, (v) reduce
the percentage of the aggregate outstanding amount of the Notes the consent of
the holders of which is required to direct the Indenture Trustee on behalf of
the Trust to sell or liquidate the Receivables if the proceeds of such sale
would be insufficient to pay the principal amount and accrued but unpaid
interest on the outstanding Notes, (vi) decrease the percentage of the aggregate
principal amount of the Notes required to amend the sections of the Indenture
which specify the applicable percentage of aggregate principal amount of the
Notes necessary to amend the Indenture or certain other related agreements,
(vii) modify any of the provisions of the Indenture in such manner as to affect
the calculation of the amount of any payment of interest on any Distribution
Date or principal due on any Note on any Distribution Date (including
the calculation of any of the individual components of such calculation) or to
affect the rights of the Noteholders to the benefit of any provision for the
mandatory redemption of the Notes contained in the Indenture or (viii) 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 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 Note of the
security provided by the lien of the Indenture.
Events of Default; Rights Upon Event of Default. Unless an Insurer
Default shall have occurred and be continuing, "Events of Default" under the
Indenture will consist of those events defined in the Insurance Agreement as
Insurance Agreement Indenture Cross Defaults, and will constitute an Event of
Default under the Indenture only if the Insurer shall have delivered to the
Indenture Trustee, and not rescinded, a written notice specifying that any such
Insurance Agreement Indenture Cross Default constitutes an Event of Default
under the Indenture. "Insurance Agreement Indenture Cross Defaults" consist of:
(i) a demand for payment being made under either of the Policies; (ii) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust;
(iii) the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;
(iv) on any Distribution Date, the sum of the Available Funds with respect to
such Distribution Date plus the amount (if any) on deposit in the Spread Account
being less than the sum of the amounts described in clauses 1-7 under
"Description of the Purchase Agreement and the Trust Documents -- Distributions"
herein; and (v) any failure to observe or perform in any material respect any
other covenants or agreements in the Indenture, or any representation or
warranty of the Trust made in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith proving to have
been incorrect in any material respect when made, and such failure continuing or
not being cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect not having been eliminated or
otherwise cured, for 30 days after the giving of written notice of such failure
or incorrect representation or warranty to the Trust and the Indenture Trustee
by the Insurer.
If an Insurer Default has occurred and is continuing, "Events of
Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note after the same becomes due and
payable; (ii) a default in the payment of the principal or of any installment of
the principal of any Note when the same becomes due and payable; (iii) a default
in the observance or performance of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in aggregate
principal amount of the related Notes then outstanding (or for such longer
period, not in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or less
and the Owner Trustee delivers an officer's certificate to the Indenture Trustee
to the effect that the Trust has commenced, or will promptly commence and
diligently pursue, all reasonable efforts to remedy such default); (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of a
least 25% in aggregate principal amount of the Notes then outstanding (or for
such longer period, not in excess of 90 days as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 90
days or less and the Owner Trustee delivers an officer's certificate to the
Indenture Trustee to the effect that the Trust has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default)
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. However, the amount of principal due and payable on each class of
Notes on any Payment Date (prior to the final scheduled Payment Date of such
class) will generally be determined by the amount available to be deposited in
the Note Distribution Account for such Payment Date. Therefore, the failure to
pay principal on a class of Notes will not result in the occurrence of an Event
of Default until the final scheduled Payment Date for such class of Notes.
Upon the occurrence of an Event of Default, so long as an Insurer
Default shall not have occurred and be continuing, the Insurer will have the
right, but not the obligation, to cause the Indenture Collateral Agent to
liquidate the Trust Property in whole or in part, on any date or dates following
the acceleration of the Notes due to such Event of Default as the Insurer, in
its sole discretion, shall elect, and to deliver the proceeds of such
liquidation to the Indenture Trustee for distribution in accordance with the
terms of the Indenture. The Insurer may not, however, cause the Indenture
Collateral Agent to liquidate the Trust Property in whole or in part if the
proceeds of such liquidation would not be sufficient to pay all outstanding
principal of and accrued interest on the Notes, unless such Event of Default
arose from a claim being made on the Note Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. Following the
occurrence of any Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Policies for any shortfalls in the
Guaranteed Note Distributions on the Notes and the Guaranteed Certificate
Distributions on the Certificates. Following any Event of Default under the
Indenture, the Insurer may elect to pay all or any portion of the outstanding
amount of the Notes, plus accrued interest thereon. See "The Policies" herein.
If an Event of Default should occur and be continuing with respect to
the Notes during the continuance of an Insurer Default, the Indenture Trustee or
a Note Majority may declare the principal of the Notes to be immediately due and
payable. Such declaration may be rescinded by a Note Majority if (i) the Trust
has paid to the Indenture Trustee a sum sufficient to pay all amounts then due
with respect to the Notes (without giving effect to such acceleration) and
certain amounts payable to the Indenture Trustee and (ii) all Events of Default
(other than nonpayment of the principal of the Notes due solely as a result of
such acceleration) have been cured or waived.
If the Notes have been declared due and payable following an Event of
Default with respect thereto during the continuance of an Insurer Default, the
Indenture Trustee may institute proceedings to collect amounts due or foreclose
on Trust Property, exercise remedies as a secured party, sell the related
Receivables or elect to have the Trust maintain possession of such Receivables
and continue to apply collections on such Receivables as if there had been no
declaration of acceleration. During the continuance of an Insurer Default the
Indenture Trustee, however, will be prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal or a default for five days or more in the payment of any
interest on any Note, unless (i) the holders of all the outstanding related
Notes consent to such sale; (ii) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on such outstanding Notes at
the date of such sale; or (iii) the Indenture Trustee determines that the
proceeds of the Receivables would not be sufficient on an ongoing basis to make
all payments on the 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 the holders representing 66-2/3% of the aggregate
principal balance of the outstanding related Notes. In the event the Notes are
accelerated and the Receivables are sold, no distributions will be made on the
Certificates until all of the interest on and principal of the Notes has been
paid in full. In such event, all the funds, if any, on deposit in the Spread
Account will be available to first pay interest on and principal of the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to the 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 holders of such Notes, 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 the
provisions for indemnification and certain limitations contained in the
Indenture, a Note Majority will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee and a Note Majority 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
such outstanding Notes.
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture unless (i) such holder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% in principal amount of the outstanding Notes have
made written request of the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days failed to institute such proceeding, (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 in principal amount of such outstanding
Notes, and has occurred and is continuing.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice of
the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, the Indenture Trustee and the Noteholders, by accepting the
Notes, will covenant that they will not at any time institute against the Trust,
the Seller and the Affiliated Purchaser any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
<PAGE>
No recourse by any holder of a Note or Certificate may be taken, directly
or indirectly, with respect to the obligations of the Trust, the Seller, the
Servicer, the Affiliated Purchaser, the Owner Trustee or the Indenture Trustee
on the Notes or under the Indenture or any certificate or other writing
delivered in connection therewith, against (i) the Seller, the Servicer, the
Affiliated Purchaser, the Indenture Trustee or the Owner Trustee in its
individual capacity or (ii) any partner, owner, beneficiary, agent, officer,
director, employee or agent of the Seller, the Servicer, the Trust, the
Affiliated Purchaser, the Owner Trustee or the Indenture Trustee or of any
successor or assignee of the Seller, the Servicer, the Affiliated Purchaser, the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such person may have expressly agreed (it being understood that the Indenture
Trustee and the Owner Trustee will have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Certain Covenants. The Indenture will provide that the Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed by
or surviving such consolidation or merger is organized under the laws of the
United States, any state or the District of Columbia, (ii) such entity expressly
assumes the Trust's obligation to make due and punctual payments upon the Notes
and the performance or observance of every agreement and covenant of the Trust
under the Indenture, (iii) no Default or Event of Default shall have occurred
and be continuing immediately after such merger or consolidation, (iv) none of
the Rating Agencies, after 10 days' prior notice, shall have notified the
Seller, the Servicer, the Insurer or the Trust in writing that such transaction
will result in a reduction or withdrawal of the then current ratings of the
Notes, (v) the Insurer has consented to such merger or consolidation and no
Insurer Default has occurred and is continuing, (vi) the Trust has received an
opinion of counsel to the effect that such transaction would have no material
adverse Federal or state tax consequence to the Trust or to any
Certificateholder or Noteholder, (vii) any action necessary to maintain the lien
and security interest created by the Indenture has been taken and (viii) the
Trust has delivered to the Indenture Trustee an officers' certificate of the
Trust and an opinion of counsel each stating that such transaction and the
supplemental indenture executed in connection with such transaction comply with
the Indenture and that all conditions precedent relating to the transaction have
been complied with (including any filing required by the Exchange Act).
The Trust may not convey or transfer all or substantially all its
properties or assets to any other entity, unless (i) the entity that acquires
the assets of the Trust (A) agrees that all right, title and interest conveyed
or transferred shall be subject and subordinate to the rights of Noteholders,
(B) unless otherwise agreed, expressly agrees to indemnify, defend and hold
harmless the Trust against and from any loss, liability or expense arising under
or related to the Indenture and the Notes, (C) expressly agrees to make all
filings with the Securities and Exchange Commission (and any other appropriate
entity) required by the Exchange Act in connection with the Notes and (D) is
organized under the laws of the United States or any state; and (ii) the
criteria specified in clauses (ii) through (vii) of the preceding paragraph have
been complied with.
The Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Purchase Agreement, the Trust Documents or certain related
documents (collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of the Trust, (ii) claim any credit on or
make any deduction from the principal and interest payable in respect of the
related Notes (other than amounts withheld under the Internal Revenue Code of
1986, as amended, or applicable state law) or assert any claim against any
present or former holder of such Notes because of the payment of taxes levied or
assessed upon the collateral for the Notes, (iii) except as contemplated by the
Related Documents, dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the related Indenture to be impaired or permit any
person to be released from any covenants or obligations with respect to the
related Notes under such Indenture except as may be expressly permitted thereby,
(v) permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden the
collateral for the Notes or any part thereof, or any interest therein or
proceeds thereof except as expressly permitted by the Related Documents or (vi)
permit the lien of the Indenture not to constitute a valid first priority
security interest in the collateral for the Receivables.
The Trust will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes and the Indenture or otherwise in
accordance with the Related Documents.
Annual Compliance Statement. The Trust will be required to file annually
with the Indenture Trustee a written statement as to the fulfillment of its
obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required
to mail each year to all Noteholders a brief report relating to, among other
things, its eligibility and qualification to continue as Indenture
<PAGE>
Trustee under the Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by the
Trust to the Indenture Trustee in its individual capacity, the property and
funds physically held by the Indenture Trustee as such and any action taken by
it that materially affects the Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the Notes upon the delivery to the
related Indenture Trustee for cancellation of all Notes or, with certain
limitations, upon deposit with the Indenture Trustee of funds sufficient for the
payment in full of all of such Notes.
Trust Indenture Act. The Indenture will comply with applicable provisions
of the Trust Indenture Act of 1939, as amended.
The Indenture Trustee
The Indenture Trustee is _______________, a national banking
association. The Indenture Trustee may resign at any time, in which event the
Seller will be obligated to appoint a successor trustee eligible under the
Indenture which shall be acceptable to the Insurer so long as no Insurer Default
has occurred and is continuing. The Seller may also remove the Indenture
Trustee, with the consent of the Insurer if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, the Seller will be obligated to
appoint a successor trustee eligible under the Indenture which shall be
acceptable to the Insurer so long as no Insurer Default has occurred and is
continuing. Any resignation or removal of the Indenture Trustee and appointment
of a successor trustee will be subject to any conditions or approvals, including
the approval of the Insurer and will not become effective until acceptance of
the appointment by a successor trustee.
The Certificates
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Certificates and
the Trust Agreement. The summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement.
The Certificates will be offered for purchase in denominations of $1,000
and integral multiples thereof in book-entry form only. Persons acquiring
beneficial interests in the Certificates will hold their interest through DTC.
See "-- Book-Entry Registration."
Distributions of Interest
Interest on the Certificate Balance immediately prior to a Distribution
Date will accrue at the Certificate Rate for the related Interest Period, and
will be distributable to Certificateholders of record on each Distribution Date,
commencing _______, 1996. Interest for each Interest Period will be calculated
on the basis of a 360-day year consisting of twelve 30-day months. Interest
distributions due for any Distribution Date but not distributed on such
Distribution Date will be due on the next Distribution Date together with, to
the extent permitted by law, interest on such amount at the Certificate Rate.
Interest distributions with respect to the Certificates will be made from the
Distribution Amount after the payment of accrued and unpaid trustees' fees and
other administrative fees of the Trust, the payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount. See "Description of the
Purchase Agreement and the Trust Documents -- Distributions."
Distributions of Principal
Certificateholders will be entitled to distributions of principal on each
Distribution Date on or after the date on which the Class A-3 Notes have been
paid in full in an amount equal to the Certificateholders' Percentage of the
Principal Distributable Amount, as defined under "Description of the Securities
- -- Payments of Principal"; provided, however, that the amount distributable as
principal on the Distribution Date on which the Class A-3 Notes are paid in full
will be reduced by the amount necessary to pay the Class A-3 Notes in full.
Distributions with respect to principal payments will be made from Available
Funds after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount and the
Certificateholders' Interest Distributable Amount. See "Description of the
Purchase Agreement and the Trust Documents -- Distributions" herein.
Prepayment
Upon the occurrence of an Event of Default under the Indenture (so long as
an Insurer Default shall not have occurred and be continuing), the Insurer will
have the right, but not the obligation, to cause the liquidation of the Trust
Property, in whole or in part, on any date or dates as the Insurer, in its sole
discretion, shall elect, as described under "Description of the Securities --
Events of Default." Any such liquidation, in whole or in part, may cause a full
or partial prepayment of the Certificates.
Optional Prepayment
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 5% or less of the Original Pool Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued interest at the
Certificate Rate, which distribution will effect early retirement of the
Certificates. See "Description of the Purchase Agreement and the Trust
Documents -- Termination."
Transfers of Certificates
Certificateholders, other than individuals or entities holding Certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the Trust Agreement to notify the Owner Trustee of any transfer of their
Certificates in a taxable sale or exchange within 30 days of such transfer.
Book-Entry Registration
Persons acquiring beneficial ownership interests in the Securities may hold
their interests through DTC. Each of the Notes and the Certificates will be
registered in the name of Cede as nominee for DTC. DTC is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC accepts securities for
deposit from its participating organizations ("Participants") and facilitates
the clearance and settlement of securities transactions between Participants in
such securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). The rules applicable to DTC and its
participants are on file with the Commission.
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on, the
Securities, from the Owner Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Owner Trustee as Certificateholders or
by the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to Securities issued in book-entry form, while such Securities
are outstanding (except under the circumstances described below), under the
rules, regulations and procedures creating and affecting DTC and its operations
(the "Rules"), DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Securities and is required to
receive and transmit distributions of principal of, and interest on, the
Securities. Participants with whom Certificate Owners or Note Owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners and Note Owners. Accordingly, although Certificate
Owners and Note Owners will not possess Securities, the Rules provide a
mechanism by which Certificate Owners and Note Owners will receive distributions
and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Certificates and Notes will be issued in registered form to Certificate
Owners and Note Owners, or their nominees, rather than to DTC (such Certificates
and Notes being referred to herein as "Definitive Certificates" and "Definitive
Notes," respectively), only if (i) the Seller advises the Owner Trustee or the
Indenture Trustee, as the case may be, in writing that DTC is no longer willing
or able to discharge properly its responsibilities as nominee and depository
with respect to the Certificates or the Notes and the Seller is unable to locate
a qualified successor, (ii) the Seller at its sole option has advised the Owner
Trustee or the Indenture Trustee, as the case may be, in writing that it elects
to terminate the book-entry system through DTC or (iii) after the occurrence of
an Event of Default, the holders representing a majority of the Certificate
Balance (a "Certificate Majority") or a Note Majority advises the Owner Trustee
or the Indenture Trustee, as the case may be, through DTC that continuation of a
book-entry system is no longer in their best interests. Upon issuance of
Definitive Certificates or Definitive Notes to Certificate Owners or Note
Owners, such Certificates or Notes will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Owner Trustee or the Indenture Trustee, as the case may be, with
respect to transfers, notices and distributions.
DTC has advised the Seller that, unless and until Definitive Certificates
or Definitive Notes are issued, DTC will take any action permitted to be taken
by a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or more Participants to whose DTC
accounts the Certificates or Notes are credited. DTC has advised the Seller that
DTC will take such action with respect to any fractional interest of the
Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
NEITHER THE TRUST, THE SELLER, THE SERVICER, THE OWNER TRUSTEE, THE
INDENTURE TRUSTEE, NOR THE UNDERWRITER WILL HAVE ANY RESPONSIBILITY OR
OBLIGATION TO ANY PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH
RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT,
(2) THE PAYMENT BY DTC OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL
OWNER IN RESPECT OF THE PRINCIPAL BALANCE OF, OR INTEREST ON, THE NOTES OR
CERTIFICATES, (3) THE DELIVERY BY ANY PARTICIPANT OF ANY NOTICE TO ANY
BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE AGREEMENT
TO BE GIVEN TO NOTEHOLDERS OR CERTIFICATEHOLDERS (4) ANY OTHER ACTION TAKEN BY
DTC OR ITS NOMINEE AS THE NOTEHOLDER AND CERTIFICATEHOLDER.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
Owners or Note Owners to pledge them. In addition, since distributions on the
Certificates and the Notes will be made by the Owner Trustee or the Indenture
Trustee to DTC unless and until Definitive Certificates and Definitive Notes are
issued and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate Owners or Note Owners,
Certificate Owners and Note Owners may experience delays in the receipt of such
distributions.
WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes and in respect
of the Certificate Balance will depend on the rate of payment (including
prepayments) of the principal balance of the Receivables. As a result, final
payment of any Class of Notes could occur significantly earlier than the Final
Scheduled Distribution Date for such Class of Notes. The final distribution in
respect of principal of the Certificates also could occur prior to the Final
Scheduled Distribution Date for the Certificates. Reinvestment risk associated
with early payment of the Notes and the Certificates will be borne exclusively
by the Noteholders and the Certificateholders, respectively.
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus, the Absolute
Prepayment Model ("ABS"), represents an assumed rate of prepayment each month
relative to the original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and amortize at the
same rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
The table captioned "Percent of Initial Note Principal Balance or Initial
Certificate Balance at Various ABS Percentages" (the "ABS Table") has been
prepared on the basis of the following assumptions: (i) the Trust includes four
pools of Receivables with the characteristics set forth in the following table;
(ii) the Receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases; (iii) each scheduled monthly
payment on the Receivables is made on the last day of each month and each month
has 30 days; (iv) the initial principal amount of each Class of Notes and the
initial Certificate Balance are as set forth on the cover page hereof; (v)
interest accrues during each Interest Period at the applicable Interest Rate and
Certificate Rate; (vi) LIBOR remains constant at ____% per annum; (vii) payments
on the Notes and distributions on the Certificates are made on the 20th day of
each month whether or not a Business Day; (viii) the Securities are purchased on
the Closing Date; (ix) the scheduled monthly payment for each Receivables has
been calculated on the basis of the assumed characteristics in the following
table such that each Receivable will amortize in amounts sufficient to repay the
principal balance of such Receivable by its indicated remaining term to
maturity; (x) the first due date for each Receivable is in the month after the
assumed cutoff date for such Receivable as set forth in the following table; and
(xi) the Servicer exercises its option to purchase the Receivables.
<TABLE>
<CAPTION>
Original Term Remaining Term
Aggregate to Maturity to Maturity
Pool Principal Balance APR (in Months) (in Months)
---- ----------------- --- ------------- -------------
<S> <C> <C> <C> <C>
1
2
3
4
---------
Total
=========
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each Class of Notes and of the
Certificate Balance of the Certificates that would be outstanding after each of
the Distributions Dates shown at various percentages of ABS and the
corresponding weighted average lives of such Securities. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity, that all of the Receivables will prepay at the same
level of ABS or that LIBOR will remain constant at the level assumed or at any
other level. Moreover, the diverse terms of Receivables could produce slower or
faster principal distributions than indicated in the ABS Table at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each Class of Notes and
the Certificates.
<PAGE>
<TABLE>
Percent of Initial Note Principal Balance or
Initial Certificate Balance at Various ABS Percentages
Class A-1 Notes Class A-2 Notes
--------------- ---------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
- ----------------- ------ ------ ------ ------ ------ ------ ------ -----
Closing Date........... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
Weighted Average Life (years)(1)........
- ----------------------
<FN>
(1) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the number of
years from the date of the issuance of the Security to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the related initial
principal amount of the Security.
</FN>
</TABLE>
<PAGE>
<TABLE>
Percent of Initial Note Principal Balance or
Initial Certificate Balance at Various ABS Percentages
Class A-3 Notes Certificates
--------------- ------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
- ----------------- ------ ------ ------ ------ ------ ------ ------ -----
Closing Date.......... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
Weighted Average Life (years)(1)........
- ----------------------
<FN>
(1) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the number of
years from the date of the issuance of the Security to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the related initial
principal amount of the Security.
</FN>
</TABLE>
<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENT AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreement and
the Sale and Servicing Agreement and the Trust Agreement (together, the "Trust
Documents"). Forms of the Purchase Agreement and the Trust Documents have been
filed as exhibits to the Registration Statement. The summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Purchase Agreement and the Trust Documents.
Sale and Assignment of Receivables
On or prior to the Closing Date, SunStar will enter into a Purchase
Agreement with the Seller pursuant to which SunStar will, on or prior to such
Closing Date, sell and assign to the Seller, without recourse, its entire
interest in and to the Receivables, including its security interest in the
Financed Vehicles securing such Receivables and its rights to receive all
payments on, or proceeds with respect to, such Receivables to the extent paid or
payable after the applicable Cutoff Date. Pursuant to the Purchase Agreement,
SunStar will agree that, upon the occurrence of a breach of a representation or
warranty under the Trust Documents with respect to any of the Receivables which
causes the Seller to be obligated to repurchase a Receivable, the Owner Trustee
will be entitled to require SunStar to repurchase such Receivables from the
Trust. Such rights of the Trust under the Purchase Agreement will constitute
part of the property of the Trust and may be enforced directly by the Owner
Trustee and the Insurer. In addition, the Owner Trustee will pledge such rights
to the Indenture Trustee as collateral for the Notes, and such rights may be
enforced directly by the Indenture Trustee.
On the Closing Date, the Seller will sell and assign to the Owner Trustee,
without recourse, the Seller's entire interest in the Receivables and the
proceeds thereof, including its security interest in the Financed Vehicles.
Concurrently with such transfer and assignment, the Owner Trustee will execute
and deliver the related certificates representing the Certificates to or upon
the order of the Seller, and the Owner Trustee will execute and the Indenture
Trustee will authenticate and deliver the Notes, to or upon the order of the
Seller. The net proceeds received from the sale of the Certificates and the
Notes will be applied to the purchase of the Receivables from the Seller.
Accounts
The Servicer will establish and maintain one or more accounts, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer, into which all payments made on or with
respect to the Receivables will be deposited (the "Collection Account"). The
Servicer will be required to remit collections to the Collection Account within
two Business Days of receipt thereof. Such collections may be remitted less any
payments owed thereon to the Servicer. However, at any time that and for so long
as (i) SunStar is the Servicer, (ii) there exists no Event of Servicer
Termination, (iii) there exists no Insurer Default and the Insurer has furnished
its prior written consent, and (iv) each other condition to making deposits less
frequently than every two Business Days as may be specified by the Rating
Agencies is satisfied, the Servicer will not be required to deposit such amounts
into the Collection Account until on or before the applicable Distribution Date.
Pending deposit into the Collection Account, collections may be invested by the
Servicer at its own risk and for its own benefit and will not be segregated from
its own funds.
The Servicer will also establish and maintain an account, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture Trustee, on
behalf of the Noteholders, and the Insurer in which amounts released from the
Collection Account for distribution to Noteholders will be deposited and from
which all distributions to Noteholders will be made (the "Note Distribution
Account"). The Servicer will also establish and maintain an account, in the name
of the Indenture Collateral Agent, for the benefit of the Owner Trustee, on
behalf of the Certificateholders, and the Insurer in which amounts released from
the Collection Account for distribution to Certificateholders will be deposited
and from which all distributions to Certificateholders will be made (the
"Certificate Distribution Account").
All such Accounts shall be Eligible Accounts acceptable to the Insurer
(so long as no Insurer Default has occurred and is continuing).
<PAGE>
Servicing Compensation and Trustees' Fees
The Servicer is entitled under the Sale and Servicing Agreement on each
Distribution Date to a servicing fee (the "Servicing Fee") for the related
Monthly Period equal to the sum of (i) one-twelfth of ____% (the "Servicing Fee
Rate") multiplied by the Pool Balance as of the first day of such Monthly Period
(the "Base Servicing Fee") and (ii) the investment earnings (net of losses) on
the Collection Account. The Servicer may retain the Base Servicing Fee from
collections on the Receivables. The Servicer will retain from collections a
supplemental servicing fee (the "Supplemental Servicing Fee") for each Monthly
Period equal to any late fees, prepayment fees, rebates and other administrative
fees and expenses collected during the Monthly Period plus reinvestment proceeds
on any payments received in respect of Receivables.
On each Distribution Date under the Agreement, the Indenture Trustee is
entitled to a fee for its services as Indenture Trustee and Indenture Collateral
Agent during the prior Monthly Period equal to an amount agreed upon by the
Indenture Trustee and the Servicer. On each Distribution Date under the
Agreement, the Owner Trustee is entitled to a fee for its services as Owner
Trustee during the prior Monthly Period equal to an amount agreed upon by the
Owner Trustee and the Servicer.
Certain Allocations
On or about the fifth Business Day immediately preceding each Distribution
Date or, in the case of the Class A-1 Final Scheduled Distribution Date and the
succeeding Distribution Date, if any distributions are required to be made on
the Class A-1 Final Scheduled Distribution Date, preceding such Class A-1 Final
Scheduled Distribution Date (in each case, the "Determination Date"), the
Servicer will be required to deliver the Servicer's Certificate to the Indenture
Trustee, the Owner Trustee and the Insurer specifying, among other things, the
amount of aggregate collections on the Receivables and the aggregate Purchase
Amount of Receivables to be purchased by the Seller or the Servicer, all with
respect to the preceding Monthly Period.
On the fourth Business Day immediately preceding each Distribution Date
(or, in the case of the Class A-1 Final Scheduled Distribution Date, preceding
such date) (the "Deficiency Claim Date") the Indenture Trustee and/or the Owner
Trustee, as applicable, will (based solely on the information contained in the
Servicer's Certificate delivered on the related Determination Date) deliver to
the Indenture Collateral Agent, the Insurer and the Servicer a Deficiency Notice
specifying the Deficiency Claim Amount, if any, or the Class A-1 Deficiency
Claim Amount, if any, for such Distribution Date or Class A-1 Final Scheduled
Distribution Date, as applicable. Such Deficiency Notice will direct the
Indenture Collateral Agent to remit such Deficiency Claim Amount from amounts on
deposit in the Spread Account (to the extent of funds available therein) for
deposit in the Collection Account.
The scheduled payment with respect to a Precomputed Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable and to provide interest at the
APR of such Receivable.
Distributions
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following order
of priority:
1. To the Indenture Trustee and the Owner Trustee, any
accrued and unpaid trustees' fees and any accrued and
unpaid fees of the Indenture Collateral Agent (in
each case, to the extent such fees have not been
previously paid by the Servicer).
2. To the Servicer, the Servicing Fee for the related
Monthly Period, any Supplemental Servicing Fees for
such month and certain other amounts relating to
mistaken deposits, postings or checks returned for
insufficient funds to the extent the Servicer has not
reimbursed itself in respect of such amount to the
extent not retained by the Servicer.
3. To the Note Distribution Account, the Noteholders'
Interest Distributable Amount.
<PAGE>
4. To the Note Distribution Account, the Noteholders'
Principal Distributable Amount, to be distributed as
described under "Description of the Securities --
Payments of Principal."
5. To the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount.
6. To the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount.
7. To the Insurer, any amounts owing to the Insurer under
the Insurance Agreement and not paid.
8. To the Indenture Collateral Agent, up to the Specified
Spread Account Requirement for deposit in the Spread Account.
9. To the Seller, any remaining funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
On the Class A-1 Final Scheduled Distribution Date, the Servicer is
required to instruct the Indenture Trustee to distribute the Class A-1
Distribution Amount in the following order of priority:
A. To the Note Distribution Account, the sum of (x) the Noteholders'
Monthly Interest Distributable Amount for the Class A-1 Notes (calculated as if
the Class A-1 Final Scheduled Distribution Date were a Distribution Date) and
(y) the Noteholders' Interest Carryover Shortfall for the Class A-1 Notes
(calculated as if the Class A-1 Final Scheduled Distribution Date were a
Distribution Date).
B. To the Note Distribution Account, the Noteholders' Principal
Distributable Amount for the Class A-1 Notes.
In the event that there are any distributions made on the Class A-1 Final
Scheduled Distribution Date, the Distribution Amount for the Distribution Date
following the Class A-1 Final Scheduled Distribution Date will be reduced by the
amount thereof applied on the Class A-1 Final Scheduled Distribution Date in
accordance with the Sale and Servicing Agreement.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover the
distributions required pursuant to clauses 1 through 4 above on such
Distribution Date, the Indenture Trustee shall furnish to the Insurer no later
than 12:00 noon New York City time on the related Draw Date a completed notice
of claim in the amount of the Note Policy Claim Amount. Amounts paid by the
Insurer pursuant to any such notice of claim shall be deposited by the Insurer
into the Note Distribution Account for payment to Noteholders on the related
Distribution Date.
In the event that the Servicer's Certificate indicates that the Class A-1
Distribution Amount will be insufficient on the Class A-1 Final Scheduled
Distribution Date to cover the distributions required pursuant to clauses A and
B above on such date, the Indenture Trustee shall furnish to the Insurer no
later than 12:00 noon New York City time on the related Draw Date a completed
notice of claim in the amount of the Class A-1 Note Policy Claim Amount. Amounts
paid by the Insurer pursuant to any such notice of claim shall be deposited by
the Insurer into the Note Distribution Account for payment to the Class A-1
Noteholders on the Class A-1 Final Scheduled Distribution Date.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover the
distributions required by clauses 1 through 6 above on such Distribution Date,
the Owner Trustee shall furnish to the Insurer no later than 12:00 noon New York
City time on the related Draw Date a completed notice of claim in the amount of
the Certificate Policy Claim Amount. Amounts paid by the Insurer pursuant to any
such notice of claim shall be deposited by the Insurer into the Certificate
Distribution Account for payment to Certificateholders on the related
Distribution Date.
For the purposes hereof, the following terms shall have the following
meanings:
<PAGE>
"Amount Financed" means, with respect to a Receivable, the aggregate amount
credited under such Receivable by the applicable Dealer toward the purchase
price of the Financed Vehicle and related costs, including amounts advanced in
respect of accessories, insurance premiums, service, car club and warranty
contracts, other items customarily financed as part of retail automobile
installment sales contracts or promissory notes, and related costs.
"Available Funds" means, with respect to any Determination Date, the sum of
(i) the Collected Funds for such Determination Date, plus (ii) all Purchase
Amounts deposited in the Collection Account during the related Monthly Period.
"Certificate Balance" equals, initially, $____________ and, thereafter,
equals the initial Certificate Balance reduced by all amounts allocable to
principal previously distributed to Certificateholders.
"Certificate Policy Claim Amount" for any Distribution Date, shall equal
the lesser of (i) the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount for such
Distribution Date and (ii) the excess, if any, of the amount required to be
distributed pursuant to clauses 1 through 6 above over the Distribution Amount
with respect to such Distribution Date.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Interest
Distributable Amount for the preceding Distribution Date, over the amount in
respect of interest on the Certificates that was actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
from such preceding Distribution Date to but excluding the current Distribution
Date.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, interest accrued during the related Interest
Period at the Certificate Rate on the Certificate Balance immediately preceding
such Distribution Date, calculated on the basis of a 360-day year consisting of
twelve 30-day months.
"Certificateholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distributable Amount.
Certificateholders' Percentage" means 100% minus the Noteholders'
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Principal
Distributable Amount for the preceding Distribution Date, over the amount in
respect of principal that was actually deposited in the Certificate Distribution
Account on such Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect to
any Distribution Date (other than the Final Scheduled Distribution Date for the
Certificates), the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date for the Certificates, the Certificateholders'
Principal Distributable Amount will equal the Certificate Balance on such
Distribution Date.
"Class A-1 Deficiency Claim Amount" means, with respect to the
Determination Date relating to the Class A-1 Final Scheduled Distribution Date,
the excess, if any, of (i) the sum of the amounts payable on the Class A-1 Final
Scheduled Distribution Date pursuant to clauses A and B above over (ii) the sum
of the Available Funds for such Determination Date.
"Class A-1 Distribution Amount" means, with respect to the Class A-1 Final
Scheduled Distribution Date, the sum of (i) the Available Funds for the
immediately preceding Determination Date plus (ii) the Class A-1 Deficiency
Claim Amount, if any, received (from an Insurer Optional Deposit or the Spread
Account or otherwise other than the Policies).
"Class A-1 Note Policy Claim Amount" for the Class A-1 Final Scheduled
Distribution Date, shall equal the lesser of (i) the sum of the amounts required
to be distributed pursuant to clauses A and B above on such Class A-1 Final
Scheduled Distribution Date and (ii) the excess, if any, of the amount specified
in clause (i) over the Class A-1 Distribution Amount with respect to the Class
A-1 Final Scheduled Distribution Date.
"Collected Funds" means, with respect to any Determination Date, the amount
of funds in the Collection Account representing collections on the Receivables
during the related Monthly Period, including all Net Liquidation Proceeds
collected during the related Monthly Period (but excluding any Purchase
Amounts).
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to (i) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so reduced
and/or (ii) if such court shall have issued an order reducing the effective rate
of interest on such Receivable, the net present value (using as the discount
rate the higher of the APR on such Receivable or the rate of interest, if any,
specified by the court in such order) of the scheduled payments as so modified
or restructured. A "Cram Down Loss" shall be deemed to have occurred on the date
of issuance of such order.
"Deficiency Claim Amount" means, with respect to any Determination Date,
the excess, if any, of the sum of the amounts payable on the related
Distribution Date pursuant to clauses 1 through 7 above over the amount of
Available Funds with respect to such Determination Date.
"Deficiency Notice" means a written notice delivered by the Indenture
Trustee or the Owner Trustee, as applicable, to the Insurer, the Servicer and
any other person required under the Insurance Agreement, specifying the
Deficiency Claim Amount for such Distribution Date or the Class A-1 Deficiency
Claim Amount for the Class A-1 Final Scheduled Distribution Date.
"Distribution Amount" means, with respect to any Distribution Date the sum
of (i) the Available Funds for the immediately preceding Determination Date plus
(ii) the Deficiency Claim Amount, if any, received (from an Insurer Optional
Deposit or the Spread Account or otherwise) by the Indenture Trustee with
respect to such Distribution Date.
"Insurer Optional Deposit" means, with respect to any Distribution Date, an
amount delivered by the Insurer, at its sole option, other than the Policies for
deposit into the Collection Account for any of the following purposes: (i) to
provide funds in respect of the payment of fees or expenses of any provider of
services to the Trust with respect to such Distribution Date; or (ii) to include
such amount as part of the Distribution Amount for such Distribution Date to the
extent that without such amount a draw would be required to be made on a Policy.
"Liquidated Receivable" means, with respect to any Determination Date, a
Receivable as to which, as of the last day of the related Monthly Period, (i)
the Servicer has determined in good faith that all amounts it expects to recover
have been received, (ii) such Receivable shall have become 180 or more days
delinquent on a recency basis, or (iii) the Financed Vehicle has been sold and
the proceeds received.
"Net Liquidation Proceeds" means, with respect to Liquidated Receivables,
(i) proceeds from the disposition of the underlying automobile securing the
Liquidated Receivables, less reasonable Servicer out-of-pocket costs, including
repossession and resale expenses not already deducted from such proceeds, and
any amounts required by law to be remitted to the Obligor, (ii) any insurance
proceeds, or (iii) other monies received from the Obligor or otherwise.
"Note Policy Claim Amount" for any Distribution Date, shall equal the
lesser of (i) the sum of the Noteholders' Interest Distributable Amount and
Noteholders' Principal Distributable Amount for such Distribution Date and (ii)
the excess, if any, of the amount required to be distributed pursuant to clauses
1 through 4 above over the Distribution Amount with respect to such Distribution
Date.
"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date and a Class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such Class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such Class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such Class on the preceding Distribution Date, to the extent permitted by law,
at the Interest Rate borne by such Class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for each Class of Notes for such Distribution Date and the Noteholders'
Interest Carryover Shortfall for each Class of Notes for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Distribution Date and any Class of Notes, interest accrued during the
applicable Interest Period at the Interest Rate borne by such Class of Notes on
the outstanding principal amount of such Class immediately prior to such
Distribution Date, calculated on the basis of a 360-day year and (a) the actual
number of days elapsed, in the case of the Class A-1 Notes and the Class A-2
Notes and (b) twelve 30-day months, in the case of the Class A-3 Notes.
"Noteholders' Monthly Principal Distributable Amount" means, with respect
to any Distribution Date, the Noteholders' Percentage of the Principal
Distributable Amount.
"Noteholders' Percentage" means (i) for each Distribution Date to the
Distribution Date on which the Class A-3 Notes are paid in full, 100%, (ii) on
the Distribution Date on which the Class A-3 Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the outstanding
principal amount of the Notes immediately prior to such Distribution Date, and
the denominator of which is the Principal Distributable Amount for such
Distribution Date, and (iii) for any Distribution Date thereafter, zero.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Principal Distributable Amount
for the preceding Distribution Date over the amount in respect of principal that
was actually deposited in the Note Distribution Account on such Distribution
Date.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date for any
Class of Notes), the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date. The Noteholders'
Principal Distributable Amount on the Final Scheduled Distribution Date for any
Class of Notes will equal the sum of (i) the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date, (ii) the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date, and
(iii) the excess of the outstanding principal amount of such Class of Notes, if
any, over the amounts described in clauses (i) and (ii).
"Principal Balance" means, with respect to any Receivable, as of any date,
the Amount Financed minus (i) that portion of all amounts received on or prior
to such date and allocable to principal in accordance with the terms of the
Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
"Principal Distributable Amount" means, with respect to any Distribution
Date, the amount equal to the sum of the following amounts with respect to the
related Monthly Period, computed, with respect to Simple Interest Receivables,
in accordance with the simple interest method, and, with respect to Precomputed
Receivables, in accordance with the actuarial method: (i) that portion of all
collections on Receivables allocable to principal, including full and, with
respect to Simple Interest Receivables, partial principal prepayments received
during such Monthly Period with respect to such Monthly Period, (ii) the
principal balance of each Receivable that was repurchased by the Seller or the
Servicer as of the last day of such Monthly Period, (iii) at the option of the
Insurer, the outstanding principal balance of those Receivables that were
required to be repurchased by the Seller and/or SunStar during such Monthly
Period but were not so repurchased, (iv) the principal balance of each
Receivable that became a Liquidated Receivable during such Monthly Period and
(v) the aggregate amount of Cram Down Losses during such Monthly Period.
"Purchase Amount" means, with respect to a Receivable, the Principal
Balance and accrued interest on the Receivable (including one month's interest
thereon, in the month of payment, at the APR less, so long as SunStar is the
Servicer, the Servicing Fee), after giving effect to the receipt of any moneys
collected (from whatever source) on such Receivable, if any.
Statements to Securityholders
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders and the Owner Trustee will be
required to forward a statement to the Certificateholders on such Distribution
Date. Such statements will be based on the information in the related Servicer's
Certificate setting forth certain information required under the Trust
Documents. Each such statement to be delivered to Noteholders will include the
following information as to the Notes, and each such statement to be delivered
to Certificateholders will include the following information as to the
Certificates, with respect to such Distribution Date or the period since the
previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or
with respect to the Notes and the Certificates:
(ii) the amount of the distribution allocable to principal with
respect to the Notes and the Certificates;
(iii) the amount of the distribution payable pursuant to a
claim on the Note Policy or the Certificate Policy, as the case may be,
or out of amounts on deposit in the Spread Account;
(iv) the aggregate outstanding principal amount and the Note
Pool Factor for each Class of Notes and the Certificate Balance and the
Certificate Pool Factor for the Certificates, in each case, after
giving effect to all payments reported under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall, if any, and the change in such amounts from the
preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period.
Each amount set forth pursuant to subclauses (i) through (vi) with respect
to Certificates or Notes will be expressed as a dollar amount per $1,000 of the
initial principal amount of the Notes or initial Certificate Balance, as
applicable.
Unless and until Definitive Notes or Definitive Certificates are issued,
such reports will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC.
Within the required period of time after the end of each calendar year, the
Indenture Trustee and the Owner Trustee, as applicable, will furnish to each
person who at any time during such calendar year was a Noteholder or
Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as the Seller deems necessary to enable such Noteholder or
Certificateholder to prepare its tax returns.
List of Securityholders
At such time, if any, as Definitive Notes have been issued, the Indenture
Trustee will, upon written request by three or more Noteholders or one or more
holders of Notes evidencing not less than 25% of the aggregate principal balance
of the related Notes, within five Business Days after provision to the Indenture
Trustee of a statement of the applicants' desire to communicate with other
Noteholders about their rights under the Indenture or the Notes and a copy of
the communication that the applicants propose to transmit, afford such
Noteholders access during business hours to the current list of Noteholders for
purposes of communicating with other Noteholders with respect to their rights
under the Indenture. The Indenture will not provide for holding any annual or
other meetings of Noteholders.
At such time, if any, as Definitive Certificates have been issued, the
Owner Trustee will, upon written request by three or more Certificateholders or
one or more holders of Certificates evidencing not less than 25% of the
Certificate Balance, within five Business Days after provision to the Owner
Trustee of a statement of the applicants' desire to communicate with other
Certificateholders about their rights under the related Trust Documents or the
Certificates and a copy of the communication that the applicants propose to
transmit, afford such Certificateholders access during business hours to the
current list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Trust Documents. The
Trust Documents will not provide for holding any annual or other meetings of
Certificateholders.
Spread Account
On the Closing Date, the Seller will make an initial deposit of an amount
to be agreed upon by the Seller and the Insurer (the "Spread Account Initial
Deposit") to the Spread Account which will be established with the Indenture
Collateral Agent for the benefit of the Indenture Trustee on behalf of the
Noteholders, the Owner Trustee, on behalf of the Certificateholders, and the
Insurer pursuant to a certain Spread Account Agreement dated as of October 31,
1996 (the "Spread Account Agreement"). The Spread Account will not be an asset
of the Trust. On each Distribution Date, the Indenture Trustee will be required
to deposit additional amounts into the Spread Account from payments on the
Receivables as described under "-- Distributions" above. Amounts, if any, on
deposit in the Spread Account will be available to the extent provided in the
Spread Account Agreement to fund any Deficiency Claim Amount or the Class A-1
Deficiency Claim Amount otherwise required to be made on a Distribution Date or
the Class A-1 Final Scheduled Distribution Date, as applicable. The aggregate
amount required to be on deposit at any time in the Spread Account (the
"Specified Spread Account Requirement") will be determined in accordance with
the Insurance Agreement and the Spread Account Agreement. The Specified Spread
Account Requirement may increase or decrease over time as a result of floors,
caps and triggers set forth in the Insurance Agreement or the Spread Account
Agreement, even if no withdrawals are made from the Spread Account. Amounts on
deposit in the Spread Account on any Distribution Date (after giving effect to
all distributions made on such Distribution Date) in excess of the Specified
Spread Account Requirement for such Distribution Date will be released to the
Seller. Amounts on deposit or to be deposited in the Spread Account may be
distributed to persons other than the Insurer or the Securityholders without the
consent of the Securityholders.
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of holders of the Securities and the Insurer. Funds in the
Spread Account will be invested in Eligible Investments. Investment income (net
of investment losses and expenses) on amounts in the Spread Account will not be
available for distribution to holders of Securities, and will only be
distributed to the Seller.
In addition, the Seller, the Insurer and the Indenture Collateral Agent may
amend the Spread Account Agreement (and any provisions in the Insurance
Agreement relating to the Spread Account) in any respect (including, without
limitation, reducing or eliminating the Specified Spread Account Requirement
and/or reducing or eliminating the funding requirements of the Spread Account or
permitting such funds to be used for the benefit of persons other than
Securityholders) without the consent of, or notice to, the Indenture Trustee,
the Owner Trustee or the Securityholders. The Indenture Collateral Agent shall
not withhold or delay its consent with respect to any amendment that does not
adversely affect the Indenture Collateral Agent. Notwithstanding any reduction
in or elimination of the funding requirements of the Spread Account or the
depletion thereof, the Insurer will be obligated on each Distribution Date to
fund the full amount of each Guaranteed Note Distribution and each Guaranteed
Certificate Distribution otherwise required to be made on such Distribution
Date. If the Insurer breaches its obligations, any losses on the Receivables
will be borne by the Securityholders.
Servicer Default; Rights Upon Servicer Default
A "Servicer Default" under the Sale and Servicing Agreement will consist of
(i) any failure by the Servicer to deliver to the Owner Trustee or the Indenture
Trustee any deposit or payment required to be so made, which failure continues
unremedied for five Business Days after written notice from the Owner Trustee or
the Indenture Trustee or the Insurer is received by the Servicer, (ii) any
failure by the Servicer duly to observe or perform in any material respect any
other covenant or agreement in the Sale and Servicing Agreement which failure
materially and adversely affects the rights of Certificateholders or Noteholders
and which continues unremedied for 60 days after the giving of written notice of
such failure (1) to the Servicer by the Owner Trustee or the Indenture Trustee
or the Insurer or (2) to the Servicer and to the Owner Trustee and the Indenture
Trustee by holders of Certificates or Notes evidencing not less than 25% in
aggregate principal amount of the outstanding Certificates or Notes,
respectively (or such longer period, not in excess of 120 days, as may be
reasonably necessary to remedy such default; provided that such default is
capable of remedy within 120 days or less and the Servicer delivers an officer's
certificate to the Owner Trustee, the Indenture Trustee and the Insurer to such
effect and to the effect that the Servicer has commenced, or will promptly
commence, and diligently pursue all reasonable efforts to remedy such default);
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings with respect to the Servicer or the
Seller and certain actions by the Servicer or the Seller indicating its
insolvency, reorganization pursuant to bankruptcy proceedings, or inability to
pay its obligations; and (iv) unless an Insurer Default has occurred and is
continuing, certain defaults under the Insurance Agreement.
As long as a Servicer Default under the Sale and Servicing Agreement
remains unremedied, the Insurer or, if an Insurer Default exists, either the
Indenture Trustee or the Noteholders holding not less than a majority of the
principal amount of Notes outstanding may terminate all of the rights and
obligations of the Servicer under the Sale and Servicing Agreement. All
authority, power, obligations and responsibilities of the Servicer under the
Sale and Servicing Agreement automatically then pass to the Indenture Trustee,
as backup servicer, or a successor servicer appointed by the Insurer in
accordance with the Sale and Servicing Agreement.
"Insurer Default" shall mean the occurrence and continuance of any of the
following events:
(a) the Insurer shall have failed to make a payment required under the
Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any case
or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii)
made a general assignment for the benefit of its creditors, or (iii) had an
order for relief entered against it under the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is final
and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgement or decree (i) appointing a
custodian, trustee, agent or receiver for the Insurer or for all or any
material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Insurer (or
the taking of possession of all or any material portion of the property of
the Insurer).
Waiver of Past Defaults
The Insurer may, on behalf of all holders of Securities, waive any default
by the Servicer in the performance of its obligations under the Sale and
Servicing Agreement and its consequences. No such waiver will impair the
Securityholders' rights with respect to subsequent defaults.
Termination
The obligations of the Servicer, the Seller, the Owner Trustee and the
Indenture Trustee pursuant to the Sale and Servicing Agreement will terminate
upon the latest of (i) the maturity or other liquidation of the last Receivable
and the disposition of any amounts received upon liquidation of any such
remaining Receivables, (ii) the payment to Noteholders and Certificateholders of
all amounts required to be paid to them pursuant to the Sale and Servicing
Agreement and the payment of any fees or other amounts owing to the Insurer, and
(iii) the Servicer's purchase at its option, as of the end of any Monthly Period
when the then outstanding Pool Balance is 5% or less of the Original Pool
Balance, of all remaining Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of the end of such Monthly Period.
Physical Damage Insurance
The Trust Documents will provide that the Servicer, in accordance with its
customary servicing procedures, shall use its commercially reasonable efforts to
determine whether each obligor has complied with the obligation to obtain and
maintain physical insurance covering the related Financed Vehicle. If an Obligor
fails to maintain such insurance, the Servicer shall in accordance with its
customary procedure for its own account, obtain collateral protection insurance
("CPI") and advance the premium for such CPI on behalf of such Obligor, as
permitted under the terms of the applicable Contract and the Trust Documents,
each insurance policy naming the Servicer as an additional insured and loss
payee. SunStar has engaged American Bankers Insurance Company to track the
maintenance of physical damage insurance policies and provide CPI. CPI and any
expense reimbursements or finance charges collected by the Servicer in
connection therewith shall be, to the extent permitted by law, in an amount in
accordance with customary servicing procedures, but in no event in an amount
greater than that permitted by applicable law.
The Servicer shall be required to disclose to the related Obligor all
information with respect to such CPI, commissions and finance charges as
required by applicable law.
The Servicer does not, under its customary servicing procedures, obtain CPI
when the principal balance of the related Contract falls below the level or
levels periodically established in accordance with such customary servicing
procedures. In accordance with such customary servicing procedures, the Servicer
may periodically readjust such levels, suspend CPI or arrange other methods of
protection of the Financed Vehicles that it deems necessary or advisable,
provided that the Servicer determines that such actions do not materially and
adversely affect the interests of the Certificateholders or the Noteholders.
SunStar's practices regarding the purchase of CPI on behalf of obligors may
change over time in accordance with changes in applicable law or its business
judgment.
Any portion of the principal balance of a Contract attributable to premiums
for CPI acquired after the Cutoff Date and interest on such amount at the rate
in the applicable Contract will not be owned by the Trust, and amounts allocable
thereto will not be available for distribution in respect of the Securities.
Unless otherwise designated by the Obligor, the Servicer will not allocate
payments by the Obligor to pay CPI premiums added to the Contracts or interest
thereon after the Cutoff Date if any other amount of principal or interest is
due but unpaid on the Contracts. The Servicer shall not deposit payments posted
with respect to such CPI in the Collection Account. In the event that an Obligor
under a Contract with respect to which the Servicer has advanced funds to obtain
CPI makes scheduled payments under the Contract, but fails to make scheduled
payments of moneys owing on account of such CPI as due, the Servicer may, but
shall not be required to, take any action available to it, including determining
that the related Contract is a defaulted Contract; provided, however, that any
net liquidation proceeds with respect to such Contract shall be applied first to
the accrued and unpaid interest at the Contract Rate, then to the principal
amount outstanding, and the remainder, if any, to repayment of any such CPI
premiums added to the Contracts after the Cutoff Date.
The Trust Documents will permit the Servicer or any affiliate of the
Servicer, to the extent permitted by law, to (i) enter into agreements with one
or more insurers or other persons pursuant to which the Servicer or such
affiliate will earn commissions and fees in connection with any insurance policy
(whether or not such physical damage insurance policy is force-placed pursuant
to the provisions of any Contract), or any other insurance policy whatsoever,
and (ii) in connection with the foregoing, to solicit, or permit and assist any
insurer or any agent thereof to solicit (including, without limitation,
providing such insurer or agent a list of Obligors including name, address or
other information) any Obligor.
Amendment
The Sale and Servicing Agreement may be amended by the Seller, the Servicer
and the Owner Trustee with the consent of the Indenture Trustee, (which consent
may not be unreasonably withheld) and with the consent of the Insurer (so long
as no Insurer Default has occurred and is continuing), but without the consent
of the Securityholders, to cure any ambiguity, or to correct or supplement any
provision therein which may be inconsistent with any other provision therein;
provided that such action shall not adversely affect in any material respect the
interests of any Securityholder; provided, further, that if an Insurer Default
has occurred and is continuing, such action shall not materially adversely
affect the interests of the Insurer. The Seller, the Servicer and the Owner
Trustee may also amend the Sale and Servicing Agreement with the consent of the
Insurer, the consent of the Indenture Trustee, the consent of Noteholders
holding a majority of the principal amount of the Notes and the consent of
Certificateholders holding a majority of the principal amount of Certificates
outstanding to add, change or eliminate any other provisions with respect to
matters or questions arising under such Agreement or affecting the rights of the
Noteholders or the Certificateholders; provided that such action will not (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that are
required to be made for the benefit of the Noteholders or Certificateholders or
(ii) reduce the aforesaid percentage of the Noteholders or Certificateholders
required to consent to any such amendment, without, in either case, the consent
of the holders of all Notes and Certificates outstanding; provided, further,
that if an Insurer Default has occurred and is continuing, such action shall not
materially adversely affect the interest of the Insurer. The Seller and Servicer
must deliver to the Owner Trustee, the Indenture Trustee and the Insurer upon
the execution and delivery of the Sale and Servicing Agreement and any amendment
thereto an opinion of counsel, satisfactory to the Indenture Trustee, that all
financing statements and continuation statements have been filed that are
necessary to fully protect and preserve the Trustee's interest in the
Receivables.
<PAGE>
THE POLICIES
Note Policy
Simultaneously with the issuance of the Notes, the Insurer will deliver the
Note Policy to the Indenture Trustee for the benefit of each Noteholder. Under
the Note Policy, the Insurer will unconditionally and irrevocably guarantee to
the Indenture Trustee for the benefit of each Noteholder the full and complete
payment of (i) Guaranteed Note Distributions (as defined below) on the Notes and
(ii) the amount of any Guaranteed Note Distribution which subsequently is
avoided in whole or in part as a preference payment under applicable law. In the
event the Indenture Trustee fails to make a claim under the Note Policy,
Noteholders do not have the right to make a claim directly under the Note
Policy, but may sue to compel the Indenture Trustee to do so.
"Guaranteed Note Distributions" means payments which are scheduled to be
made on the Notes during the term of the Note Policy in accordance with the
original terms of the Notes when issued and without regard to any subsequent
amendment or modification of the Notes that has not been consented to by the
Insurer, which payments are (i) the Noteholders' Interest Distributable Amount
and (ii) the Noteholders' Principal Distributable Amount; Guaranteed Note
Distributions do not include payments which become due on an accelerated basis
as a result of (a) a default by the Trust, (b) an election by the Trust to pay
principal on an accelerated basis, (c) the occurrence of an Event of Default
under the Indenture or (d) any other cause, unless the Insurer elects, in its
sole discretion, to pay in whole or in part such principal due upon
acceleration, together with any accrued interest to the date of acceleration. In
the event the Insurer does not so elect, the Note Policy will continue to
guarantee Guaranteed Note Distributions due on the Notes in accordance with
their original terms. Guaranteed Note Distributions shall not include (x) any
portion of a Noteholders' Interest Distributable Amount due to Noteholders
because the appropriate notice and certificate for payment in proper form was
not timely Received (as defined below) by the Insurer, (y) any portion of a
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Interest
Carryover Shortfall pursuant to the Note Policy, or (z) any Note Prepayment
Amounts unless, in each case, the Insurer elects, in its sole discretion, to pay
such amount in whole or in part.
Payment of claims on the Note Policy made in respect of Guaranteed Note
Distributions will be made by the Insurer following Receipt by the Insurer of
the appropriate notice for payment on the later to occur of (i) 12:00 noon, New
York City time, on the third Business Day following Receipt of such notice for
payment, and (ii) 12:00 noon, New York City time, on the date on which such
payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Note Policy, the Insurer shall cause such payment to be made no earlier than
the first to occur of (a) the fourth Business Day following Receipt by the
Insurer from the Indenture Trustee of (i) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction to
the effect that the Noteholder is required to return principal or interest paid
on the Notes during the term of the Note Policy because such payments were
avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Noteholder that the Order has been entered and is not subject
to any stay and (iii) an assignment duly executed and delivered by the
Noteholder, in such form as is reasonably required by the Insurer and provided
to the Noteholder by the Insurer, irrevocably assigning to the Insurer all
rights and claims of the Noteholder relating to or arising under the Notes
against the Trust or otherwise with respect to such preference payment, or (b)
the date of Receipt (as defined below) by the Insurer from the Indenture Trustee
of the items referred to in clauses (i), (ii) and (iii) above if, at least four
Business Days prior to such date of Receipt, the Insurer shall have received
written notice from the Indenture Trustee that such items were to be delivered
on such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Indenture Trustee or any Noteholder
directly (unless a Noteholder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which case such payment shall be disbursed to the Indenture Trustee for
distribution to such Noteholder upon proof of such payment reasonably
satisfactory to the Insurer). In connection with the foregoing, the Insurer
shall have the rights provided in the Indenture.
Certificate Policy
Simultaneously with the issuance of the Certificates, the Insurer will
deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, the Insurer will
unconditionally and irrevocably guarantee to the Owner Trustee for the benefit
of each Certificateholder the full and complete
<PAGE>
payment of (i) Guaranteed Certificate Distributions (as defined below) with
respect to the Certificates and (ii) the amount of any Guaranteed Certificate
Distribution which subsequently is avoided in whole or in part as a preference
payment under applicable law. In the event that the Owner Trustee fails to make
a claim under the Certificate Policy, Certificateholders do not have the right
to make a claim directly under the Certificate Policy but may sue to compel the
Owner Trustee to do so.
"Guaranteed Certificate Distributions" means the distributions to be made
on the Certificates with respect to a Distribution Date during the term of the
Certificate Policy in accordance with the original terms of the Certificates
when issued and without regard to any amendment or modification of the
Certificates or the Trust Agreement which has not been consented to by the
Insurer, which distributions are equal to (i) the Certificateholders' Interest
Distributable Amount with respect to such Distribution Date and (ii) the
Certificateholders' Principal Distributable Amount with respect to such
Distribution Date; provided, however, that Guaranteed Certificate Distributions
shall not include (x) any portion of a Certificateholder's Interest
Distributable Amount due to Certificateholders because the appropriate notice
and certificate for payment in proper form was not timely Received (as defined
below) by the Insurer, (y) any portion of a Certificateholder's Interest
Distributable Amount due to Certificateholders representing interest on any
Certificateholders' Interest Carryover Shortfall accrued from and including the
date of payment of the amount of such Certificateholders' Interest Carryover
Shortfall pursuant to the Certificate Policy, or (z) any Certificate Prepayment
Amount, unless, in each case, the Insurer elects, in its sole discretion, to pay
such amount in whole or in part.
Payment of claims on the Certificate Policy made in respect of Guaranteed
Certificate Distributions will be made by the Insurer following Receipt by the
Insurer of the appropriate notice for payment on the later to occur of (i) 12:00
noon New York City time, on the third Business Day following Receipt (as defined
below) of such notice for payment, or (ii) 12:00 noon, New York City time, on
the date on which such payment was due on the Certificates.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Certificate Policy, the Insurer shall cause such payment to be made no
earlier than the first to occur of (a) the fourth Business Day following Receipt
by the Insurer from the Owner Trustee of (i) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction to
the effect that the Certificateholder is required to return the amount of any
Guaranteed Certificate Distributions distributed with respect to the
Certificates during the term of the Certificate Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (ii) a certificate of the Certificateholder that the Order has been entered
and is not subject to any stay and (iii) an assignment duly executed and
delivered by the Certificateholder, in such form as is reasonably required by
the Insurer and provided to the Certificateholder by the Insurer, irrevocably
assigning to the Insurer all rights and claims of the Certificateholder relating
to or arising under the Certificates against the debtor which made such
preference payment or otherwise with respect to such preference payment, or (b)
the date of Receipt by the Insurer from the Owner Trustee of the items referred
to in clauses (i), (ii) and (iii) above if, at least four Business Days prior to
such date of Receipt, the Insurer shall have Received written notice from the
Owner Trustee that such items were to be delivered on such date and such date
was specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in- possession or trustee in bankruptcy named in the Order
and not to the Owner Trustee or any Certificateholder directly (unless a
Certificateholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order in which case
such payment shall be disbursed to the Owner Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Insurer). In connection with the foregoing, the Insurer shall have the rights
provided in the Sale and Servicing Agreement.
Other Provisions of the Policies
The terms "Receipt" and "Received" with respect to a Policy shall mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after 12:00 noon, New York City time, shall be deemed to
be Received on the next succeeding Business Day. If any notice or certificate
given under a Policy by the Indenture Trustee or the Owner Trustee, as the case
may be, is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Insurer or its
fiscal agent shall promptly so advise the Indenture Trustee or the Owner Trustee
and the Indenture Trustee or the Owner Trustee may submit an amended notice.
Under the Policies, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
Wilmington, Delaware, the City of New York or any other location of any
successor Servicer, successor Owner Trustee or successor Indenture Collateral
Agent are authorized or obligated by law, executive order or governmental decree
to be closed.
The Insurer's obligations under the respective Policies in respect of
Scheduled Payments and Guaranteed Distributions shall be discharged to the
extent funds are transferred to the Indenture Trustee or the Owner Trustee as
provided in the related Policy whether or not such funds are properly applied by
the Indenture Trustee or the Owner Trustee.
The Insurer shall be subrogated to the rights of each Noteholder or
Certificateholder to receive payments of principal and interest to the extent of
any payment by the Insurer under the related Policy.
Claims under the Policies constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under each other financial guaranty insurance policy issued
thereby constitute pari passu claims against the general assets of the Insurer.
The terms of the Policies cannot be modified or altered by any other agreement
or instrument, or by the merger, consolidation or dissolution of the Trust. The
Note Policy may not be canceled or revoked prior to distribution in full of all
Scheduled Payments, and the Certificate Policy may not be canceled or revoked
prior to distribution in full of all Guaranteed Distributions. The Policies are
not covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. The Policies are governed by the laws
of the State of New York.
It is a condition to issuance that the Class A-1 Notes be rated A-1+ by S&P
and P-1 by Moody's, and that the Class A-2 Notes, the Class A-3 Notes and the
Certificates be rated AAA by S&P and Aaa by Moody's. The ratings by the Rating
Agencies of the Securities will be based primarily on the issuances of the
Policies. A rating is not a recommendation to purchase, hold or sell Securities.
In the event that the rating initially assigned to any of the Securities is
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the claims-paying ability of the Insurer, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Securities. Any reduction or withdrawal of a rating may have an adverse
effect on the liquidity and market price of the Securities.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The Contracts are "chattel paper" as defined in the Uniform Commercial Code
as in effect in the states in which the Contracts are originated ("UCC").
Pursuant to the UCC, an ownership interest in chattel paper may be perfected by
possession of the chattel paper or filing a UCC-1 financing statement with the
Secretary of State or other central filing office in the appropriate state as
required by the applicable UCC.
SunStar will take or cause to be taken such action as is required to
perfect the Trust's rights in the Contracts and will represent and warrant that
the Trust, subject to the interest of the provider of credit enhancement, if
any, has good title, free and clear of liens and encumbrances, to each Contract
on the Closing Date. Under the Trust Documents, SunStar, as Servicer, will have
possession of the Contracts following the sale of the Contracts to the Trust and
will hold the Contracts as custodian and agent of the Owner Trustee and
Indenture Trustee, if any. However, the Contracts will not be physically marked
to indicate the ownership interest thereof by the Trust. UCC-1 financing
statements will be filed with the Texas Secretary of State to perfect by filing
and give notice of the Trust's ownership interest in the Contracts. If, through
inadvertence or otherwise, any of the Contracts were sold to another party who
purchased such Contracts in the ordinary course of its business and took
possession of such Contracts, the purchaser would acquire an interest in the
Contracts superior to the interests of the Trust if the purchaser acquired the
Contracts in good faith, for value and without actual knowledge of the Trust's
ownership interest in the Contracts. SunStar will agree in the Trust Documents
to take all necessary action to preserve and protect the Trust's ownership
interest in the Contracts. The Seller will represent and warrant that each
Contract is secured by a Financed Vehicle.
Security Interests in Vehicles
All of the Financed Vehicles were registered in the states where the
related borrowers reside. Security interests in vehicles registered in most
states may be perfected by depositing with the state agency responsible for
motor vehicles a properly endorsed certificate of title showing the secured
party as legal owner or an application for an original registration together
with an application for registration of the secured party as legal owner. The
Seller will represent and warrant to the Trust in the Trust Documents that all
steps necessary to obtain a perfected first priority security interest with
respect to the Financed Vehicles securing the Contracts have been taken for the
benefit of SunStar. If the Servicer fails, because of clerical error or
otherwise, to effect or maintain such notation for a Financed Vehicle, the Trust
may not have a first priority security interest in such Financed Vehicle. Each
Receivable typically prohibits the sale or transfer of the Financed Vehicle
without the Servicer's consent.
Perfection of security interests in the vehicles is generally governed by
the motor vehicle registration laws of the state in which the vehicle is
located. In states in which the Receivables have been originated, a security
interest in a vehicle generally may be perfected only by causing such vehicle's
certificate of title to be amended to note the security interest of the secured
party. Such notation of a secured party's security interest is generally
effected in such states by depositing with the applicable state motor vehicles
registrar, or similar authority, along with any necessary registration fees, the
vehicle's certificate of title and an application containing the name and
address of the secured party.
Pursuant to the Purchase Agreement, SunStar will assign its security
interests in the Financed Vehicles securing the Receivables to the Seller and,
pursuant to the Trust Documents, the Seller will assign its security interests
in the Financed Vehicles securing the Receivables to the Owner Trustee. However,
because of the administrative burden and expense, the Servicer, the Seller and
the Owner Trustee will not amend any certificate of title to identify the Trust
as the new secured party on the certificates of title relating to the Financed
Vehicles. Also, the Servicer will continue to hold any certificates of title
relating to the Financed Vehicles in its possession as custodian for the Owner
Trustee pursuant to the Trust Documents.
Under the law of Texas and most other states, assignments such as those
under the Purchase Agreement and the Trust Documents are an effective conveyance
of a security interest without amendment of any security interest noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. In the absence of fraud or forgery by the
vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of the Servicer's security interest on the certificates
of title or the Servicer's possession of the certificate of title will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which a perfected
security interest was not obtained, the Trust's security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles,
lienholders and holders of perfected security interests. Such a failure,
however, would constitute a breach of SunStar's warranties under the Purchase
Agreement and of the Seller's warranties under the Trust Documents and would
create an obligation of SunStar under the Purchase Agreement and of the Seller
under the Trust Documents to purchase the Receivable unless the breach is cured.
The Seller will assign its rights under the Purchase Agreement to the Trust. By
not identifying the Trust as the secured party on the certificate of title, the
security interest of the Trust in the Financed Vehicle could be defeated through
fraud or negligence.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle;
accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle, or, in the case of vehicles registered in
states providing for the notation of a security interest on the certificate of
title but not possession by the secured party, the secured party would receive
notice of surrender if the security interest is noted on the certificate of
title. Thus, the secured party would have the opportunity to re-perfect its
security interest in the vehicle in the state of relocation. In states that do
not require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of servicing
receivables, SunStar takes steps to effect re-perfection upon receipt of notice
of re-registration or information from the Obligor as to relocation. Similarly,
when an Obligor sells a vehicle, SunStar must surrender possession of the
certificate of title or will receive notice as a result of its security interest
noted thereon and accordingly will have an opportunity to require satisfaction
of the related Receivable before release of the security interest. Under the
Trust Documents, the Servicer is obligated to take appropriate steps, in
accordance with its customary practices for its own account, at the Servicer's
expense, to maintain perfection of security interests in the Financed Vehicles.
Under the laws of most states, liens for repairs performed on, and for
storage of, a motor vehicle and liens for certain unpaid taxes take priority
over even a perfected security interest in a Financed Vehicle. The Internal
Revenue Code of 1986, as amended, also grants priority to certain federal tax
liens over the security interest of a secured party. The laws of certain states
and federal law permit the confiscation of motor vehicles under certain
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in the confiscated motor vehicle.
SunStar will represent to the Seller and the Seller will represent to the Trust
that each security interest in a Financed Vehicle is or will be prior to all
other present liens (other than tax liens and liens that arise by operation of
law) upon and security interests in such Financed Vehicle. However, liens for
repairs or taxes, or the confiscation of a Financed Vehicle, could arise or
occur at any time during the term of a Receivable. No notice will be given to
the Owner Trustee, the Indenture Trustee, if any, or any Securityholders in the
event such a lien arises or confiscation occurs.
Repossession
In the event of a default by vehicle purchasers, the holder of the motor
vehicle retail installment sales contract has all the remedies of a secured
party under the UCC, except where specifically limited by other laws. The UCC
remedies of a secured party include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Unless a
vehicle is voluntarily surrendered, self-help repossession by outside agencies
is the method employed by SunStar in the majority of instances in which a
payment default occurs and is accomplished by retaking possession of the
financed vehicle. In the event of a default by an Obligor, most states place
restrictions on repossession sales, including notice to the debtor of the intent
to sell and of the debtor's right to redeem the vehicle. In addition, the UCC
requires commercial reasonableness in the conduct of the sale. In cases where
the Obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the vehicle must then be repossessed in accordance
with that order. In certain states under certain circumstances after the vehicle
has been repossessed, the Obligor may reinstate the contract by paying the
delinquent installments on the contract and other amounts due.
Notice of Sale; Redemption Rights
In the event of default by the Obligor, some jurisdictions require that the
Obligor be notified of the default and be given a time period within which the
Obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
some states the Obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation
plus reasonable expenses for repossessing, holding, and preparing the collateral
for disposition and arranging for this sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some other states, by payment of delinquent
installments or the unpaid balance. Based on an analysis by a central
remarketing department, the repossessed vehicles will be resold through
wholesale buyers or at the branch depending on which method of sale will garner
the greatest amount of proceeds.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the Obligor on the Receivable. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments.
Under the laws of most states, the proceeds from the resale of the motor vehicle
securing the debtor's loan are required to be applied first to the expenses of
resale and repossession, and if the remaining proceeds are not sufficient to
repay the indebtedness, the creditor may seek a deficiency judgment for the
balance. However, the deficiency judgment would be a personal judgment against
the Obligor for the shortfall, and a defaulting Obligor can be expected to have
very little capital or sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment or,
if one is obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any other holder of any lien with respect to the
vehicle or, if no such lienholder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former Obligor.
Insolvency Matters
SunStar intends that the transfer of the Receivables to the Seller will
constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of SunStar. However, if SunStar were to become a debtor under the
federal bankruptcy code or similar applicable state laws (collectively, the
"Insolvency Laws"), a creditor or trustee in bankruptcy thereof, or SunStar as
debtor-in-possession, might argue that the sale of the Receivables was a pledge
of Receivables rather than a sale and/or that the assets and liabilities of the
Seller should be consolidated with the assets and liabilities of SunStar. The
Seller has taken and will take steps in structuring the transactions
contemplated hereby that are intended to minimize the risk that the voluntary or
involuntary application for relief under any Insolvency Law would result in the
assets and liabilities of the Seller being consolidated with the assets and
liabilities of any other person. Nevertheless, if SunStar were to become a
debtor under any Insolvency Laws, and such positions - that the transfer of the
Receivables was a pledge rather than a sale or otherwise should be treated as
part of its bankruptcy estate and/or that the assets and liabilities of the
Seller should be consolidated - were presented to or accepted by a court, then
delays in payments to Securityholders could occur or reductions in the amounts
of such payments could result. In addition, if the Seller were to become a
debtor under any Insolvency Law and a creditor or trustee-in-bankruptcy of such
debtor or such debtor itself were to take the position that the sale of the
Receivables to the Trust should instead be treated as a pledge of the
Receivables to secure a borrowing of such debtor, delays in payments of
collections of the Receivables to the Securityholders could occur or reductions
in the amounts of such payments could result. In addition, if the transfer of
the Receivables is recharacterized as a pledge, a tax lien, other governmental
lien, or other lien created by operation of law on the property of the Servicer,
the holder of such lien may have priority over the Trust's interest in the
Receivables. See "The Seller."
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, Octagon Gas System, Inc. v. Rimmer, such Circuit
Court found that "accounts", a defined term under the UCC, sold prior to a
bankruptcy should be treated as part of the bankruptcy estate of the seller of
such accounts. If SunStar or the Seller were to become a debtor in a bankruptcy
proceeding and a court applied the reasoning of the Circuit Court reflected in
the case described above, delays in payments to Securityholders could occur or
reductions in the amounts of such payments could result.
If an Insolvency Event with respect to the Affiliated Purchaser occurs, the
Indenture Trustee or Owner Trustee will promptly sell, dispose of or otherwise
liquidate the related Receivables in a commercially reasonable manner on
commercially reasonable terms, except under certain limited circumstances. The
proceeds from any such sale, disposition or liquidation of Receivables will be
treated as collections on the Receivables and deposited in the Collection
Account of the Trust. If the proceeds from the liquidation of the Receivables
and any amounts on deposit in the Collection Account or the Spread Account are
not sufficient to pay any Notes and/or the Certificates in full, and the Insurer
fails to satisfy its obligations under the policies, the amount of principal
returned to any Noteholders or the Certificateholders will be reduced and such
Noteholders and/or Certificateholders will incur a loss.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code and state motor vehicle
retail installment sales acts, retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's (such as the Trust's) ability
to enforce consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, state statutes or the common law in certain
states, has the effect with some exceptions, of subjecting a seller (and certain
related lenders and their assignees, such as the Trust) in a consumer credit
transaction and any assignee of the seller to all claims and defenses which the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract, and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, the Owner Trustee, as holder of the Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts theretofore paid by the Obligor on the
Receivable. Under most state motor vehicle dealer licensing laws, sellers of
motor vehicles are required to be licensed to sell motor vehicles at retail
sale. Furthermore, Federal Odometer Regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new and
used vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if an
Odometer Disclosure Statement was not provided to the purchaser of the related
financed vehicle, the obligor may be able to assert a defense against the seller
of the vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
SunStar and the Seller will warrant under the Purchase Agreement and the
Trust Documents that each Receivable complies with all requirements of law in
all material respects. Accordingly, if an Obligor has a claim against the Trust
for violation of any law and the Owner Trustee or the Indenture Trustee, as the
case may be, determines such claim materially and adversely affects the Trust's
interest in a Receivable, such violation would constitute a breach of warranty
under the Purchase Agreement and the Trust Documents and would create an
obligation of SunStar and the Seller to repurchase the Receivable unless the
breach is cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
resale upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
Transfers of Vehicles
The Receivables typically prohibit the sale or transfer of the vehicle
securing a Receivable without the Servicer's consent and permit the Servicer to
accelerate the maturity of the Receivable upon a sale or transfer without its
consent. The Servicer generally will not consent to a sale or transfer without
prepayment of the Receivable. However, in certain circumstances the Servicer may
enter into a transfer of equity agreement with the secondary purchaser for the
purpose of effecting the transfer of the Financed Vehicle.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain Federal income tax consequences of
the purchase, ownership and disposition of the Securities. Stroock & Stroock &
Lavan, special Federal tax counsel for the Trust ("Federal Tax Counsel") is of
the opinion that the discussion hereunder accurately describes all material
Federal tax risks associated with the purchase, ownership and disposition of the
Securities.
This summary does not deal with all aspects of Federal income taxation
applicable to all categories of holders of the Securities, some of which may be
subject to special rules or special treatment under the Federal income tax laws.
For example, it does not discuss the specific tax treatment of Securityholders
that are insurance companies, banks and certain other financial institutions,
regulated investment companies, individual retirement accounts, tax-exempt
organizations or dealers in securities. Furthermore, this summary does not deal
with the tax consequences to individuals holding Securities directly or
indirectly through partnerships, trusts, estates, or S corporations. This
summary is based upon present provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the regulations promulgated thereunder, and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. Moreover, there are no cases or Internal Revenue Service ("IRS")
rulings on similar transactions involving a trust that issues debt and equity
interests with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or part of the discussion below.
Prospective investors are advised to consult their own tax advisors with
regard to the Federal income tax consequences of the purchase, ownership and
disposition of the Securities, as well as the tax consequences arising under the
laws of any state, foreign country or other jurisdiction. The Trust has been
provided with an opinion of Federal Tax Counsel regarding certain of the Federal
income tax matters discussed below. An opinion of counsel, however, is not
binding on the IRS, and no ruling on any of the issues discussed below will be
sought from the IRS.
Federal Tax Consequences with Respect to the Notes
Tax Characterization of the Notes and the Trust. Federal Tax Counsel has
advised the Trust that, based on the terms of the Notes and the transactions
relating to the Receivables as set forth herein, the Notes will be treated as
debt for Federal income tax purposes. However, there is no specific authority
with respect to the characterization for Federal income tax purposes of
securities having the same terms as the Notes.
Federal Tax Counsel is also of the opinion that, based on the applicable
provisions of the Trust Documents, for Federal income tax purposes, (i) the
Trust will not be classified as an association taxable as a corporation and (ii)
the Trust will not be treated as a publicly traded partnership taxable as a
corporation. However, there are no authorities directly dealing with similar
transactions. If the IRS were to successfully characterize the Trust as an
association taxable as a corporation for Federal income tax purposes, the income
from the Receivables (reduced by deductions, possibly including interest on the
Notes) would be subject to Federal income tax at corporate rates, which could
reduce the amounts available to make payments on the Notes. Likewise, if the
Trust were subject to state or local income or franchise tax, the amount of cash
available to make payment on the Notes could be reduced.
If, contrary to the opinion of Federal Tax Counsel, the IRS successfully
asserted that the Notes were not debt for Federal income tax purposes, the Notes
might be treated as equity interests in the Trust. If so, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to deduct interest on the Notes). The
remainder of this discussion assumes that the Notes will be treated as debt and
that the Trust will not be taxable as a corporation.
Interest Income on the Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting. Some or all of the
Notes may be issued with "original issue discount" within the meaning of Section
1273 of the Code ("OID"). Unless de minimis, as statutorily defined, the amount
of OID on the Notes will equal the difference between the issue price and the
principal amount of the Notes.
OID will accrue to the Noteholders over the life of the Notes, taking
account of a reasonable prepayment assumption, based on a constant yield to
maturity method and properly adjusted for actual prepayments on the Receivables.
The portion of OID that accrues during the time a Noteholder owns the Notes (i)
constitutes interest includable in the Noteholder's gross income for Federal
income tax purposes and (ii) is added to the Noteholder's tax basis for purposes
of determining gain or loss on the maturity, redemption, prior sale, or other
disposition of the Notes. Thus, the effect of OID is to increase the amount of
taxable income above the actual interest payments during the life of the Notes.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any OID, market discount and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of any bond premium previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Subject to the rules of the Code concerning market discount on the Notes,
any such gain or loss will be capital gain or loss if the Note was held as a
capital asset. Capital losses generally may be deducted only to the extent the
Noteholder has capital gains for the taxable year.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
foreign corporation or other nonUnited States person (a "foreign person") is not
effectively connected with the conduct of a trade or business within the United
States by the foreign person, the interest generally will be considered
"portfolio interest," and generally will not be subject to United States Federal
income tax and withholding tax, if the foreign person (i) is not actually or
constructively a "10 percent shareholder" of the Trust or the Seller (including
a holder of 10% of the outstanding Certificates) nor a "controlled foreign
corporation" with respect to which the Trust or the Seller is a "related person"
within the meaning of the Code and (ii) provides the person otherwise required
to withhold U.S. tax with an appropriate statement (such as a Form W-8), signed
under penalties of perjury, certifying that the beneficial owner of the Note is
a foreign person and providing the foreign person's name and address. If the
information provided in the statement changes, the foreign person must so inform
the person otherwise required to withhold U.S. tax 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 a Note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the withholding agent. However,
in that case, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
Federal income and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person generally will be exempt from
United States Federal income and withholding tax, provided that the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person.
If the interest, gain or income on a 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 (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement on Form
4224), the holder 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% 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 (as modified by the branch profits tax rules).
On April 22, 1996, the IRS issued proposed Treasury regulations that would
revise the procedures for securing an exemption from the 30% United States
Federal withholding tax (the "Proposed Regulations"). If adopted in final form,
the Proposed Regulations would generally apply to payments made after December
31, 1997.
Information Reporting and Backup Withholding. The Trust will be required to
report annually to the IRS, and to each Noteholder of record, the amount of
interest paid on the Notes (and the amount of accrued OID, if any, and interest
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, or individual
retirement accounts. Each holder (other than exempt holders who are not subject
to the reporting requirements) will be required to provide, under penalties of
perjury, a certificate containing the holder's name, address, correct Federal
taxpayer identification number and a statement that the holder is not subject to
backup withholding. Should a nonexempt Noteholder fail to provide the required
certification, the Trust will be required to withhold 31% of the amount
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's Federal income tax liability.
Federal Tax Consequences with Respect to the Certificates
Tax Characterization of the Trust. The Seller and the Servicer have agreed,
and the Certificateholders will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of Federal income tax, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificateholders and the Seller and the Notes being
debt of the partnership. However, the proper characterization of the arrangement
involving the Trust, the Certificates, the Notes, the Seller, and the Servicer
is not clear because there is no authority on transactions closely comparable to
that contemplated herein.
If the Trust were held to be an "association" taxable as a corporation for
Federal income tax purposes, rather than a partnership, the Trust would be
subject to a corporate level income tax. Any such corporate income tax could
materially reduce or eliminate cash that would otherwise be distributable with
respect to the Certificates (and Certificateholders could be liable for any such
tax that is unpaid by the Trust). See also the discussion above under "--Federal
Tax Consequences with Respect to the Notes--Tax Characterization of the Notes
and the Trust." However, in the opinion of Federal Tax Counsel, the Trust will
not be classified as an association taxable as a corporation because of the
nature of its income and because it will not have certain "corporate"
characteristics necessary for a business trust to be an association taxable as a
corporation.
Nonetheless, because of the lack of cases or rulings on similar
transactions, a variety of alternative characterizations are possible in
addition to the position to be taken by Certificateholders that the Certificates
represent equity interests in a partnership. For example, because the
Certificates have certain features characteristic of debt, the Certificates
might be considered debt of the Trust or of the Seller. The remainder of this
summary assumes that the Certificates represent equity interests in a
partnership that owns the Receivables.
Partnership Taxation. As a partnership, the Trust will not be subject to
Federal income tax, but each Certificateholder will be required to separately
take into account such holder's allocated share of income, gains, losses,
deductions and credits of the Trust. The Trust's income will consist primarily
of interest accrued on the Receivables (including appropriate adjustments for
market discount (as discussed below), and any original issue discount and bond
premium), investment income from investments in the Trust Accounts and any gain
upon collection or disposition of the Receivables. The Trust's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees and losses or deductions upon collection or disposition of the
Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Related Documents). The Trust Agreement will provide that the Certificateholders
will be allocated taxable income of the Trust for each Interest Period equal to
the sum of (i) the amount of interest that accrues on the Certificates for such
Interest Period based on the Certificate Rate; (ii) an amount equivalent to
interest that accrues during such Interest Period on amounts previously due on
the Certificates but not yet distributed; and (iii) an amount of Trust income
that corresponds to any excess of the principal amount of the Certificates over
their initial issue price. All remaining taxable income of the Trust will be
allocated to the Seller. It is believed that this allocation will be valid under
applicable Treasury regulations, although no assurance can be given that the IRS
would not require a greater amount of income to be allocated to
Certificateholders. Moreover, under the foregoing method of allocation, holders
may be allocated income greater than the amount of interest accruing on the
Certificates based on the Certificate Rate or may be allocated income greater
than the amount of cash distributed to them.
Except as provided in the following paragraph, the Trust currently intends
to make all tax calculations relating to income and allocations to
Certificateholders on an aggregate basis. If the IRS were to require that such
calculations be made separately for each of the Receivables, the Trust might be
required to incur additional expense, but it is believed that there would not be
a material adverse effect on Certificateholders.
Market Discount. To the extent the Receivables are purchased by the Trust
for a price that is less than the aggregate stated redemption price at maturity
of the Receivables, the Trust must account for "market discount" on the
Receivables pursuant to Section 1276 of the Code. Market discount will be
accounted for each of the Receivables on an individual basis, and the Trust will
make an election to calculate market discount as it economically accrues.
Original Issue Discount and Bond Premium. It is believed that the
Receivables were not issued with OID or at a premium, and, therefore, the Trust
should not have OID income or amortizable bond premium.
Section 708 Termination. Under Section 708 of the Code, a partnership will
be deemed to terminate for Federal income tax purposes if 50% or more of the
capital and profits interests in the partnership are sold or exchanged within a
12-month period. If such a termination occurs, the partnership will be
considered to distribute its assets to the partners, who would then be treated
as recontributing those assets to a new partnership. Proposed regulations would
provide that if a termination occurs, the partnership will be considered to
transfer its assets and liabilities to a new partnership in exchange for
interests in that new partnership which it would then be treated as transferring
to its partners. The Trust may not comply with certain technical requirements
that might apply when such a constructive termination occurs. As a result, the
Trust may be subject to certain tax penalties and may incur additional expenses
if it is required to comply with those requirements. Furthermore, the Trust
might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of a Certificate in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificate sold.
A Certificateholder's tax basis in a Certificate will generally equal his cost
increased by his share of Trust income that is includable in his gross income
and decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificate and the amount realized on a
sale of a Certificate would include the holder's share of the Notes and other
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid these
special reporting requirements, the Trust will elect to include any such market
discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income over the life of the Certificates that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Certificates.
Allocations Between Transferor and Transferee. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect the tax liability and tax basis of the
holder) attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or is allowed only for
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by any future authority.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust files an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such an election. As
a result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Servicer, on behalf of the Trust, is required
to keep or cause to be kept complete and accurate books of the Trust. Such books
will be maintained for financial reporting and tax purposes on an accrual basis
and the taxable year of the Trust will be the calendar year. The Seller will
file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust and will report to holders (and to the IRS) each
Certificateholder's allocable share of items of Trust income and expense on
Schedule K-l. The Trust will provide the Schedule K-l information to nominees
that fail to provide the Trust with the information statement described below
and such nominees will be required to forward such information to the beneficial
owners of the Certificates. Generally, holders must file tax returns that are
consistent with the information returns filed by the Trust or be subject to
penalties unless the holder timely notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee on behalf of another person at any time during a calendar year is
required to furnish the Trust with a statement containing certain information on
the nominee, the beneficial owners and the Certificates so held. Such
information includes (i) the name, address and taxpayer identification number of
the nominee and (ii) as to each beneficial owner (x) the name, address and
taxpayer identification number of such person, (y) whether such person is a
United States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly owned agency or instrumentality of
either of the foregoing and (z) certain information concerning Certificates that
were held, acquired or transferred on behalf of such person throughout the year.
In addition, brokers and financial institutions that hold Certificates through a
nominee are required to furnish directly to the Trust information as to
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act that holds Certificates as a nominee is
not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties. The Trust will provide the Schedule K-1 information
to nominees that fail to provide the Trust with the information described above
and such nominees will be required to forward such information to the beneficial
owners of the Certificates.
The Seller, as the "tax matters partner," will be responsible for
representing the Certificateholders in any dispute with the IRS with respect to
partnership items. The Code provides for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return is
filed. Any adverse determination following an audit of the return of the Trust
by the appropriate taxing authorities could result in an adjustment of the
returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the Trust. An adjustment could also result in an
audit of a Certificateholder's returns and adjustments of items not related to
the income and losses of the Trust.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates may be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
Unrelated Business Taxable Income. Because the Trust is issuing both Notes
and Certificates, all or a portion of the income with respect to the
Certificates will be considered unrelated business taxable income to a
Certificateholder that is subject to tax on unrelated business taxable income
under Section 511 of the Code.
Tax Consequences to Foreign Certificateholders. No regulations, published
rulings or judicial decisions exist that discuss the characterization for
Federal withholding tax purposes with respect to non-U.S. persons of a
partnership with activities substantially the same as the Trust. However, it is
not expected that the Trust would be considered to be engaged in a trade or
business in the United States for purposes of Federal withholding taxes with
respect to non-U.S. persons. If the Trust were considered to be engaged in a
trade or business in the United States for such purposes, the income of the
Trust distributable to a non-U.S. person would be subject to a Federal
withholding tax at a rate of 35% for persons taxable as a corporation. Also, in
such case, a non-U.S. holder that is a corporation may be subject to the branch
profits tax. Subsequent adoption of Treasury regulations or the issuance of
other administrative pronouncements may require the Trust to change its
withholding procedures.
Each foreign holder might be required to file a U.S. income tax return
(including in the case of a corporation, the branch profits tax) on its share of
the Trust's income. A foreign holder generally would be entitled to file with
the IRS a claim for refund with respect to withheld taxes, taking the position
that no taxes were due because the Trust was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a Certificateholder
who is a foreign person may be considered guaranteed payments to the extent such
payments are determined without regard to the income of the Trust and for that
reason, or because of the nature of the Receivables, the interest will likely
not be considered "portfolio interest." See "--Federal Tax Consequences with
Respect to the Notes--Foreign Holders" for a discussion of "portfolio interest."
As a result, even if the Trust is not considered to be engaged in a U.S. trade
or business, Certificateholders will likely be subject to United States Federal
income tax and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable treaty. A foreign holder would generally be
entitled to file with the IRS a refund claim for such withheld taxes, taking the
position that the interest was portfolio interest. However, the IRS may disagree
and no assurance can be given as to the appropriate amount of tax liability.
If the Owner Trustee is notified that a holder of record or the beneficial
owner of the Certificates is a foreign person, the Owner Trustee will withhold
an amount which in its determination is appropriate. As a result, each potential
foreign owner of a Certificate should consult its tax advisor as to whether the
tax consequences of holding an interest in a Certificate make it an unsuitable
investment.
STATE AND LOCAL TAX CONSEQUENCES
The discussion above does not address the tax consequences of purchase,
ownership or disposition of the securities under any state or local tax law.
Investors should consult their own tax advisors regarding state and local tax
consequences.
ERISA CONSIDERATIONS
The Notes
A fiduciary of an employee benefit plan or other retirement arrangement
subject to Title I of ERISA, should consider the fiduciary standards under ERISA
in the context of the plan or arrangement's particular circumstances before
authorizing an investment of a portion of such plan or arrangement's assets in
the Notes. Accordingly, pursuant to Section 404 of ERISA, such fiduciary should
consider among other factors (i) whether the investment is for the exclusive
benefit of participants and their beneficiaries; (ii) whether the investment
satisfies the applicable diversification requirements; (iii) whether the
investment is in accordance with the documents and instruments governing the
plan or arrangement; and (iv) whether the investment is prudent, considering the
nature of the investment.
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan or retirement arrangements,
including individual retirement accounts and certain types of Keogh Plans, as
well as any entity whose underlying assets include plan assets by reason of a
plan or arrangement investing in such entity (including an insurance company
general account), (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.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code with respect to a Benefit Plan that purchases Notes if assets of the Trust
were deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor, 29 C.F.R. ss. 2510.3-101 (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation was 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. Assuming that the Notes are treated as indebtedness
under applicable local law without substantial equity features for purposes of
the Plan Assets Regulation, then the Notes will be eligible for purchase by
Benefit Plans.
However, without regard to whether the Notes are treated as an equity
interest for such purposes, the acquisition or holding of Notes by or on behalf
of a Benefit Plan could be considered to give rise to a prohibited transaction
if the Trust, the owner of collateral, 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 Note. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments
by insurance company pooled separate accounts; PTCE 95-60, regarding investments
by insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 96-23, regarding transactions affected by
"in-house asset managers"; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers."
A Benefit Plan fiduciary considering the purchase of Notes should consult
its tax and/or legal advisors regarding whether the assets of the Trust would be
considered Plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
The Certificates
The Certificates may not be acquired (directly or indirectly) by or on
behalf of any Benefit Plan or any entity (including an insurance company general
account) whose underlying assets include plan assets of the Benefit Plan by
reason of a plan's investment in the entity. By acceptance of a Certificate,
each Certificateholder will be deemed to have represented and warranted that it
is not a Benefit Plan.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") dated November , 1996, between the Seller and the
Underwriter, the Seller has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, the principal amount of the Notes and
Certificates set forth on the cover page of this Prospectus.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the Securities offered
hereby if any Securities are purchased. The Seller has been advised by the
Underwriter that the Underwriter proposes initially to offer the Notes and
Certificates to the public at the public offering prices set forth on the cover
page of this Prospectus, and to certain dealers at such prices less a concession
not in excess of % of the principal amount of each Class of Notes and the
Certificates. The Underwriter may allow and such dealers may reallow a
concession not in excess of % of such principal amount. After the initial public
offering, the public offering price and such concessions may be changed.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments in the Underwriter may be required to
make in respect thereof.
NCMI is a separate subsidiary of NationsBank. NCMI is a registered
broker-dealer and not a bank. Any obligations of NCMI are the sole
responsibility of NCMI and do not create any obligation or guarantee on the part
of any affiliate of NCMI.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other matters will be passed upon for the Seller and the
Trust by Stroock & Stroock & Lavan. Certain legal matters relating to the
Securities will be passed upon for the Underwriters by Stroock & Stroock &
Lavan. Certain legal matters will be passed upon for the Insurer by [ ]. The
Insurer is represented by [ ].
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found.
Accounts.....................................................................17
Actuarial Receivables........................................................23
APR.......................................................................... 7
Cede.........................................................................18
Certificate Balance..........................................................45
Certificate Distribution Account.............................................42
Certificate Majority.........................................................38
Certificateholders...........................................................10
Certificates................................................................. 3
Code.........................................................................59
Collection Account...........................................................12
Commission .................................................................. 5
Cutoff Date.................................................................. 3
Dealers......................................................................21
Definitive Certificates......................................................38
Definitive Notes.............................................................38
Distribution Date............................................................ 4
DTC..........................................................................18
ERISA........................................................................64
Events of Default............................................................33
Exchange Act................................................................. 5
Federal Tax Counsel..........................................................58
Financed Vehicles............................................................ 3
FTC Rule.....................................................................57
Indenture.................................................................... 3
Indenture Trustee............................................................ 3
Insolvency Laws..............................................................16
Interest Rate................................................................ 8
IRS..........................................................................59
Issuer....................................................................... 6
Note Distribution Account....................................................42
Note Majority................................................................32
Noteholders.................................................................. 8
Notes........................................................................ 3
OID..........................................................................59
Owner Trustee................................................................ 6
Participants.................................................................37
Plan Assets Regulations......................................................64
Precomputed Receivables......................................................23
PTCE.........................................................................64
Purchase Agreement .......................................................... 7
Purchase Amount..............................................................47
Rating Agencies..............................................................13
Receivables.................................................................. 3
Registration Statement....................................................... 5
Related Documents............................................................35
Rules........................................................................37
Rule of 78's Receivables.....................................................23
Securities................................................................... 2
Securityholders..............................................................10
Seller....................................................................... 3
Servicer..................................................................... 6
Servicer Default.............................................................49
Servicing Fee................................................................43
Servicing Fee Rate...........................................................43
Simple Interest Receivables..................................................24
SunStar...................................................................... 6
Supplemental Servicing Fee...................................................43
Trust........................................................................ 2
Trust Agreement.............................................................. 6
Trust Documents..............................................................42
Trust Property............................................................... 7
UCC..........................................................................54
Underwriting Agreement.......................................................65
<PAGE>
========================================================================
No Dealer, salesman, or any other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or the documents incorporated or deemed incorporated by
reference herein and, if given or made, such information must not be relied upon
as having been authorized by the seller or any dealer, salesman, or any other
person. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create an implication that there has been
no change in the information herein since the date hereof. This Prospectus is
not an offer to sell or a solicitation of an offer to buy any security in any
jurisdiction in which it is unlawful to make Issuer such offer or solicitation.
------------------------
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................. 5
REPORTS TO SECURITYHOLDERS............................................. 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................ 5
SUMMARY OF TERMS....................................................... 6
RISK FACTORS........................................................... 14
USE OF PROCEEDS........................................................ 18
THE TRUST.............................................................. 18
THE TRUST PROPERTY..................................................... 19
NATIONSBANK CORPORATION................................................ 19
THE SELLER............................................................. 20
SUNSTAR ACCEPTANCE CORPORATION......................................... 20
THE RECEIVABLES........................................................ 23
THE INSURER............................................................ 30
DESCRIPTION OF THE SECURITIES.......................................... 30
WEIGHTED AVERAGE LIFE CONSIDERATIONS................................... 38
DESCRIPTION OF THE PURCHASE AGREEMENT AND THE
TRUST DOCUMENTS........................................................ 42
THE POLICIES........................................................... 52
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES............................... 54
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................ 58
STATE AND LOCAL TAX CONSIDERATIONS..................................... 63
ERISA CONSIDERATIONS.................................................. 64
UNDERWRITING.......................................................... 65
LEGAL OPINIONS........................................................ 65
INDEX OF TERMS......................................................... 66
--------------------------
Until , 1996 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to subscriptions their unsold allotments or subscriptions.
<PAGE>
==============================================================================
$
--------
NATIONSFINANCIAL AUTO
OWNER TRUST 1996-1,
Issuer
$
---------
Class A-1 % Money Market
Asset Backed Notes
$
---------
Class A-2 Floating Rate
Asset Backed Note
$
---------
Class A-3 %
Asset Backed Notes
$
---------
__%
Asset Backed Certificates
NATIONSFINANCIAL FUNDING
CORPORATION
Seller
-------------------
-------------------
Prospectus
-------------------
NationsBanc Capital Markets, Inc.
, 1996
-----------------
==============================================================================
<PAGE>
[Alternate Page]
SUBJECT TO COMPLETION, DATED _________, 1996
$------------
NATIONSFINANCIAL AUTO OWNER TRUST 1996-1
$_________ Class A-1 % Money Market Asset Backed Notes
$__________ Class A-2 Floating Rate Asset Backed Notes
$___________ Class A-3 % Asset Backed Notes
$___________ % Asset Backed Certificates
NationsFinancial Funding Corporation
Seller
SunStar Acceptance Corporation
Servicer
The NationsFinancial Auto Owner Trust 1996-1 (the "Trust") will be formed
pursuant to a Trust Agreement to be entered into between NationsFinancial
Funding Corporation, as seller (the "Seller"), and ____________, as Owner
Trustee, and will issue $_______________ aggregate principal amount of Class A-1
% Money Market Asset Backed Notes (the "Class A-1 Notes"), $________________
aggregate principal amount of Class A-2 Floating Rate Asset Backed Notes (the
"Class A-2 Notes") and $______________ aggregate principal amount of Class A-3 %
Asset Backed Notes (the "Class A-3 Notes" and, together with the Class A-1 Notes
and the Class A-2 Notes, the "Notes"). The Notes will be issued pursuant to an
Indenture, to be dated as of October 31, 1996 (the "Indenture"), between the
Trust and __________________, as Indenture Trustee and as Indenture Collateral
Agent (the "Indenture Trustee" and the "Indenture Collateral Agent"). The Trust
also will issue $______________ aggregate principal amount of % Asset Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities").
The assets of the Trust will include a pool of non-prime motor vehicle
retail installment sales contracts (the "Receivables") secured by new and used
automobiles, light trucks and vans financed thereby (the "Financed Vehicles"),
certain amounts received under each Receivable after October 31, 1996 (the
"Cutoff Date"), security interests in the Financed Vehicles, the Certificate
Policy and certain other property, as more fully described herein. (Cover
continued on next page)
For a discussion of certain factors which should be considered by
prospective purchasers of the Securities, see "Risk Factors" at page __ herein.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY, THE SELLER, THE SERVICER OR
NATIONSBANK CORPORATION OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is to be used by NationsBanc Capital Markets, Inc.
("NCMI") an affiliate of the Seller in connection with offers
and sales related to market-making transactions in the
Securities in which NCMI acts
as principal. NCMI may also act as agent in such transactions. Sales will be
made at prices related to the prevailing prices at the time of sale.
NationsBanc Capital Markets, Inc.
The date of this Prospectus is ________ , 1996.
<PAGE>
[Alternate Page]
PROSPECTUS SUPPLEMENT
On or about , 199_, this Prospectus will be distributed together with, and
should be read in conjunction with, an accompanying supplement to the
Prospectus. Such supplement generally will include the information contained in
the monthly statement furnished to Noteholders and Certificateholders. See
"Description of the Transfer and Servicing Agreements--Statements to
Securityholders."
<PAGE>
[Alternate Page]
"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.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code with respect to a Benefit Plan that purchases Notes if assets of the Trust
were deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor, 29 C.F.R. ss. 2510.3-101 (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation was 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. Assuming that the Notes are treated as indebtedness
under applicable local law without substantial equity features for purposes of
the Plan Assets Regulation, then the Notes will be eligible for purchase by
Benefit Plans.
However, without regard to whether the Notes are treated as an equity
interest for such purposes, the acquisition or holding of Notes by or on behalf
of a Benefit Plan could be considered to give rise to a prohibited transaction
if the Trust, the owner of collateral, 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 Note. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments
by insurance company pooled separate accounts; PTCE 95-60, regarding investments
by insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 96-23, regarding transactions affected by
"in-house asset managers"; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers."
A Benefit Plan fiduciary considering the purchase of Notes should consult
its tax and/or legal advisors regarding whether the assets of the Trust would be
considered Plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
The Certificates
The Certificates may not be acquired (directly or indirectly) by or on
behalf of any Benefit Plan or any entity (including an insurance company general
account) whose underlying assets include plan assets of the Benefit Plan by
reason of a plan's investment in the entity. By acceptance of a Certificate,
each Certificateholder will be deemed to have represented and warranted that it
is not a Benefit Plan.
PLAN OF DISTRIBUTION
This Prospectus is to be used by the Underwriter, an affiliate of the
Seller, in connection with offers and sales related to market-making
transactions in the Securities in which the Underwriter acts as principal. The
Underwriter may also act as agent in such transactions. Sales will be made at
prices related to prevailing prices at the time of sale. Any obligations of the
Underwriter are the sole obligations of the Underwriter and do not create any
obligations on the part of any affiliate of the Underwriter.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other matters will be passed upon for the Seller and the
Trust by Stroock & Stroock & Lavan. Certain legal matters relating to the
Securities will be passed upon for the Underwriters by Stroock & Stroock &
Lavan. Certain legal matters will be passed upon for the Insurer by [ ] General
Counsel, the Insurer. The Insurer is represented by [ ].
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission
Registration Fee..............................................$ *
Trustee's Fees................................................... *
Printing......................................................... *
Legal Fees and Expenses.......................................... *
Accountings Fees................................................. *
Blue Sky Qualification Fees and Expenses..........................*
Rating Agency Fees................................................*
Miscellaneous ....................................................*
Total.............................................................*
- -------------
* To be filed by amendment.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware provides as follows:
145. Indemnification of Officers, Directors, Employees and
Agents; Insurance --
(a) A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of another corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such
expenses (including attorneys' fees) incurred by the other employees
and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action and in his official capacity and as to
action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him
against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a
director, officer, employee or agent with respect to an employee
benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this section shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligations to advance expenses (including attorneys'
fees).
Article 11 of the Certificate of Incorporation of the Registrant
provides as follows:
No director shall have any personal liability to the Corporation or its
stockholders for any monetary damages for breach of fiduciary duty as a
director, except that this Article 11 shall not eliminate or limit the liability
of each director;
(i) for any breach of such director's duty of loyalty to the
corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which such director derived an improper
benefit.
If the Delaware Corporate Law is amended to authorize corporation action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
furthest extent of the Delaware Corporate Law, as so amended. Any repeal or
modification of this provision shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
Article VI of the Registrant's Bylaws provides that:
The Registrant will indemnify any person who was a director, officer,
employee or agent of the Registrant to the fullest extent and in the manner set
forth in and as provided by the General Corporation Law of Delaware.
Item 16. Exhibits.
See the Exhibit Index herein.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remain unsold at the termination of the
offering.
(d) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in that Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may by permitted to directors, officers and controlling persons of
the Registrant pursuant to this provisions described under "Item
15-Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered. The Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) To provide to the Underwriter at the closing specified in the
Underwriting Agreements Notes and Certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(g) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(h) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(i) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas, on the 27th day of
September, 1996.
NationsFinancial Funding Corporation, Seller
By: /s/ Joseph A. Cutrona
---------------------------
Name: Joseph A. Cutrona
Title: President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Robert Long and John Stockton, or either
of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statements has been signed by the following person in the
capacities indicated on September 27, 1996.
Signature Title Date
/s/ Joseph A. Cutrona
- ---------------------- ---------------------
Joseph A. Cutrona President and Director September 27, 1996
/s/ Thomas T. Harahan
- ---------------------- ----------------------
Thomas T. Harahan Director September __, 1996
<PAGE>
EXHIBIT INDEX
Number Description Page
1.l* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Seller.
3.2* By-laws of the Seller.
4.1* Form of Indenture between the Trust and the
Indenture Trustee.
4.2* Form of Trust Agreement between the Seller and
the Owner Trustee.
5.1* Opinion of Counsel to the Seller.
10.1* Form of Purchase Agreement between the Servicer
and the Seller.
23.1* Consent of Counsel to the Seller (included as
part of Exhibit 5.1).
24.1 Power of Attorney (included on signature page)
25.1* Statement of Eligibility of Trustee
99.1* Form of Sale and Servicing Agreement among the
Seller, the Servicer and the Owner Trustee on behalf of
the Trust.
- ------------------------
* To be filed by amendment.
