<PAGE>
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(1)
(TO PROSPECTUS DATED JANUARY 24, 1997) Registration No. 333-16233
$253,224,989
BAY VIEW 1997-RA-1 AUTO TRUST
$200,979,000 6.29% CLASS A-1 AUTOMOBILE RECEIVABLE BACKED CERTIFICATES
$ 52,245,989 6.59% CLASS A-2 AUTOMOBILE RECEIVABLE BACKED CERTIFICATES
CLASS I INTEREST ONLY AUTOMOBILE RECEIVABLE BACKED CERTIFICATES
{LOGO OF BAYVIEW APPEARS HERE]
DEPOSITOR
CALIFORNIA THRIFT & LOAN
SERVICER
--------------
Interest at the applicable Pass-Through Rate shown above, will be
distributed to Class A-1 Certificateholders and Class A-2 Certificateholders
(collectively, the "Class A Certificateholders") on the fifteenth calendar day
of the month, or if such day is not a business day, on the next succeeding
business day (each, a "Distribution Date"), beginning February 18, 1997.
Principal will be distributed to Class A Certificateholders on each
Distribution Date in the sequence described herein. The final scheduled
Distribution Date of the Class A-1 Certificates will be the Distribution Date
occurring in December 2001 (the "Class A-1 Final Scheduled Distribution
Date"). The final scheduled Distribution Date for the Class A-2 Certificates
will be the Distribution Date occurring in December 2004 (the "Class A-2 Final
Scheduled Distribution Date"). The Class A-1 Certificates and the Class A-2
Certificates are together referred to herein as the "Class A Certificates."
The Class I Certificates will not receive principal payments, but interest at
the Class I Pass-Through Rate of 3.15% per annum on the Notional Principal
Amount of the Class I Certificates will be distributed to Class I
Certificateholders on each Distribution Date until the Notional Principal
Amount has been reduced to zero. The Original Notional Principal Amount will
be $175,746,647. Each Certificate offered hereby will represent an undivided
interest in the Bay View 1997-RA-1 Auto Trust (the "Trust") to be formed by
Bay View Securitization Corporation, a Delaware corporation, having its
principal office and place of business in San Mateo, California (the
"Depositor"). The Trust property will include a pool of simple and precomputed
interest installment sale and installment loan contracts originated in various
states in the United States of America, secured by new and used automobiles,
light trucks, recreational vehicles, motorcycles and vans (the "Receivables"),
certain monies due thereunder after December 31, 1996 (the "Cutoff Date"),
security interests in the vehicles financed thereby and certain other property
(the "Trust Property"). For a description of the types of property included in
the Trust, see "Summary of Terms--The Certificates" and "The Receivables
Pool," herein and "The Trusts" in the Prospectus. The Trust Property will also
include an irrevocable surety bond guaranteeing payments of interest and
principal on the Class A Certificates and interest on the Class I Certificates
(the "Surety Bond") issued by Capital Markets Assurance Corporation ( "CAPMAC"
or the "Surety Bond Issuer") and a Spread Account for the benefit of the Class
A Certificateholders and the Class I Certificateholders, as well as the Surety
Bond Issuer.
Concurrently with the issuance of the Class A Certificates and the Class I
Certificates, the Trust will issue a Class IC Automobile Receivable Backed
Certificate (the "Class IC Certificate"). The Class IC Certificate initially
will be issued to Bay View Securitization Corporation, the Depositor, and will
not be offered hereby. See "The Offered Certificates--Unlimited Liability of
the Tax Class IC Certificateholder" herein. The rights of the Class IC
Certificateholder to receive distributions with respect to the Receivables are
subordinated to the rights of holders of the Class A Certificates and Class I
Certificates, to the extent described herein. For further information
concerning the Class IC Certificate, see "The Offered Certificates--
Distributions on the Class IC Certificate" and "--Distributions on the Offered
Certificates." The Class A Certificates and the Class I Certificates are
together sometimes referred to herein as the "Offered Certificates."
Prior to their issuance there has been no market for the Offered
Certificates nor can there be any assurance that one will develop, or if it
does develop, that it will provide the holders of the Offered Certificates
with liquidity or will continue for the life of the Offered Certificates. The
Underwriter intends, but is not obligated, to make a market in the Offered
Certificates.
The yield to maturity of the Class I Certificates will be sensitive to the
rate and timing of principal payments (including prepayments) on the
Receivables. Investors in the Class I Certificates should fully consider the
associated risks, including the risk that a rapid rate of principal payments
could result in the failure of such investors to recoup their initial
investments. See "Risk Factors--Prepayment Risks Associated with Class I
Certificates," "The Offered Certificates--Termination Upon Insolvency Event of
the Tax Class IC Certificateholder," "Yield and Prepayment Considerations" and
"The Offered Certificates--The Class I Certificates--Calculation of Notional
Principal Amount" herein.
--------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-9 HEREOF AND PAGE 11 OF THE PROSPECTUS.
THE CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF BAY VIEW
SECURITIZATION CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THESE SECURITIES
NOR THE UNDERLYING RECEIVABLES WILL BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS DEPOSITOR(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Certificate......... 99.9906250% 0.275% 99.7156250%
Per Class A-2 Certificate......... 99.9921875% 0.275% 99.7171875%
Per Class I Certificate........... 2.8312400%(1) 0.500%(1) 2.8170800%(1)
- -------------------------------------------------------------------------------
Total........................... $258,177,875 $721,248 $257,456,628
</TABLE>
- -------------------------------------------------------------------------------
(1) With respect to the Class I Certificates, the Price to Public and Proceeds
to Depositor are expressed as a percentage of the Notional Principal
Amount (initially $175,746,647), and the Underwriting Discounts are
expressed as a percentage of the related Price to Public.
(2) Before deducting expenses, estimated to be $665,125.
The Offered Certificates are offered by PaineWebber Incorporated (the
"Underwriter") subject to prior sale, when, as and if issued, delivered to and
accepted by the Underwriter. It is expected that delivery of the Offered
Certificates will be made through the facilities of The Depository Trust
Company ("DTC") in the United States and Centrale de Livraison de Valeurs
Mobiliers S.A. ("CEDEL") and The Euroclear System ("Euroclear") in Europe, on
or about January 29, 1997.
--------------
PAINEWEBBER INCORPORATED
--------------
The date of this Prospectus Supplement is January 24, 1997.
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT CONTAINS INFORMATION THAT IS
SPECIFIC TO THE TRUST AND THE CERTIFICATES AND, TO THAT EXTENT, SUPPLEMENTS
THE MORE GENERAL INFORMATION PROVIDED IN THE PROSPECTUS. INFORMATION CONTAINED
IN THIS PROSPECTUS SUPPLEMENT MAY ALSO REFLECT LEGAL, ECONOMIC AND OTHER
DEVELOPMENTS SINCE THE DATE OF THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of
dealers to deliver this Prospectus Supplement and the Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
REPORTS TO CERTIFICATEHOLDERS
Unless and until definitive certificates are issued (which will occur only
under the limited circumstances described herein), Bankers Trust Company, as
Trustee, will provide to Cede & Co., the nominee of The Depository Trust
Company ("DTC"), as registered holder of the Offered Certificates, monthly and
annual statements concerning the Trust and the Offered Certificates. Such
statements will not constitute financial statements prepared in accordance
with generally accepted accounting principles. A copy of the most recent
monthly or annual statement concerning the Trust and the Offered Certificates
may be obtained by contacting the Servicer at California Thrift & Loan, 818
Oakpark Road, Covina, California 91724, (800) 524-9292.
<PAGE>
SUMMARY OF TERMS
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
Prospectus. Certain capitalized terms used in this Summary are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Principal Terms" or, to the extent not defined herein, have the meanings
assigned to such terms in the "Index of Principal Terms" on page 52 of the
Prospectus.
Issuer........................ Bay View 1997-RA-1 Auto Trust (the "Issuer").
Depositor..................... Bay View Securitization Corporation (the
"Depositor").
Servicer...................... California Thrift & Loan (in its capacity as
servicer, the "Servicer," otherwise "CTL").
Trustee....................... Bankers Trust Company (the "Trustee"). The
corporate trust office of the Trustee is
located at 4 Albany Street, New York, NY 10006.
The Certificates.............. The Trust will be formed and will issue the
Certificates on or about January 29, 1997 (the
"Closing Date") pursuant to a pooling and
servicing agreement (the "Pooling and Servicing
Agreement"). The "Certificates" will consist
of: (i) 6.29% Class A-1 Automobile Receivable
Backed Certificates in the aggregate principal
amount of $200,979,000; (ii) 6.59% Class A-2
Automobile Receivable Backed Certificates in
the aggregate principal amount of $52,245,989;
(iii) the Class I Interest Only Automobile
Receivable Backed Certificates; and (iv) the
Class IC Automobile Receivable Backed
Certificate. The Class I Certificates are
interest only certificates and will not receive
distributions of principal. The Class IC
Certificate will be issued to the Depositor on
the Closing Date and is not being offered
hereby. Each of the Certificates will represent
a fractional undivided interest in the Trust.
The Trust assets will include the Receivables,
certain monies due thereunder after the Cutoff
Date, security interests in the related
Financed Vehicles, monies on deposit in the
Certificate Account and the proceeds thereof,
any proceeds from claims on certain insurance
policies relating to the Financed Vehicles or
the related Obligors, any lender's collateral
protection insurance policy, the Spread Account
for the benefit of the Class A
Certificateholders and Class I
Certificateholders and the Surety Bond Issuer,
the Surety Bond for the benefit of the Class A
Certificateholders and Class I
Certificateholders and certain rights under the
Purchase Agreement and the Pooling and
Servicing Agreement.
The Class A Certificates...... Interest. Interest will be distributable on the
fifteenth calendar day of each month, or if
such day is not a business day, on the next
succeeding business day (each, a "Distribution
Date") beginning February 18, 1997, to holders
of record as of the last day of the calendar
month immediately preceding the calendar month
in which such Distribution Date occurs (the
"Record
S-1
<PAGE>
Date") of the Class A Certificates (the "Class
A Certificateholders" which includes the "Class
A-1 Certificateholders" and the "Class A-2
Certificateholders") in a maximum amount equal
to the product of 1/12th of the applicable pass
through rate of 6.29% for the Class A-1
Certificates (the "Class A-1 Pass-Through
Rate"), and the applicable pass through rate of
6.59% for the Class A-2 Certificates (the
"Class A-2 Pass-Through Rate") and the
aggregate outstanding principal balance of the
Class A-1 Certificates and Class A-2
Certificates, respectively (the "Class A-1
Certificate Balance" and the "Class A-2
Certificate Balance" collectively, the
"Certificate Balance") as of the preceding
Distribution Date (after giving effect to all
distributions to Certificateholders on such
preceding date) or, in the case of the first
Distribution Date, as of the Closing Date.
Interest on the Class A Certificates will be
calculated on basis of a 360-day year
consisting of twelve 30-day months or, in the
case of the first Distribution Date, the number
of days from the Closing Date remaining in the
month of the closing (assuming a 30-day month).
Interest paid to the Certificateholders on the
first Distribution Date will be based upon the
amount of interest accruing from the Closing
Date, and will therefore not include a full
month's interest. See "The Offered
Certificates--Distributions on the Offered
Certificates." The effective yield on the Class
A Certificates will be below that otherwise
produced by the applicable Pass-Through Rate
because the distribution of Monthly Principal
(as defined below) and Class A Monthly Interest
(as defined below) in respect of any given
month will not be made until the related
Distribution Date which will not be earlier
than the fifteenth day of the following
calendar month. See "Yield and Prepayment
Considerations" herein.
Principal. On each Distribution Date, the
Trustee will distribute as principal to the
Class A Certificateholders a maximum aggregate
amount equal to the aggregate outstanding
principal amount of the Receivables (the "Pool
Balance") on the last day of the second
preceding calendar month (or, in the case of
the first Distribution Date, as of the Cutoff
Date) less the Pool Balance on the last day of
the immediately preceding calendar month
("Monthly Principal"), provided, however, that
Monthly Principal on the Class A-1 Final
Scheduled Distribution Date will be increased
by the amount, if any, which is necessary to
reduce the Class A-1 Certificate Balance to
zero on such date and Monthly Principal on the
Class A-2 Final Scheduled Distribution Date
will be increased by the amount, if any, which
is necessary to reduce the Class A-2
Certificate Balance to zero on such date.
Monthly Principal will be distributed
sequentially to the Class A Certificateholders
as follows: (i) to the Class A-1
Certificateholders until the Class A-1
Certificate Balance has been reduced to zero
and (ii) to the Class A-2 Certificateholders
until the Class A-2 Certificate Balance has
been reduced to zero
S-2
<PAGE>
(the "Principal Distribution Sequence"). For
the purpose of determining Monthly Principal,
the unpaid principal balance of a Defaulted
Receivable or a Purchased Receivable will be
deemed to be zero on and after the last day of
the calendar month in which such Receivable
became a Defaulted Receivable or a Purchased
Receivable (as defined in the Prospectus), as
applicable.
No Monthly Principal will be distributed to the
Class A-2 Certificateholders until the
Distribution Date on which the Class A-1
Certificate Balance has been reduced to zero.
Since the rate of payment of principal of each
class of Class A Certificates depends upon the
rate of payment of principal (including
prepayments) of the Receivables, the final
distribution in respect of each class of Class
A Certificates could occur significantly
earlier than their respective final scheduled
Distribution Dates. See "The Offered
Certificates--Distributions on the Offered
Certificates" herein.
The Class I Certificate ...... Interest. The Class I Certificates are interest
only certificates which will not be entitled to
any principal distributions. Interest will
accrue on the Notional Principal Amount
(defined below) of the Class I Certificates at
the rate of 3.15% per annum (the "Class I Pass-
Through Rate"). The Notional Principal Amount
represents a designated principal component of
the Receivables, originally $175,746,647 (the
"Original Notional Principal Amount").
Solely for the purpose of calculating the
amount payable with respect to the Class I
Certificates, the Certificate Balance will be
divided into two principal components, the "PAC
Component" and the "Companion Component." The
sum of the PAC Component and the Companion
Component will at all times equal the then
aggregate unpaid Certificate Balance. The
"Notional Principal Amount" of the Class I
Certificates at any time will be equal to the
principal balance of the PAC Component as
calculated based on the allocations of
principal payments described below.
Interest with respect to the Class I
Certificates will accrue on the basis of a 360-
day year consisting of twelve 30-day months or,
in the case of the first Distribution Date, the
number of days from the Closing Date remaining
in the month of the closing (assuming a 30-day
month). On each Distribution Date, except the
first Distribution Date, the Trustee shall
distribute pro rata to holders of Class I
Certificates (the "Class I Certificateholders")
of record as of the preceding Record Date,
Class I Monthly Interest at the Class I Pass-
Through Rate on the Notional Principal Amount
outstanding on the immediately preceding
Distribution Date (after giving effect to any
reduction of the Notional Principal Amount on
such preceding Distribution Date) or, in the
case of
S-3
<PAGE>
the first Distribution Date, as of the Closing
Date. Holders of the Class I Certificates will
not be entitled to any distributions after the
Notional Principal Amount thereof has been
reduced to zero.
Planned Amortization Feature; Calculation of
the Class I Notional Principal Amount. The
Class I Certificates represent an interest only
planned amortization class. The planned
amortization feature is intended to reduce the
uncertainty to investors in the Class I
Certificates with respect to prepayments. This
is accomplished by basing the reduction in the
Notional Principal Amount on a principal
paydown schedule rather than on the reduction
in the actual principal balances of the
Receivables, as described below. The amount
which will be available to pay the Class I
Certificateholders will come from the excess of
interest earned on the Receivables over the
Class A Monthly Interest and the monthly
Servicing Fee payable to the Servicer (the
"Monthly Servicing Fee").
The Pooling and Servicing Agreement establishes
a schedule (a "Planned Notional Principal
Amount Schedule") which is set forth herein
under "The Offered Certificates--The Class I
Certificates--Calculation of Notional Principal
Amount." On each Distribution Date, the Monthly
Principal will be allocated first to the PAC
Component in an amount up to the amount
necessary to reduce the amount thereof to the
Planned Notional Principal Amount for such
Distribution Date, as set forth in the Planned
Notional Principal Amount Schedule, second, to
the Companion Component until the outstanding
amount thereof is reduced to zero and third, to
the PAC Component, without regard to the
Planned Notional Principal Amount for such
Distribution Date, until reduced to zero. As
described above, the Notional Principal Amount
of the Class I Certificates will be equal to
the outstanding amount of the PAC Component and
thus will be reduced as the PAC Component is
reduced.
The Planned Notional Principal Amount Schedule
has been prepared on the basis of the
assumption, among other things, that the
Receivables prepay at a constant rate between
1.60% and 2.25% ABS (as defined herein), an
assumed annualized constant rate of prepayments
and the prepayment model used in this
Prospectus Supplement. The Planned Notional
Principal Amount Schedule is set forth herein
under "The Offered Certificates--The Class I
Certificates--Calculation of Notional Principal
Amount." The yield to maturity of the Class I
Certificates will be sensitive to the rate and
the timing of principal payments (including
prepayments) on the Receivables and may
fluctuate significantly from time to time. If
the Receivables prepay at a constant rate
within the range assumed in preparing the
Planned Notional Principal Amount Schedule, the
PAC Component (and the Notional Principal
Amount of the Class I Certificates) may be
S-4
<PAGE>
reduced in accordance with the Planned Notional
Principal Amount Schedule. If the Receivables
prepay at a constant rate higher than 2.25%
ABS, the amount of the Companion Component may
be reduced to zero more quickly, and the amount
of the PAC Component (and the Notional
Principal Amount of the Class I Certificates)
may be reduced more quickly than provided in
the Planned Notional Principal Amount Schedule,
thereby reducing the yield to holders of the
Class I Certificates. In general, a rapid rate
of principal prepayments (including
liquidations due to losses, repurchases and
other dispositions) will have a material
negative effect on the yield to maturity of the
Class I Certificates.
Prospective investors in the Class I
Certificates should fully consider the
associated risks, including the risk that a
rapid rate of prepayments could result in the
failure of investors in the Class I
Certificates to recoup their initial
investment. See "Risk Factors--Prepayment Risks
Associated with Class I Certificates,"
"--Termination Upon Insolvency Event of the Tax
Class IC Certificateholder," "Yield and
Prepayment Considerations--The Class I
Certificates" and "The Offered Certificates--
Termination Upon Insolvency Event of the Tax
Class IC Certificateholder" herein.
Clearance and Settlement...... The Offered Certificates will be available for
purchase in book-entry form only in minimum
denominations of $1,000 and integral multiples
in excess thereof. Holders of Offered
Certificates may elect to hold their
Certificates through any of The Depository
Trust Company ("DTC") (in the United States) or
Centrale de Livraison de Valeurs Mobiliers S.A.
("CEDEL") or The Euroclear System ("Euroclear")
(in Europe). Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. Crossmarket
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through CEDEL or Euroclear, on the other, will
be effected in DTC through the relevant
Depositaries or CEDEL or Euroclear. The
Depositor may elect to terminate the book-entry
system through DTC with respect to all or any
portion of any class of the Offered
Certificates. See Annex A herein and
"Description of the Certificates--Book-Entry
Registration" and "--Definitive Certificates"
in the Prospectus.
Subordination; Spread
Account....................... The Depositor will establish an account (the
"Spread Account") on the Closing Date. On each
Distribution Date, the Servicer will deposit
into the Spread Account any amounts remaining
in the Certificate Account after the payment on
such date of all amounts owing pursuant to the
Pooling and Servicing Agreement to the
Certificateholders (other than the Class IC
Certificateholders), the Surety Bond Issuer and
the Servicer for the Monthly Servicing
S-5
<PAGE>
Fee. In the event that Available Funds are
insufficient on any Distribution Date prior to
the termination of the Trust (after payment of
the Monthly Servicing Fee) to pay Monthly
Principal and Class A Monthly Interest and
Class I Monthly Interest to the Class A
Certificateholders and Class I
Certificateholders, draws will be made on the
Spread Account to the extent of the balance
thereof and, if necessary, from the Surety
Bond, in the manner and to the extent described
herein. The Spread Account is solely for the
benefit of the Class A Certificateholders, the
Class I Certificateholders and the Surety Bond
Issuer. In the event the amount on deposit in
the Spread Account is zero after giving effect
to any draws thereon for the benefit of the
Class A Certificateholders and Class I
Certificateholders, and there is a default
under the Surety Bond, losses on the
Receivables will be borne directly by the Class
A Certificateholders and Class I
Certificateholders, as described herein. Any
such reduction of the principal balance of the
Receivables due to losses on the Receivables
will also result in a reduction of the Class I
Notional Principal Amount. See "The Offered
Certificates--Distributions on the Offered
Certificates" and "--Accounts" herein.
The Class A Certificates and Class I
Certificates will be senior in right and
interest to the Class IC Certificate. The Class
A Certificateholders and the Class I
Certificateholders will have equal rights with
respect to amounts collected on or with respect
to the Receivables and other assets of the
Trust in the event of a shortfall. The Trustee
will first withdraw funds from the Spread
Account on each Distribution Date to the extent
of any shortfall in the Class A Monthly
Interest and Class I Monthly Interest and the
Monthly Principal as described above. Any
amount on deposit in the Spread Account on any
Distribution Date in excess of the sum of the
Required Spread Amount (defined below) and the
amount of outstanding Advances after all other
required deposits thereto and withdrawals
therefrom have been made, and after payment
therefrom of all amounts due the Surety Bond
Issuer, will be distributed to the holder of
the Class IC Certificate (the "Class IC
Certificateholder"). Any amount so distributed
to the Class IC Certificateholder will no
longer be an asset of the Trust. While it is
intended that the amount on deposit in the
Spread Account will grow over time, through the
deposit thereof of the excess collections, if
any, on the Receivables, up to the Required
Spread Amount, there can be no assurance that
such growth will actually occur. The "Required
Spread Amount" with respect to any Distribution
Date will equal 1.25% of the initial Pool
Balance. Upon and during the continuance of an
Event of Default, or if the level of
delinquencies or charge-offs equals or exceeds
certain threshold levels as set forth in the
Pooling and Servicing Agreement, or upon the
occurrence of certain other events described in
the Insurance Agreement generally involving a
failure of performance by the Servicer or a
S-6
<PAGE>
material misrepresentation made by the Servicer
under the Pooling and Servicing Agreement or
the Insurance Agreement, the Required Spread
Amount shall be equal to the Surety Bond
Amount, as further described below. See "The
Offered Certificates--Accounts" and "--The
Surety Bond" herein.
Surety Bond................... The Depositor shall obtain an irrevocable
surety bond (the "Surety Bond") issued by the
Surety Bond Issuer (as specified below), for
the benefit of the Trustee on behalf of the
Class A Certificateholders and Class I
Certificateholders. The Trustee shall draw on
the Surety Bond in the event that sufficient
funds are not available (after payment of the
Monthly Servicing Fee and after withdrawals
from the Spread Account to pay the Class A
Certificateholders and Class I
Certificateholders on any Distribution Date in
accordance with the Pooling and Servicing
Agreement) to distribute Class A Monthly
Interest and Class I Monthly Interest and
Monthly Principal, up to the Surety Bond
Amount. See "The Offered Certificates--The
Surety Bond."
Surety Bond Amount............ The term "Surety Bond Amount" means with
respect to any Distribution Date: (x) the sum
of (A) the lesser of (i) the Certificate
Balance (after giving effect to any
distribution of Available Funds and any funds
withdrawn from the Spread Account to pay
Monthly Principal on such Distribution Date)
and (ii) the Net Principal Surety Bond Amount,
plus (B) Class A Monthly Interest, plus (C)
Class I Monthly Interest, plus (D) the Monthly
Servicing Fee; less (y) all amounts on deposit
in the Spread Account on such Distribution Date
(including any outstanding Advances on deposit
therein). "Net Principal Surety Bond Amount"
means the Certificate Balance as of the first
Distribution Date minus all amounts previously
drawn on the Surety Bond or from the Spread
Account with respect to Monthly Principal.
Surety Bond Issuer............ Capital Markets Assurance Corporation, a New
York monoline stock insurance company (the
"Surety Bond Issuer").
Optional Purchase............. The Servicer has the right to purchase all the
Receivables (referred to herein as an "Optional
Purchase") as of the last day of any Collection
Period, at a purchase price equal to the fair
market value of the Receivables (but not less
than the sum of (i) their aggregate outstanding
principal balance plus accrued and unpaid
interest thereon and (ii) any amounts due the
Surety Bond Issuer), if (i) the Certificate
Balance as of the following Distribution Date
will equal 10% or less of the initial
Certificate Balance and (ii) the Notional
Principal Amount of the Class I Certificates
has been reduced to zero.
Tax Status.................... In the opinion of Silver, Freedman & Taff,
L.L.P., special tax counsel to the Depositor,
the Trust will not be treated as an association
taxable as a corporation or as a "publicly
traded partnership" taxable as a corporation.
The Trustee and the
S-7
<PAGE>
Certificateholders will agree to treat the
Trust as a partnership for federal income tax
purposes, which will not be subject to federal
income tax at the Trust level. See "Federal
Income Tax Consequences" in the Prospectus.
Ratings....................... As a condition to the issuance of the Offered
Certificates, the Class A Certificates and
Class I Certificates must be rated in the
highest rating category by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's
Ratings Services ("Standard & Poor's"). The
rating of the Class I Certificates does not
address the possibility that rapid rates of
principal prepayments could result in a failure
of the holders of the Class I Certificates to
fully recover their investment. A security
rating is not a recommendation to buy, sell or
hold securities and may be subject to revision
or withdrawal at any time by the assigning
rating agency. See "Risk Factors-- Ratings of
the Certificates" herein and in the Prospectus.
ERISA Considerations.......... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Class A Certificates and the
Class I Certificates may be eligible for
purchase by employee benefit plans subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Any benefit plan
fiduciary considering the purchase of an
Offered Certificate should, among other things,
consult with experienced legal counsel in
determining whether all required conditions for
such purchase have been satisfied. See "ERISA
Considerations" herein and in the Prospectus.
S-8
<PAGE>
RISK FACTORS
Investors should carefully consider the information set forth below as well
as the other investment considerations described in this Prospectus.
LIMITED LIQUIDITY
There is currently no secondary market for the Offered Certificates. The
Underwriter currently intends to make a market in the Offered Certificates,
but is under no obligation to do so. There can be no assurance that a
secondary market will develop or, if one does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for
the life of the Offered Certificates.
CERTIFICATES SOLELY OBLIGATIONS OF THE TRUST
The Offered Certificates are interests in the Trust only and do not
represent the obligation of any other person. The Class A Certificateholders
and Class I Certificateholders are senior in right and interest to the Class
IC Certificateholder (as described under "The Offered Certificates--
Distributions on the Offered Certificates"). The Trustee will withdraw funds
from the Spread Account, up to the full balance of the funds on deposit in
such account, only in the event that Available Funds are insufficient in
accordance with the Pooling and Servicing Agreement to distribute Class A
Monthly Interest and Class I Monthly Interest and Monthly Principal (after
payment of the Monthly Servicing Fee). The amount on deposit in the Spread
Account is intended to increase over time to an amount equal to the sum of the
Required Spread Amount and the amount of outstanding Advances. There is no
assurance that such growth will occur or that the balance in the Spread
Account will always be sufficient to assure payment in full of Monthly
Principal and Monthly Interest. If the amount on deposit in the Spread Account
is reduced to zero after giving effect to all amounts to be deposited to and
withdrawn from the Spread Account pursuant to the Pooling and Servicing
Agreement, on any Distribution Date prior to termination of the Trust, the
Trustee will draw on the Surety Bond, in an amount equal to the shortfall in
respect of Class A Monthly Interest and Class I Monthly Interest and Monthly
Principal, up to the Surety Bond Amount. If the Spread Account is reduced to
zero and there is a default under the Surety Bond, the Trust will depend
solely on current distributions on the Receivables to make distributions on
the Certificates. See "The Receivables Pool--Delinquencies and Credit Losses"
and "The Offered Certificates--Accounts" herein.
PREPAYMENT RISKS ASSOCIATED WITH THE CLASS I CERTIFICATES
If the Receivables prepay at a constant rate within the range assumed in
preparing the Planned Notional Principal Amount Schedule, the PAC Component
and the Notional Principal Amount of the Class I Certificates may be reduced
in accordance with the Planned Notional Principal Amount Schedule. If the
Receivables prepay at a constant rate higher than 2.25% ABS, the Notional
Principal Amount of the Class I Certificates may be reduced more quickly than
provided in the Planned Notional Principal Amount Schedule, thereby reducing
the yield to holders of the Class I Certificates. In general, a rapid rate of
principal prepayments (including liquidations due to losses, repurchases and
other dispositions) will have a material negative effect on the yield to
maturity of the Class I Certificates. Prospective investors should fully
consider the associated risks, including the risk that a rapid rate of
prepayments could result in the failure of investors in the Class I
Certificates to recoup their initial investment. See "Yield and Prepayment
Considerations" herein.
TERMINATION UPON INSOLVENCY EVENT OF THE TAX CLASS IC CERTIFICATEHOLDER
The Depositor will be the Tax Class IC Certificateholder (in such capacity,
the "Tax Class IC Certificateholder"). If an Insolvency Event (as defined
herein) occurs with respect to the Tax Class IC Certificateholder, the
Receivables will be sold and the Trust will be liquidated unless, within the
period specified herein, holders of more than 51% of the Certificate Balance
and holders of more than 51% of the Notional Principal Balance of the Class I
Certificates instruct the Trustee not to sell the Receivables and to liquidate
the Trust or unless such sale and liquidation is otherwise prohibited by
applicable law. The Surety Bond will not be available to pay any shortfalls
due to Certificateholders upon the sale of the Receivables on liquidation of
the Trust. See "The Offered Certificates--Termination Upon Insolvency Event of
the Tax Class IC Certificateholder" herein.
S-9
<PAGE>
The Depositor is a special purpose corporation the activities of which are
circumscribed by its charter with a view to reducing any risk of its
bankruptcy; however no representation is made concerning the financial
condition of the Tax Class IC Certificateholder or the likelihood of an
Insolvency Event with respect to such holder. In the event of the sale of the
Receivables and liquidation of the Trust following an Insolvency Event, the
proceeds may not be sufficient to pay all accrued and unpaid amounts owing on
the Certificates. The Surety Bond will not be available to cover any such
shortfall. Following such a sale, the Class I Certificateholders may be
entitled to receive a portion of the proceeds from the sale based upon the
amount originally paid for the Class I Certificates (as reduced by prior
returns on such amount) as provided in the Pooling and Servicing Agreement.
Furthermore, any distributions of such proceeds will have an effect similar to
a prepayment of the Receivables and could affect the yield on the Class A
Certificates and may significantly affect the yield on the Class I
Certificates. See "Yield and Prepayment Considerations" herein.
RATINGS OF THE CERTIFICATES
It is a condition of issuance of the Offered Certificates that the Class A
Certificates and the Class I Certificates be rated in the highest category by
Moody's and Standard and Poor's. Such ratings will reflect only the views of
the relevant rating agency. There is no assurance that any such rating will
continue for any period of time or that it will not be revised or withdrawn
entirely by such rating agency if, in its judgment, circumstances so warrant.
A revision or withdrawal of such rating may have an adverse effect on the
market price of the Offered Certificates. The rating of the Class I
Certificates does not address the possibility that rapid rates of principal
prepayment, could result in a failure of the holders of the Class I
Certificates to fully recover their investment. A security rating is not a
recommendation to buy, sell or hold securities.
GEOGRAPHIC CONCENTRATION
As of the Cutoff Date, based upon billing address information provided to
CTL, the Obligors resided in 50 states and the District of Columbia, two of
which, California and Texas, account for approximately 66.08% and 11.23%,
respectively, of the aggregate principal balance of the Receivables. Adverse
economic conditions in California or Texas could adversely affect the
delinquency, loan loss or repossession experience of the Trust.
FORMATION OF THE TRUST
The Depositor will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Offered
Certificates. The Depositor will initially retain the Class IC Certificate.
CTL will be responsible for servicing the Receivables pursuant to the Pooling
and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses" in the Prospectus. To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
be appointed custodian of the Receivables by the Trustee and will stamp each
Receivable file to reflect the sale and assignment of the Receivables to the
Trust, however, there will not be any notation of the Trust's lien made on the
certificates of title of the Financed Vehicles. In the absence of such
notation on the certificates of title, the Trustee may not have perfected
security interests in the Financed Vehicles securing the Receivables. See
"Risk Factors--Perfection of Security Interests in Financed Vehicles" and
"Certain Legal Aspects of the Receivables" in the Prospectus. Under the terms
of the Pooling and Servicing Agreement, CTL may delegate its duties as
Servicer and custodian; however, any such delegation will not relieve CTL of
its liability and responsibility with respect to such duties.
The Depositor will establish, for the benefit of the Class A
Certificateholders and Class I Certificateholders and the Surety Bond Issuer,
the Spread Account and will obtain the Surety Bond. Withdrawals from the
Spread Account and, only after such withdrawals, draws on the Surety Bond will
be made in accordance with the Pooling and Servicing Agreement in the event
that sufficient funds are not available (after payment of the Monthly
Servicing Fee) to distribute Class I Monthly Interest, Class A Monthly
Interest and Monthly Principal,
S-10
<PAGE>
up to the Surety Bond Amount. If the Spread Account is exhausted and there is
a default under the Surety Bond, the Trust will look only to the Obligors on
the Receivables and the proceeds from the repossession and sale of Financed
Vehicles that secure Defaulted Receivables for distributions of interest and
principal on the Certificates. In such event, certain factors, such as the
Trustee's not having perfected security interests in some of the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Certificateholders. See "The Offered Certificates--Accounts" herein and "Risk
Factors--Perfection of Security Interests in Financed Vehicles" and "Certain
Legal Aspects of the Receivables" in the Prospectus.
THE RECEIVABLES POOL
The Receivables were selected from CTL's portfolio for purchase by the
Depositor by several criteria, including that each Receivable as of the Cutoff
Date: (i) has an original number of payments of not more than 84 payments and
not less than 12 payments, (ii) has a remaining maturity of not more than 84
months and not less than 3 months, (iii) provides for level monthly payments
that fully amortize the amount financed over the original term, and (iv) has a
Contract Rate (exclusive of prepaid finance charges) of not less than 6.50%
per annum. The weighted average remaining term to maturity of the Receivables
will be approximately 54 months as of the Cutoff Date.
Approximately 76.28% of the aggregate principal balance of the Receivables
as of the Cutoff Date are simple interest contracts which provide for equal
monthly payments. Approximately 23.72% of the aggregate principal balance of
the Receivables as of the Cutoff Date are Precomputed Receivables (as defined
in the Prospectus). All of such Precomputed Receivables are Rule of 78's
Receivables. Approximately 25.71% of the aggregate principal balance of the
Receivables as of the Cutoff Date represent financing of new vehicles; the
remainder of the Receivables represent financing of used vehicles. All of the
Receivables were originated by Dealers and purchased from the Dealers by CTL.
Obligors of the Receivables representing more than 10% of the aggregate
principal balance of the Receivables as of the Cutoff Date reside in each of
the States of California and Texas, based upon billing address information
provided to CTL. The performance of the Receivables in the aggregate could be
adversely affected in particular by the development of adverse economic
conditions in either such state. See "Risk Factors--Geographic Concentration"
and "--Delinquencies and Credit Losses" herein.
COMPOSITION OF THE RECEIVABLES BY VEHICLE TYPE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE ORIGINAL WEIGHTED
NUMBER OF PRINCIPAL PRINCIPAL AVERAGE
RECEIVABLES BALANCE BALANCE CONTRACT RATE
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
New automobiles and light-
duty trucks.............. 3,929 $ 53,684,324 $ 83,506,314 12.59%
Used automobiles and
light-duty trucks........ 14,032 161,570,974 214,895,017 13.69
New vans(1)............... 707 10,491,861 16,859,148 11.99
Used vans(1).............. 1,944 23,212,930 31,431,257 13.40
New motorcycles........... 109 913,294 1,283,457 15.47
Used motorcycles.......... 167 1,397,635 1,897,490 15.61
New recreational
vehicles................. 1 11,629 12,834 14.90
Used recreational
vehicles................. 217 1,942,343 2,496,117 14.97
------ ------------ ------------
Total/Weighted Average... 21,106 $253,224,989 $352,381,634 13.38%
====== ============ ============
</TABLE>
- --------
(1) References to vans include minivans and van conversions.
S-11
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED PERCENTAGE OF
AVERAGE AVERAGE AGGREGATE
REMAINING ORIGINAL PRINCIPAL
TERM TO MATURITY(2) TERM TO MATURITY(2) BALANCE(3)
------------------- ------------------- -------------
<S> <C> <C> <C>
New automobiles and
light-duty trucks...... 51.91 74.84 21.20%
Used automobiles and
light-duty trucks...... 54.19 69.83 63.81
New vans(1)............. 50.72 76.20 4.14
Used vans(1)............ 54.44 71.52 9.17
New motorcycles......... 45.42 66.78 0.36
Used motorcycles........ 46.22 65.87 0.55
New recreational
vehicles............... 71.00 84.00 0.00
Used recreational
vehicles............... 55.11 70.31 0.77
------
Total/weighted
average............... 53.51 71.28 100.00%
======
</TABLE>
- --------
(1) References to vans include minivans and van conversions.
(2) Expressed in months. Based on scheduled maturity and assuming no
prepayments of the Receivables.
(3) Sum may not equal 100% due to rounding.
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PRINCIPAL
GEOGRAPHIC REGION(1)(2) BALANCE(3)
- ----------------------- -------------
<S> <C>
California........................................................ 66.08%
Texas............................................................. 11.23
Arizona........................................................... 4.88
Illinois.......................................................... 4.08
New Mexico........................................................ 3.51
Nevada............................................................ 3.39
Oregon............................................................ 2.46
Colorado.......................................................... 1.69
Other(4).......................................................... 2.68
------
Total........................................................... 100.00%
======
</TABLE>
- --------
(1) Based on address of the Obligor.
(2) No other state accounts for greater than 1.00% of the aggregate principal
balance of the Receivables.
(3) Sum may not equal 100% due to rounding.
(4) Includes military personnel located outside the U.S.
S-12
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY MODEL YEAR AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL AGGREGATE OF AGGREGATE
MODEL NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
YEAR RECEIVABLES RECEIVABLES(1) BALANCE BALANCE(1)
- ----- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
1983 and prior(2).......... 1,110 5.26% $ 10,868,847 4.29%
1984....................... 281 1.33 2,068,246 0.82
1985....................... 480 2.27 3,089,573 1.22
1986....................... 670 3.17 4,833,374 1.91
1987....................... 916 4.34 6,834,157 2.70
1988....................... 1,233 5.84 9,508,186 3.75
1989....................... 1,765 8.36 15,177,761 5.99
1990....................... 1,829 8.67 17,418,225 6.88
1991....................... 2,100 9.95 21,219,391 8.38
1992....................... 2,719 12.88 29,735,271 11.74
1993....................... 2,957 14.01 37,663,317 14.87
1994....................... 2,333 11.05 38,518,019 15.21
1995....................... 1,606 7.61 30,891,371 12.20
1996....................... 918 4.35 20,807,147 8.22
1997....................... 189 0.90 4,592,105 1.81
------ ------ ------------ ------
Total.................... 21,106 100.00% $253,224,989 100.00%
====== ====== ============ ======
</TABLE>
- --------
(1) Sum may not equal 100% due to rounding.
(2) Total includes classic cars.
DISTRIBUTION OF THE RECEIVABLES BY CONTRACT RATE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
AGGREGATE OF AGGREGATE AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL PRINCIPAL
CONTRACT RATE RANGE RECEIVABLES BALANCE BALANCE(1) BALANCE
- ------------------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
6.50 to 7.00%.................. 16 $ 205,600 0.08% $12,850
7.01 to 8.00%.................. 120 1,387,901 0.55 11,566
8.01 to 9.00%.................. 285 3,570,027 1.41 12,526
9.01 to 10.00%................. 1,009 11,294,801 4.46 11,194
10.01 to 11.00%................. 1,975 28,873,255 11.40 14,619
11.01 to 12.00%................. 2,521 37,765,875 14.91 14,981
12.01 to 13.00%................. 3,292 47,567,630 18.78 14,449
13.01 to 14.00%................. 3,182 42,929,291 16.95 13,491
14.01 to 15.00%................. 2,700 31,378,074 12.39 11,622
15.01 to 16.00%................. 1,893 19,240,517 7.60 10,164
16.01 to 17.00%................. 1,263 10,629,055 4.20 8,416
17.01 to 18.00%................. 1,063 7,799,694 3.08 7,337
18.01 to 19.00%................. 612 4,135,714 1.63 6,758
19.01 to 20.00%................. 402 2,441,324 0.96 6,073
20.01 to 21.00%................. 544 3,025,378 1.19 5,561
21.01 to 22.00%................. 198 817,598 0.32 4,129
22.01% and over................. 31 163,253 0.06 5,266
------ ------------ ------
Total/Average................. 21,106 $253,224,989 100.00% $11,998
====== ============ ======
</TABLE>
- --------
(1) Sum may not equal 100% due to rounding.
S-13
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERM TO MATURITY AS OF THE CUTOFF
DATE
<TABLE>
<CAPTION>
PERCENTAGE
RANGE OF AGGREGATE OF AGGREGATE AVERAGE
REMAINING NUMBER OF PRINCIPAL PRINCIPAL PRINCIPAL
TEMS TO MATURITYR RECEIVABLES BALANCE BALANCE(1) BALANCE
- ----------------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
3 to 6 months.................. 527 $ 986,683 0.39% $ 1,872
7 to 12 months................. 1,062 3,256,243 1.29 3,066
13 to 24 months................ 3,106 17,386,604 6.87 5,598
25 to 36 months................ 3,961 33,301,250 13.15 8,407
37 to 48 months................ 3,657 42,877,581 16.93 11,725
49 to 60 months................ 3,396 48,306,091 19.08 14,224
61 to 72 months................ 3,191 58,869,369 23.25 18,449
73 to 84 months................ 2,206 48,241,167 19.05 21,868
------ ------------ ------
Total/Average................ 21,106 $253,224,989 100.00% $11,998
====== ============ ======
</TABLE>
- --------
(1) Sum may not equal 100% due to rounding.
DELINQUENCIES AND CREDIT LOSSES
Set forth below is certain information concerning the experience of CTL
pertaining to delinquencies and credit losses on its fixed rate retail
automobile, light truck, recreational vehicle, motorcycle and van receivables
serviced by CTL. There can be no assurance that the delinquency and credit
loss experience on the Receivables will be comparable to that set forth below.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------- ----------------------------------------------------------------
1996 1995 1994 1993
-------------------- -------------------- -------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT
----------- -------- ----------- -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing portfolio..... 24,427 $303,665 22,621 $266,106 22,997 $261,325 22,034 $239,353
Delinquencies
30-59 days............. 97 1,022 84 811 102 977 110 822
60-89 days............. 65 686 66 692 55 394 69 528
90 days or more........ 60 482 49 348 59 382 37 279
------ -------- ------ -------- ------ -------- ------ --------
Total delinquencies..... 222 $ 2,190 199 $ 1,851 216 $ 1,753 216 $ 1,629
====== ======== ====== ======== ====== ======== ====== ========
Total delinquencies as a
percent of servicing
portfolio.............. .91% .72% .88% .70% .94% .67% .98% .68%
</TABLE>
S-14
<PAGE>
CREDIT LOSS EXPERIENCE (1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------------
1996 1995 1994 1993
---------------------- -------------------- -------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT
----------- -------- ----------- -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average servicing
portfolio(2)............ 23,524 $284,886 22,809 $266,746 22,516 $252,144 25,266 $257,034
Net charge-offs:
Gross charge-offs....... 520 3,182 644 3,787 527 2,500 856 4,692
Recoveries............... -- 587 -- 581 -- 573 -- 554
-------- -------- -------- --------
Net losses............... $ 2,595 $ 3,206 $ 1,927 $ 4,138
======== ======== ======== ========
Gross charge-offs as a
percentage of average
servicing portfolio(3).. 2.95%(4) 1.49%(4) 2.82% 1.42% 2.34% .99% 3.39% 1.83%
Recoveries as a percent
of gross charge-offs.... 18.45% 15.34% 22.92% 11.81%
Net losses as a
percentage of average
servicing portfolio(3).. 1.21%(4) 1.20% .76% 1.61%
</TABLE>
- --------
(1) There is generally no recourse to Dealers under any of the receivables in
the portfolio serviced by CTL, except to the extent of limited
representations and warranties made by Dealers in connection with such
receivables.
(2) Equals the monthly arithmetic average for the period then specified.
(3) Variation in the size of the portfolio serviced by CTL will affect the
percentages in "Gross Charge-Offs as a Percentage of Average Servicing
Portfolio" and "Net Losses as a Percentage of Average Servicing
Portfolio."
(4) Annualized.
S-15
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
Monthly Interest (as defined herein) on the Receivables will be distributed
to Certificateholders on each Distribution Date to the extent of the Pass-
Through Rate applied to the Certificate Balance or Notional Principal Amount,
as applicable, as of the preceding Distribution Date or the Closing Date, as
applicable (after giving effect to distributions of principal on any preceding
Distribution Date). See "The Offered Certificates--Distributions on the
Offered Certificates" herein. In the event of a full or partial prepayment on
a Receivable, Certificateholders will receive interest for the full month of
such prepayment either through the distribution of interest paid on other
Receivables, withdrawal from the Spread Account or from the Surety Bond,
unless there has been a default thereon.
Although the Receivables will have different Contract Rates, each
Receivable's Contract Rate generally will exceed the sum of (a) the weighted
average of the Class A-1 Pass-Through Rate and the Class A-2 Pass-Through
Rate, (b) the per annum rate used to calculate the Surety Bond Fee, (c) the
Class I Pass-Through Rate and (d) the per annum rate used to calculate the
Monthly Servicing Fee. The Contract Rate on a small percentage of the
Receivables, however, will be less than the foregoing sum. To the extent that
there has been a default on the Surety Bond, disproportionate rates of
prepayments between Receivables with higher and lower Contract Rates could
affect the ability of the Trust to distribute Monthly Interest to
Certificateholders.
The effective yield to Certificateholders will be below the yield otherwise
produced by the Pass-Through Rate because the distribution of Monthly
Principal and Monthly Interest in respect of any given month will not be made
until the related Distribution Date, which will not be earlier than the
fifteenth calendar day of the following month.
THE CLASS I CERTIFICATES
The Class I Certificates are interest only certificates. Although the
planned amortization feature of the Class I Certificates is intended to reduce
the uncertainty of prepayments with respect to the Class I Certificates, if
the Receivables prepay sufficiently quickly, the Notional Principal Amount of
the Class I Certificates may be reduced more quickly than provided in the
Planned Notional Principal Amount Schedule, thereby reducing the yield to the
holders of the Class I Certificates. The yield to maturity on the Class I
Certificates will therefore be very sensitive to the rate of prepayments,
including voluntary prepayments, and prepayments due to liquidations,
repurchases and losses or from the sale of the Receivables upon an Insolvency
Event with respect to the Tax Class IC Certificateholder. Prospective
investors should fully consider the associated risks, including the risk that
a rapid rate of prepayments could result in the failure of investors in the
Class I Certificates to recoup their initial investment. See "Risk Factors--
Prepayment Risks Associated with the Class I Certificates, "--Termination Upon
Insolvency Event of the Tax Class IC Certificateholder," "The Offered
Certificates--The Class I Certificates--Calculation of Notional Principal
Amount" and "--Class I Yield Considerations."
THE DEPOSITOR AND CTL
CTL currently acquires loans from over 2,800 manufacturer franchised
automobile dealerships and 160 used car dealers in eight states. CTL is a
California industrial loan company, formed in 1959. In addition to the
indirect automobile finance business, CTL underwrites and purchases
residential real estate loans and commercial equipment leases. For the fiscal
years ended December 31, 1995, 1994 and 1993 and for the nine months ended
September 30, 1996, CTL acquired motor vehicle loans aggregating $142.6
million, $156.2 million and $172.0 million and $137.9 million, respectively.
Of the $303.7 million of loans in the motor vehicles servicing portfolio of
CTL (consisting of the principal balance of loans held for sale) at September
30, 1996, approximately 74% represented loans on used motor vehicles and
approximately 26% represented loans on new motor vehicles. CTL began to offer
its motor vehicle loan products to an increased number of selected used car
dealerships in 1994. In years prior to 1994, the amount of Receivables secured
by used motor vehicles was immaterial.
Additional information regarding CTL and the Depositor is set forth under
"California Thrift & Loan and Affiliates" in the Prospectus.
S-16
<PAGE>
THE SURETY BOND ISSUER
Capital Markets Assurance Corporation is the surety bond provider (the
"Surety Bond Issuer"). The Surety Bond Issuer is a New York-domiciled monoline
stock insurance company which engages only in the business of financial
guarantee and surety insurance. The Surety Bond Issuer is licensed in 50
states in addition to the District of Columbia, the Commonwealth of Puerto
Rico and the territory of Guam. The Surety Bond Issuer insures structured
asset-backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. The Surety Bond Issuer also provides
financial guarantee reinsurance for structured asset-backed, corporate,
municipal and other financial obligations written by other major insurance
companies.
The Surety Bond Issuer's claims-paying ability is rated "Aaa" by Moody's,
"AAA" by Standard & Poor's, "AAA" by Duff & Phelps Credit Rating Co. ("Duff &
Phelps") and "AAA" by Nippon Investors Service Inc. Such ratings reflect only
the views of the respective rating agencies, are not recommendations to buy,
sell or hold securities and are subject to revision or withdrawal at any time
by such rating agencies.
The Surety Bond Issuer is a wholly-owned subsidiary of CapMAC Holdings Inc.
("Holdings"). Neither Holdings nor any of its stockholders is obligated to pay
any claims under any surety bond issued by the Surety Bond Issuer or any debts
of the Surety Bond Issuer or to make additional capital contributions to the
Surety Bond Issuer.
The Surety Bond Issuer is regulated by the Superintendent of Insurance of
the State of New York. In addition, the Surety Bond Issuer is subject to
regulation by the insurance laws and regulations of the other jurisdictions in
which it is licensed. Such insurance laws regulate, among other things, the
amount of net exposure per risk that the Surety Bond Issuer may retain,
capital transfers, dividends, investment of assets, changes in control,
transactions with affiliates and consolidations and acquisitions. The Surety
Bond Issuer is subject to periodic regulatory examinations by the same
regulatory authorities.
The Surety Bond Issuer's obligations under the Surety Bond may be reinsured.
Such reinsurance does not relieve the Surety Bond Issuer of any of its
obligations under the Surety Bond.
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As of December 31, 1995 and 1994, the Surety Bond Issuer had qualified
statutory capital (which consists of policyholders' surplus and contingency
reserve) of approximately $240 million and $170 million, respectively, and had
not incurred any debt obligations. Article 69 of the New York State Insurance
Law requires the Surety Bond Issuer to establish and maintain the contingency
reserve, which is available to cover claims under surety bonds issued by the
Surety Bond Issuer.
The audited financial statements of the Surety Bond Issuer prepared in
accordance with generally accepted accounting principles as of December 31,
1995 and 1994 and for each of the years in the three-year period ended
December 31, 1995 and the unaudited financial statements of the Surety Bond
Issuer as of September 30, 1996 and 1995 and for each of the nine-month
periods ended September 30, 1996 and 1995 are made a part of this Prospectus
Supplement beginning on page F-1. Copies of the Surety Bond Issuer's financial
statements prepared in accordance with statutory accounting standards, which
differ from generally accepted accounting principles, and filed with the
Insurance Department of the State of New York are also available upon request.
The Surety Bond Issuer is located at 885 Third Avenue, New York, New York
10022, and its telephone number is (212) 755-1155.
S-17
<PAGE>
THE OFFERED CERTIFICATES
The Offered Certificates will be issued pursuant to the Pooling and
Servicing Agreement. Copies of the Pooling and Servicing Agreement (without
exhibits) may be obtained by Certificateholders upon request in writing to the
Servicer at the address set forth herein under "Reports to
Certificateholders." Citations to the relevant sections of the Pooling and
Servicing Agreement appear below in parentheses. The following is a summary of
the material terms of the Certificates and is subject to and qualified in its
entirety by reference to the Pooling and Servicing Agreement.
DISTRIBUTIONS
In general, it is intended that the Trustee distribute to the Class A
Certificateholders on each Distribution Date beginning February 18, 1997, the
aggregate principal payments, including full and partial prepayments (except
certain prepayments in respect of Precomputed Receivables as described below
under "--Accounts") received on the Receivables during the related Collection
Period, plus a full month's interest at the Class A Pass-Through Rate (except
that the first interest payment will represent interest from the Closing Date
to the end of the first Collection Period, assuming a 30 day month). Such
distributions of principal will be made in accordance with the Principal
Distribution Sequence. It is also intended that the Trustee distribute to the
Class I Certificateholders, on each Distribution Date beginning on February
18, 1997 and continuing until the Distribution Date on which the Class I
Notional Principal Amount is reduced to zero, a full month's interest at the
Class I Pass-Through Rate on the Class I Notional Principal Amount (except
that the first interest payment will represent interest from the Closing Date
to the end of the first Collection Period, assuming a 30 day month). See "--
Distributions on the Offered Certificates." Interest to Certificateholders may
be provided by a payment made by or on behalf of the Obligor, by an Advance
made by the Servicer to cover interest due on a delinquent Receivable or by a
withdrawal from the Spread Account. If such interest represents Class A
Monthly Interest or Class I Monthly Interest it may be provided by a draw on
the Surety Bond if there are not sufficient funds (after payment of the
Monthly Servicing Fee and after giving effect to any withdrawals from the
Spread Account for the benefit of the Class A Certificateholders and Class I
Certificateholders) to pay Class I Monthly Interest, Class A Monthly Interest
and Monthly Principal. Draws on the Surety Bond to pay Class A Monthly
Interest and Class I Monthly Interest and Monthly Principal will be limited to
the Surety Bond Amount. See "--Sale and Assignment of Receivables" and "--
Accounts" herein.
THE CLASS I CERTIFICATES--CALCULATION OF NOTIONAL PRINCIPAL AMOUNT
The Class I Certificates are interest-only planned amortization securities.
The Class I Certificates are entitled to receive interest at the Class I Pass-
Through Rate on the Notional Principal Amount of the Class I Certificates. The
planned amortization feature is intended to reduce the uncertainty to
investors in the Class I Certificates with respect to prepayments because the
Class I Certificates will receive interest based on their Notional Principal
Amount, which is based on a principal paydown schedule rather than on the
reduction in the actual Certificate Balance, as described below. Solely for
the purpose of calculating the amount payable with respect to the Class I
Certificates, the Certificate Balance will be divided into two principal
components, the "PAC Component" and the "Companion Component." The Notional
Principal Amount will be equal to the PAC Component, originally $175,746,647.
The sum of the PAC Component and the Companion Component will at all times
equal the then aggregate unpaid Certificate Balance.
The Pooling and Servicing Agreement establishes a schedule (the "Planned
Notional Principal Amount Schedule") pursuant to which principal will be
allocated to the PAC Component and the Companion Component, as described
below. As the PAC Component is reduced, the Notional Principal Amount of the
Class I Certificates will also be reduced, resulting in reduced payments to
the holders of the Class I Certificates.
On each Distribution Date, the Monthly Principal will be allocated first to
the PAC Component up to the amount necessary to reduce the PAC Component to
its Planned Notional Principal Amount for such Distribution Date, as set forth
in the Planned Notional Principal Amount Schedule, second, to the Companion
Component until the balance thereof is reduced to zero and third, to the PAC
Component, without regard to the Planned Notional Principal Amount for such
Distribution Date, until reduced to zero. The foregoing allocations will be
made solely for purposes of calculating the Notional Principal Amount of the
Class I Certificates and
S-18
<PAGE>
correspondingly, the amount of interest payable with respect to the Class I
Certificates. The Class I Certificates are not entitled to receive any
principal payments. The foregoing calculations will not affect distributions
of principal with respect to the Class A Certificates.
PLANNED NOTIONAL PRINCIPAL AMOUNT SCHEDULE
<TABLE>
<CAPTION>
PLANNED NOTIONAL
DISTRIBUTION DATE PRINCIPAL AMOUNT
----------------- ----------------
<S> <C>
Initial..................................................... $175,746,647.46
February 1997............................................... 165,280,085.41
March 1997.................................................. 156,693,745.50
April 1997.................................................. 147,606,056.15
May 1997.................................................... 138,706,230.51
June 1997................................................... 129,997,514.89
July 1997................................................... 121,483,203.97
August 1997................................................. 113,166,641.44
September 1997.............................................. 105,051,220.71
October 1997................................................ 97,140,385.56
November 1997............................................... 89,437,630.88
December 1997............................................... 81,946,503.34
January 1998................................................ 74,670,602.11
February 1998............................................... 67,613,579.58
March 1998.................................................. 60,779,142.13
April 1998.................................................. 54,362,424.89
May 1998.................................................... 49,349,540.34
June 1998................................................... 45,120,492.38
July 1998................................................... 40,983,967.50
August 1998................................................. 36,941,594.60
September 1998.............................................. 32,995,027.60
October 1998................................................ 29,145,945.77
November 1998............................................... 25,396,054.12
December 1998............................................... 21,747,083.75
January 1999................................................ 18,200,792.25
February 1999............................................... 15,451,771.80
March 1999.................................................. 13,119,703.27
April 1999.................................................. 11,078,468.47
May 1999.................................................... 9,309,440.84
June 1999................................................... 7,591,418.81
July 1999................................................... 5,925,289.77
August 1999................................................. 4,893,403.01
September 1999.............................................. 4,176,112.92
October 1999................................................ 3,477,114.81
November 1999............................................... 2,796,733.30
December 1999............................................... 2,135,298.00
January 2000................................................ 1,661,349.09
February 2000............................................... 1,330,075.13
March 2000.................................................. 1,007,931.16
April 2000.................................................. 696,642.24
May 2000.................................................... 400,498.46
June 2000................................................... 119,759.40
July 2000................................................... 0.00
</TABLE>
S-19
<PAGE>
The Class I Certificates will not be entitled to any distributions of
interest after the Notional Principal Amount of the Class I Certificates has
been reduced to zero.
CLASS I YIELD CONSIDERATIONS
Although the planned amortization feature of the Class I Certificates is
intended to reduce the uncertainty relating to prepayments of the Receivables
with respect to the Class I Certificates, the yield to maturity of the Class I
Certificates will remain extremely sensitive to the prepayment experience of
the Receivables, including voluntary prepayments, prepayments due to
liquidations, repurchases and losses and prepayments resulting from the sale
of the Receivables upon an Insolvency Event with respect to the Tax Class IC
Certificateholder. Prospective investors should fully consider the associated
risks, including the risk that such investors may not fully recover their
initial investment. In particular, investors in the Class I Certificates
should note that they will not be entitled to any distributions after the
Class I Notional Principal Amount has been reduced to zero, and that
Receivables may be repurchased due to breaches of representations. See also
"--Termination Upon Insolvency Event of the Tax Class IC Certificateholder"
and "Risk Factors--Prepayment Risks Associated with the Class I Certificate"
herein.
The following table illustrates the significant effect that prepayments on
the Receivables have upon the yield to maturity of the Class I Certificates.
The table shows the approximate hypothetical pre-tax yields to maturity of the
Class I Certificates, stated on a corporate bond equivalent basis, under five
different prepayment assumptions based on the assumed purchase price and the
ABS prepayment model described below. The following table also assumes that
the Receivables have been aggregated into five hypothetical pools having the
following characteristics and that the level scheduled monthly payment for
each of the five pools (which is based on its principal balance, weighted
average Contract Rate and weighted average remaining term as of the Cutoff
Date and its weighted average original term) will be such that such pool will
be fully amortized by the end of its weighted average remaining term.
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE AVERAGE
CUTOFF DATE REMAINING TERM TO ORIGINAL TERM
PRINCIPAL WEIGHTED AVERAGE MATURITY TO MATURITY
POOL BALANCE CONTRACT RATE (IN MONTHS) (IN MONTHS)
- ---- -------------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
1.............. $62,430,163.99 13.6225% 70 73
2.............. $56,337,566.65 13.3280% 64 73
3.............. $62,260,599.95 14.1305% 55 73
4.............. $40,731,776.23 12.7119% 38 68
5.............. $31,464,882.66 12.4088% 24 69
</TABLE>
For purposes of the table, it is also assumed that (i) the purchase price of
the Class I Certificates is as set forth below, (ii) the Receivables have the
characteristics set forth under "--The Class I Certificates--Calculation of
Notional Principal Amount" above, (iii) the Receivables prepay monthly at the
specified percentages of ABS as set forth in the table below, (iv) scheduled
payments on Receivables are received on the first day of each month commencing
on February 1, 1997, (v) prepayments representing prepayments in full of
individual Receivables are received on the last day of the month commencing in
January 1997 and include a full month's interest thereon, (vi) the Closing
Date for the Offered Certificates is January 29, 1997, (vii) distributions on
the Offered Certificates are made, in cash, on the fifteenth calendar day of
each month, commencing in February 1997, (viii) no defaults or delinquencies
in the payment of the Receivables are experienced, and (ix) no Receivable is
repurchased for breach of representation and warranty or otherwise.
SENSITIVITY OF THE CLASS I CERTIFICATES TO PREPAYMENTS
<TABLE>
<CAPTION>
1.00% 1.60% 2.00% 2.25% 3.00%
PRICE(1) ABS ABS ABS ABS ABS
- -------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
2.83124%................................... 27.712% 6.725% 6.725% 6.725% -5.345%
</TABLE>
- --------
(1) Expressed as a percentage of the Original Notional Principal Amount
(excluding accrued interest).
S-20
<PAGE>
Based on the assumptions described above and assuming a purchase price of
2.83124% at approximately 2.894% ABS, the pre-tax yield to maturity of the
Class I Certificates would be approximately 0%.
It is highly unlikely that the Receivables will prepay at a constant rate
until maturity or that all of the Receivables will prepay at the same rate.
The foregoing table assumes that each Receivable bears interest at its
specified Contract Rate, has the same remaining term to maturity, and prepays
at the same rate. In fact, receivables will prepay at different rates and have
different terms.
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class I Certificates, would cause the discounted
present value of such assumed cash flows to equal the assumed purchase price
of such Class I Certificates and by converting such monthly rates to corporate
bond equivalent rates. Such calculations do not take into account variations
that may occur in the interest rates at which investors may be able to
reinvest funds received by them as distributions on the Class I Certificates
and consequently do not purport to reflect the return on any investment in the
Class I Certificates when such reinvestment rates are considered.
The Receivables will not necessarily have the characteristics assumed above,
and there can be no assurance that (i) the Receivables will prepay at any of
the rates shown in the table or at any other particular rate or will prepay
proportionately, (ii) the pre-tax yield on the Class I Certificates will
correspond to any of the pre-tax yields shown above or (iii) the aggregate
purchase price of the Class I Certificates will be equal to the purchase price
assumed. Because the Receivables will include Receivables that have remaining
terms to stated maturity shorter or longer than those assumed and Contract
Rates higher or lower than those assumed, the pre-tax yield on the Class I
Certificates may differ from those set forth above, even if all of the
Receivables prepay at the indicated constant prepayment rates.
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement,
the Absolute Prepayment Model ("ABS"), represents an assumed rate of
prepayment each month relative to the original number of receivables in a pool
of receivables. ABS further assumes that all the receivables are the same size
and amortize at the same rate and that each receivable in each month of its
life will either be paid as scheduled or be prepaid in full. For example, in a
pool of receivables originally containing 10,000 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.
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information with respect to the conveyance of the Receivables (i)
from CTL to the Depositor pursuant to the Purchase Agreement dated as of
January 29, 1997, and (ii) from the Depositor to the Trust pursuant to the
Pooling and Servicing Agreement is set forth under "Description of the
Transfer and Servicing Agreements--Sale and Assignment of the Receivables" in
the Prospectus.
ACCOUNTS
In addition to the Certificate Account, the property of the Trust will
include the Spread Account and the Payahead Account.
Spread Account. On the Closing Date, the Depositor will establish the Spread
Account. Thereafter, the amount held in the Spread Account as of any
Distribution Date will be increased up to the sum of the Required Spread
Amount and the amount of outstanding Advances as of such Distribution Date by
the deposit thereto of payments on the Receivables not utilized to make
payments to the Certificateholders (other than the Class IC
Certificateholder), the Surety Bond Issuer or the Servicer on any Distribution
Date. While it is intended that the Spread Account will grow over time to
equal the Required Spread Amount through monthly deposits of excess
collections on the Receivables, if any, there can be no assurance that such
growth will actually occur. The Spread Account will be established for the
benefit of the Class A Certificateholders, Class I Certificateholders and the
S-21
<PAGE>
Surety Bond Issuer. On each Distribution Date, any amounts on deposit in the
Spread Account after the payment of any amounts owed to the Surety Bond Issuer
in excess of the sum of the Required Spread Amount and the amount of
outstanding Advances will be withdrawn from the Spread Account and distributed
to the Class IC Certificateholder.
Under the terms of the Pooling and Servicing Agreement, the Trustee will
withdraw funds from the Spread Account and transfer them to the Certificate
Account for any deficiency of Monthly Interest or Monthly Principal as further
described below under "--Distributions on the Offered Certificates," to the
extent available, prior to making any draw on the Surety Bond.
In the event that the balance of the Spread Account is reduced to zero and
there is a default under the Surety Bond on any Distribution Date, the Trust
will depend solely on current distributions on the Receivables to make
distributions of principal and interest on the Certificates. Any reduction in
the principal balance of the Receivables due to losses on the Receivables will
also result in a reduction of the Notional Principal Amount of the Class I
Certificates. Any such losses would be borne by the Class A Certificateholders
and Class I Certificateholders as set forth herein. See "--Distributions on
the Offered Certificates" herein.
Payahead Account. The Servicer will establish an additional account (the
"Payahead Account"), in the name of the Trustee and for the benefit of
Obligors on the Receivables, into which, to the extent required by the Pooling
and Servicing Agreement, early payments by or on behalf of Obligors on
Precomputed Receivables will be deposited until such time as the payment
becomes due. Until such time as payments are transferred from the Payahead
Account to the Certificate Account, they will not constitute collected
interest or collected principal and will not be available for distribution to
Certificateholders. Interest earned on the balance in the Payahead Account
will be remitted to the Servicer monthly. If any collections remaining after
the scheduled payment is made are insufficient to prepay the Precomputed
Receivable in full, then generally such remaining collections shall be
transferred to and kept in the Payahead Account until such later Collection
Period as the collections may be retransferred to the Certificate Account and
applied either to a later scheduled payment or to prepay such Receivable in
full.
ADVANCES
With respect to each Receivable delinquent more than 30 days at the end of a
Collection Period, the Servicer will make an Advance in an amount equal to 30
days of interest, but only to the extent that the Servicer in its sole
discretion, expects to recoup the Advance from subsequent collections on the
Receivable. The Servicer will deposit the Advance in the Certificate Account
on the Determination Date preceding the related Distribution Date. The
Servicer will recoup its Advance from subsequent payments by or on behalf of
the respective Obligor, from insurance proceeds or, upon the Servicer's
determination that reimbursement from the preceding sources is unlikely, will
recoup its Advance from any collections made on other Receivables.
DISTRIBUTIONS ON THE CLASS IC CERTIFICATE
The Class IC Certificate, together with the Spread Account, facilitates the
retention of the Surety Bond Issuer. Further, the Class IC Certificate is
designed to stabilize the Class I Certificate's sensitivity to prepayments.
Accordingly, the Class IC Certificate will only be entitled to receive monthly
all funds held in the Spread Account in excess of the sum of the Required
Spread Amount and the amount of outstanding Advances (after making any
withdrawals therefrom in respect of shortfalls of Monthly Interest and Monthly
Principal and payment of all amounts owed to the Surety Bond Issuer). Upon
termination of the Trust the Class IC Certificateholder is entitled to receive
any amounts remaining in the Spread Account (only after all required payments
to the Surety Bond Issuer are made) after the payment of expenses and
distributions to Certificateholders. See "--Accounts" above and "--Unlimited
Liability of the Tax Class IC Certificateholder" herein.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The Servicer will deposit in the Certificate Account the amount of payments
on all Receivables received with respect to the preceding Collection Period.
All such payments on the Receivables, plus the net amount to
S-22
<PAGE>
be transferred from the Payahead Account for the related Distribution Date,
all Advances for such Collection Period, the Purchase Amount for all
Receivables that became Purchased Receivables during the preceding Collection
Period, and the portion of the outstanding principal balance of each Defaulted
Receivable which represents forced placed insurance that was cancelled prior
to the Cutoff Date, will be available for distribution pursuant to the terms
of the Pooling and Servicing Agreement on the next succeeding Distribution
Date ("Available Funds"). If there is a deficiency with respect to Class A
Monthly Interest or Class I Monthly Interest or Monthly Principal on any
Distribution Date after giving effect to payments of the Monthly Servicing Fee
on such Distribution Date, the Trustee, or the Servicer at the discretion of
the Trustee, will withdraw amounts, to the extent available, from the Spread
Account in the amount of such deficiency and notify the Trustee of any
remaining deficiency, whereupon the Trustee will draw on the Surety Bond to
pay Class A Monthly Interest and Class I Monthly Interest and Monthly
Principal on any Distribution Date, up to the Surety Bond Amount. Moreover, if
the Available Funds for a Distribution Date are insufficient to pay current
and past due Surety Bond Fees, and other amounts owed to the Surety Bond
Issuer, pursuant to the Insurance Agreement, plus accrued interest thereon, to
the Surety Bond Issuer, the Servicer will notify the Trustee of such
deficiency, and the amount, if any, then on deposit in the Spread Account
(after giving effect to any withdrawal to satisfy a deficiency described in
this and the preceding sentence) will be available to cover such deficiency.
If acceptable to each Rating Agency without a reduction in the rating of any
class of Offered Certificates, the Monthly Servicing Fee due to the Servicer
in respect of each Collection Period will be distributed to the Servicer
during such Collection Period from Collections for such Collection Period.
On each such Distribution Date, the Trustee will apply or cause to be
applied the Available Funds (plus, to the extent required for payment of
Monthly Interest or Monthly Principal any amounts withdrawn from the Spread
Account or drawn on the Surety Bond, as applicable) to make the following
payments in the following priority:
(a) the aggregate amount of outstanding Advances on all Receivables that
became Defaulted Receivables during the prior Collection Period to the
Servicer;
(b) the Monthly Servicing Fee, including any overdue Monthly Servicing Fee,
to the Servicer, to the extent not previously distributed to the
Servicer;
(c) pro rata based on amounts due, (y) Class A Monthly Interest, including
any overdue Class A Monthly Interest, to the Class A Certificateholders
and (z) Class I Monthly Interest, including any overdue Class I Monthly
Interest, to the Class I Certificateholders;
(d) Monthly Principal, together with any overdue Monthly Principal, to the
class of Class A Certificates then entitled to receive Monthly
Principal in accordance with the Principal Distribution Sequence;
(e) the Surety Bond Fee (including any overdue Surety Bond Fee, plus
accrued interest thereon) to the Surety Bond Issuer;
(f) the amount of recoveries of Advances to the Servicer (to the extent not
applied pursuant to (a) above on or prior to such Distribution Date);
(g) the aggregate amount of any unreimbursed draws on the Surety Bond
payable to the Surety Bond Issuer, under the Insurance Agreement, for
Class A Monthly Interest, Class I Monthly Interest and Monthly
Principal, plus accrued interest thereon and any other amounts owing to
the Surety Bond Issuer under the Insurance Agreement; and
(h) the balance into the Spread Account.
After all distributions pursuant to clauses (a) through (h) above have been
made for each Distribution Date, the amount of funds remaining in the Spread
Account on such date, if any, in excess of the sum of the Required Spread
Amount and any outstanding Advances as of such Distribution Date (after making
any withdrawals therefrom in respect of shortfalls of Monthly Interest and
Monthly Principal and payment of all amounts owed to the Surety Bond Issuer),
will be distributed by the Trustee to the Class IC Certificateholder. Any
amounts so distributed to the Class IC Certificateholder will no longer be
property of the Trust and Certificateholders will have no rights with respect
thereto.
S-23
<PAGE>
"Monthly Interest" for any Distribution Date will equal the sum of the Class
A Monthly Interest and the Class I Monthly Interest.
"Class A Monthly Interest" means, for any Distribution Date, the sum of
Class A-1 Monthly Interest and Class A-2 Monthly Interest.
"Class A-1 Monthly Interest" for any Distribution Date will equal (i) for
the first Distribution Date, the product of the following: (the number of days
remaining in the month of the Closing Date (assuming a 30 day month) from the
Closing Date divided by 30) (such amount, the "Initial Multiplier") multiplied
by (one-twelfth of the Class A-1 Pass-Through Rate) multiplied by (the Class
A-1 Certificate Balance at the Closing Date) and (ii) with respect to each
subsequent Distribution Date, the product of one-twelfth of the Class A-1
Pass-Through Rate and the Class A-1 Certificate Balance on the preceding
Distribution Date (after giving effect to any distribution of Monthly
Principal required to be made on such preceding Distribution Date).
"Class A-2 Monthly Interest" for any Distribution Date will equal (i) for
the first Distribution Date, the product of the following: (one-twelfth of the
Class A-2 Pass-Through Rate) multiplied by (the Initial Multiplier) multiplied
by (the Class A-2 Certificate Balance at the Closing Date) and (ii) with
respect to each subsequent Distribution Date, the product of one-twelfth of
the Class A-2 Pass-Through Rate and the Class A-2 Certificate Balance on the
preceding Distribution Date (after giving effect to any distribution of
Monthly Principal required to be made on such preceding Distribution Date).
"Class I Monthly Interest" for any Distribution Date will equal (i) for the
first Distribution Date, the product of the following: (one-twelfth of the
Class I Pass-Through Rate) multiplied by (the Initial Multiplier) multiplied
by (the Original Notional Principal Amount) and (ii) with respect to each
subsequent Distribution Date, the product of one-twelfth of the Class I Pass-
Through Rate and the Notional Principal Amount on the preceding Distribution
Date (after giving effect to any reduction of Notional Principal Amount on
such preceding Distribution Date).
"Monthly Principal" for any Distribution Date will equal the amount
necessary to reduce the Certificate Balance to the aggregate unpaid principal
balance of the Receivables on the last day of the preceding Collection Period;
provided, however, that Monthly Principal on the Class A-1 Final Scheduled
Distribution Date will be increased by the amount, if any, which is necessary
to reduce the Class A-1 Certificate Balance to zero on such date and Monthly
Principal on the Class A-2 Final Scheduled Distribution Date will be increased
by the amount, if any, which is necessary to reduce the Class A-2 Certificate
Balance to zero on such date. For the purpose of determining Monthly
Principal, the unpaid principal balance of a Defaulted Receivable or a
Purchased Receivable is deemed to be zero on and after the last day of the
Collection Period in which such Receivable became a Defaulted Receivable or a
Purchased Receivable.
"Principal Distribution Sequence" means that Monthly Principal shall be
distributed among the Class A Certificateholders in the following sequence:
(i) to the Class A-1 Certificateholders until the Class A-1 Certificate
Balance has been reduced to zero and (ii) to the Class A-2 Certificateholders
until the Class A-2 Certificate Balance has been reduced to zero.
"Surety Bond Fee" for any Distribution Date will equal one-twelfth of the
product of the Surety Bond per annum fee rate set forth in the Insurance
Agreement and the Certificate Balance calculated as of the first day of the
Collection Period to which such Distribution Date relates and payable monthly
in arrears.
"Defaulted Receivable" will mean, for any Collection Period, a Receivable as
to which any of the following has occurred: (i) the Receivable is 150 days or
more delinquent as of the last day of such Collection Period; (ii) the
Financed Vehicle that secures the Receivable has been repossessed; or (iii)
the Receivable has been determined to be uncollectable in accordance with the
Servicer's customary practices on or prior to the last day of such Collection
Period; provided, however, that any Receivable which the Depositor or the
Servicer has repurchased or purchased pursuant to the Pooling and Servicing
Agreement shall be deemed not to be a Defaulted Receivable and provided
further, that any Advances made with respect to a Receivable shall not be
considered in the determination of the delinquency status with respect to such
Receivable.
As an administrative convenience, the Servicer will be permitted to make the
deposit of Collections and aggregate Advances and Purchase Amounts for or with
respect to the Collection Period, net of distributions to be made to the
Servicer with respect to the Collection Period. The Servicer, however, will
account to the Trustee and to the Certificateholders as if all deposits and
distributions were made individually.
S-24
<PAGE>
The following chart sets forth an example of the application of the
foregoing provisions to a monthly distribution:
January 1-31....Collection Period. The Servicer receives monthly payments,
prepayments, and other proceeds in respect of the Receivables
and deposits them in the Certificate Account. The Servicer may
deduct the Monthly Servicing Fee from such deposits.
January 31 ....Record Date. Distributions on the Distribution Date are made to
Certificateholders of record at the close of business on this
date.
February 10 ....Determination Date. On the tenth day of the month, or if such
day is not a business day, the next succeeding business day the
Servicer notifies the Trustee of the amounts to be distributed
on the Distribution Date and of any deficiencies.
February 18 ....Distribution Date. On the fifteenth day of the month, or if such
day is not a business day, the next succeeding business day the
Trustee withdraws funds from the Certificate Account, Spread
Account and/or draws on the Surety Bond, if necessary, to pay
Monthly Principal and Monthly Interest to Certificateholders as
described herein. The Trustee distributes to Certificateholders
amounts payable in respect of the Offered Certificates, and pays
the Monthly Servicing Fee to the extent not previously paid, the
Surety Bond Fee and any amounts owing to the Surety Bond Issuer.
THE SURETY BOND
On or before the Closing Date, the Depositor and CTL, in its individual
capacity and as Servicer, and the Surety Bond Issuer will enter into an
Insurance and Reimbursement Agreement (the "Insurance Agreement") pursuant to
which the Surety Bond Issuer will issue the Surety Bond. Under the terms of
the Pooling and Servicing Agreement, after withdrawal of any amounts in the
Spread Account with respect to a Distribution Date to pay a deficiency in
Class A Monthly Interest or Class I Monthly Interest or Monthly Principal, the
Trustee will be authorized to draw on the Surety Bond for the benefit of the
Class A Certificateholders and Class I Certificateholders and credit the
Certificate Account for such draws as described under "--Distributions on the
Offered Certificates." The maximum amount that may be drawn under the Surety
Bond on any Distribution Date is limited to the Surety Bond Amount for such
Distribution Date. The Surety Bond Amount, with respect to any Distribution
Date, shall equal (x) the sum of (A) the lesser of (i) the Certificate Balance
(after giving effect to any distribution of Available Funds and any funds
withdrawn from the Spread Account to pay Monthly Principal on such
Distribution Date) and (ii) the Net Principal Surety Bond Amount, plus (B)
Class A Monthly Interest, plus (C) Class I Monthly Interest, plus (D) the
Monthly Servicing Fee; less (y) all amounts on deposit in the Spread Account
on such Distribution Date (including any outstanding Advances on deposit
therein). "Net Principal Surety Bond Amount" means the Certificate Balance as
of the first Distribution Date minus all amounts previously drawn on the
Surety Bond or from the Spread Account with respect to Monthly Principal.
The Surety Bond Issuer will be entitled to receive the Surety Bond Fee and
certain other amounts on each Distribution Date as described under "--
Distributions on the Offered Certificates" and to receive amounts on deposit
in the Spread Account as described above under "--Accounts." The Surety Bond
Issuer will not be entitled to reimbursement of any amounts from the
Certificateholders. The Surety Bond Issuer's obligation under the Surety Bond
is irrevocable. The Surety Bond Issuer will have no obligation other than its
obligations under the Surety Bond to the Certificateholders or the Trustee.
In the event that the balance in the Spread Account is reduced to zero and
there has been a default under the Surety Bond, the Trust may depend solely on
current distributions on the Receivables to make distributions of principal
and interest on the Offered Certificates. Any reduction in the principal
balance of the Receivables due to losses on the Receivables may also result in
a reduction of the Notional Principal Amount of the Class I Certificates. Any
such losses would be borne by the Class A Certificateholders and Class I
Certificateholders as set forth herein. See "--Distributions on the Offered
Certificates."
S-25
<PAGE>
UNLIMITED LIABILITY OF THE TAX CLASS IC CERTIFICATEHOLDER
The Depositor as the initial Class IC Certificateholder has agreed to assume
unlimited personal liability to any creditor of the Trust (other than to the
Trustee and the Certificateholders in certain circumstances; in this capacity
the Depositor is referred to as the "Tax Class IC Certificateholder."). Third
party creditors may rely on such agreement as third-party beneficiaries. The
Class IC Certificate may only be transferred to non-affiliates of the
Depositor and only so long as the Depositor as the initial Class IC
Certificateholder retains at least 1% of the Class IC Certificate and remains
subject to unlimited personal liability to any creditor of the Trust (other
than the Trustee and the Certificateholders in certain circumstances).
TERMINATION UPON INSOLVENCY EVENT OF THE TAX CLASS IC CERTIFICATEHOLDER
If an Insolvency Event occurs with respect to the Tax Class IC
Certificateholder, the Tax Class IC Certificateholder will promptly give
notice to the Trustee of such event. Under the terms of the Pooling and
Servicing Agreement, within 15 days of such notice, the Trustee shall (i)
publish a notice of such Insolvency Event stating that the Trustee intends to
sell, dispose of, or otherwise liquidate the Receivables in a commercially
reasonable manner and (ii) send written notice to the Certificateholders
requesting instructions from such holders. Unless instructed otherwise within
a specified period by holders of more than 51% of the Certificate Balance and
holders of more than 51% of the Notional Principal Amount of the Class I
Certificates or unless otherwise prohibited by applicable law, the Trustee
will sell, dispose of or otherwise liquidate the Receivables in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from the
sale, disposition or liquidation of the Receivables will be distributed to
Class A Certificateholders and Class I Certificateholders each in respect of
their remaining capital investment, and the Trustee will then distribute
amounts owing the Surety Bond Issuer and the Class IC Certificateholder(s) and
proceed to wind up and terminate the Trust. If such proceeds are not
sufficient to pay any accrued and unpaid Class A Monthly Interest, accrued and
unpaid Class I Monthly Interest and the Certificate Balance, the
Certificateholders could incur a loss. The Surety Bond is not available to pay
such shortfall. Furthermore, any distributions of such proceeds will have the
same effect as a prepayment of the Receivables and could affect the yield on
the Class A Certificates and could significantly affect the yield on the Class
I Certificates.
An "Insolvency Event" means, with respect to the Tax Class IC
Certificateholder, (i) the entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the appointment
of a trustee in bankruptcy for the Tax Class IC Certificateholder in any
insolvency, readjustment of debt, marshalling of assets and liabilities, or
similar proceedings, or for the winding up or liquidation of the Tax Class IC
Certificateholder's affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or (ii) the
consent by the Tax Class IC Certificateholder to the appointment of a trustee
in bankruptcy in any insolvency, readjustment of debt, marshalling of assets
and liabilities, or similar proceedings of or relating to the Tax Class IC
Certificateholder or of or relating to substantially all of its property; or
(iii) the Tax Class IC Certificateholder admits in writing its inability to
pay its debts generally as they become due, files a petition to take advantage
of any applicable insolvency or reorganization statute, makes an assignment
for the benefit of its creditors, or voluntarily suspends payment of its
obligations. The Depositor, who is also the Tax Class IC Certificateholder, is
a special purpose corporation the activities of which are circumscribed by its
charter with a view to reducing any risk of its bankruptcy.
In the event of a liquidation of the Trust due to an Insolvency Event with
respect to the Tax Class IC Certificateholder, the Surety Bond will not be
available to pay a deficiency if the liquidation proceeds are less than the
Certificate Balance (and any Monthly Interest) at the time of such
liquidation.
RIGHTS OF THE SURETY BOND ISSUER UPON EVENTS OF DEFAULT, AMENDMENT OR WAIVER
The Surety Bond Issuer will have the right to consent to any remedies of the
Trustee or Certificateholders set forth in the Prospectus under "Description
of the Transfer and Servicing Agreements--Rights Upon Events of Default." In
addition, a successor Servicer appointed after the termination of the Servicer
upon an Event of Default must be reasonably acceptable to the Surety Bond
Issuer. In addition to the events constituting an Event
S-26
<PAGE>
of Default, the Pooling and Servicing Agreement will also permit the Surety
Bond Issuer to appoint a successor Servicer, to redirect payments made under
the Receivables to the Trustee and to effect certain other remedies upon the
occurrence of certain additional events specified in the Insurance Agreement.
See "Risk Factors -- Insolvency Considerations" in the Prospectus.
The Pooling and Servicing Agreement cannot be amended or any provisions
thereof waived without the consent of the Surety Bond Issuer if such amendment
or waiver would have a materially adverse effect upon the rights of the Surety
Bond Issuer.
ERISA CONSIDERATIONS
The Offered Certificates may be treated as "equity interests" in the Trust
for purposes of the Plan Assets Regulation. Accordingly, if a Plan purchases
the Offered Certificates, the Trust could be deemed to hold plan assets unless
one of the exceptions under the Plan Assets Regulation is applicable to the
Trust. There can be no assurance that any of the exceptions set forth in the
Plan Assets Regulation will apply to the purchase of Offered Certificates or
operations of the Trust. However, the Exemption might apply to the
acquisition, holding and resale of Offered Certificates by a Plan, provided
that certain conditions and requirements set forth therein are met. See "ERISA
Considerations" in the Prospectus.
A fiduciary of a Plan must determine that the purchase of Class A
Certificates or of Class I Certificates is consistent with its fiduciary
duties under ERISA and does not result in a nonexempt prohibited transaction
as defined in Section 406 of ERISA or Section 4975 of the Code. For additional
information regarding treatment of the Class A Certificates and the Class I
Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement for the sale of the Offered Certificates, dated January 24 1997, the
Depositor has agreed to sell PaineWebber Incorporated (the "Underwriter") and
the Underwriter has agreed to purchase all the principal amount of the Offered
Certificates.
In the underwriting agreement, the Underwriter, has agreed, subject to the
terms and conditions set forth therein, to purchase all the Offered
Certificates offered hereby if any of the Offered Certificates are purchased.
The Underwriter proposes to offer part of the Offered Certificates directly
to the public at the prices set forth on the cover page hereof, and part to
certain dealers at a price that represents a concession not in excess of
0.100% of the principal balance of the Class A-1 Certificates and the Class A-
2 Certificates. The Underwriter may allow and such dealers may reallow a
concession not in excess of 0.075% of the principal balance of the Class A-1
Certificates and the Class A-2 Certificates to certain other dealers.
The Depositor, Bay View and CTL have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act.
The Depositor has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Certificates, as permitted
by applicable laws and regulations. The Underwriter is not obligated, however,
to make a market in the Offered Certificates and any such market-making may be
discontinued at any time at the sole discretion of the Underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Offered Certificates.
S-27
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates will be passed
upon for the Depositor by Silver, Freedman & Taff, L.L.P., Washington, D.C.,
and for the Underwriter by Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The financial statements of the Surety Bond Issuer, Capital Markets
Assurance Corporation, as of December 31, 1995 and 1994 and for each of the
years in the three-year period ended December 31, 1995 are included herein
beginning on page F-7 and have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as set forth in their audit report
thereon and are included in reliance upon the authority of such firm as
experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the financial statements noted
above refers to Capital Markets Assurance Corporation's adoption at December
31, 1993 of Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
S-28
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
ABS................................................................ S-21
Available Funds.................................................... S-23
CEDEL.............................................................. Supp. Covers
Certificates....................................................... S-1
Certificate Balance................................................ S-2
Class A Certificateholders......................................... Supp. Cover
Class A Certificates............................................... Supp. Cover
Class A Monthly Interest........................................... S-24
Class A Pass-Through Rate.......................................... S-2
Class A-1 Certificate Balance...................................... S-2
Class A-1 Certificateholders....................................... S-2
Class A-1 Final Scheduled Distribution Date........................ Supp. Cover
Class A-1 Monthly Interest......................................... S-24
Class A-1 Pass-Through Rate........................................ S-2
Class A-2 Certificate Balance...................................... S-2
Class A-2 Certificateholders....................................... S-2
Class A-2 Final Scheduled Distribution Date........................ Supp. Cover
Class A-2 Monthly Interest......................................... S-23
Class A-2 Pass-Through Rate........................................ S-2
Class I Certificateholders......................................... S-3
Class I Certificates............................................... S-3
Class I Monthly Interest........................................... S-24
Class I Pass-Through Rate.......................................... S-3
Class IC Certificate............................................... Supp. Cover
Class IC Certificateholder......................................... S-6
Closing Date....................................................... S-1
Companion Component................................................ S-3
CTL................................................................ S-1
Cutoff Date........................................................ Supp. Cover
Defaulted Receivable............................................... S-24
Depositor.......................................................... S-1
Determination Date................................................. Supp. Cover
Distribution Date.................................................. Supp. Cover
DTC................................................................ Supp. Cover
Duff & Phelps...................................................... S-17
ERISA.............................................................. S-8
Euroclear.......................................................... Supp. Cover
Holdings........................................................... S-17
Insolvency Event................................................... S-26
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Insurance Agreement................................................. S-25
Issuer.............................................................. S-1
Moody's............................................................. S-8
Monthly Interest.................................................... S-24
Monthly Principal................................................... S-2
Monthly Servicing Fee............................................... S-4
Net Principal Surety Bond Amount.................................... S-7
Notional Principal Amount........................................... S-3
Offered Certificates................................................ Supp. Cover
Optional Purchase................................................... S-7
Original Notional Principal Amount.................................. S-3
PAC Component....................................................... S-3
Payahead Account.................................................... S-22
Planned Notional Principal Amount Schedule.......................... S-4
Pool Balance........................................................ S-2
Pooling and Servicing Agreement..................................... S-1
Principal Distribution Sequence..................................... S-3
Receivables......................................................... Supp. Cover
Record Date......................................................... S-1
Required Spread Amount.............................................. S-6
Servicer............................................................ S-1
Spread Account...................................................... S-5
Standard & Poor's................................................... S-8
Surety Bond......................................................... Supp. Cover
Surety Bond Amount.................................................. S-7
Surety Bond Fee..................................................... S-24
Surety Bond Issuer.................................................. Supp. Cover
Tax Class IC Certificateholder...................................... S-26
Trust............................................................... Supp. Cover
Trustee............................................................. S-1
Trust Property...................................................... Supp. Cover
Underwriter......................................................... Supp. Cover
</TABLE>
S-30
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
<PAGE>
Capital Markets Assurance Corporation
Balance Sheets
(Dollars in thousands)
ASSETS
------
<TABLE>
<CAPTION>
September 30, 1996 December 31,1995
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Bonds at fair value (amortized
cost $283,996 at September
30, 1996 and $210,651 at
December 31, 1995) $ 284,595 215,706
Short-term investments (at
amortized cost which
approximates fair value) 23,081 68,646
- --------------------------------------------------------------------------------
Total investments 307,676 284,352
- --------------------------------------------------------------------------------
Cash 514 344
Accrued investment income 3,604 3,136
Deferred acquisition costs 42,350 35,162
Premiums receivable 4,068 3,540
Prepaid reinsurance 17,801 13,171
Other assets 4,194 3,428
- --------------------------------------------------------------------------------
Total assets $ 380,207 343,133
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Unearned premiums $ 61,410 45,767
Reserve for losses and loss
adjustment expenses 9,602 6,548
Ceded reinsurance 2,455 2,469
Accounts payable and other
accrued expenses 12,446 10,844
Current income taxes - 136
Deferred income taxes 13,608 11,303
- --------------------------------------------------------------------------------
Total liabilities 99,521 77,067
- --------------------------------------------------------------------------------
Stockholder's Equity:
Common stock 15,000 15,000
Additional paid-in capital 208,475 205,808
Unrealized appreciation on 389 3,286
investments, net of tax
Retained earnings 56,822 41,972
- --------------------------------------------------------------------------------
Total stockholder's equity 280,686 266,066
- --------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $ 380,207 343,133
================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Statements of Income
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Direct premiums written $ 17,206 12,204 49,983 45,042
Assumed premiums written 8 102 1,032 925
Ceded premiums written (4,129) (6,188) (11,142) (11,834)
- --------------------------------------------------------------------------
Net premiums written 13,085 6,118 39,873 34,133
(Increase) decrease in (3,042) 1,193 (11,014) (12,418)
unearned premiums
- --------------------------------------------------------------------------
Net premiums earned 10,043 7,311 28,859 21,715
Net investment income 4,307 3,013 12,296 8,606
Net realized capital gains (57) 364 111 449
(loss)
Other income 25 14 104 38
- --------------------------------------------------------------------------
Total revenues 14,318 10,702 41,370 30,808
- --------------------------------------------------------------------------
Expenses:
Losses and loss adjustment 1,248 821 3,432 2,279
expenses
Underwriting and operating 3,780 2,563 11,142 9,939
expenses
Policy acquisition costs 2,126 2,022 6,249 5,481
- --------------------------------------------------------------------------
Total expenses 7,154 5,406 20,823 17,699
- --------------------------------------------------------------------------
Income before income taxes 7,164 5,296 20,547 13,109
- --------------------------------------------------------------------------
Income Taxes:
Current federal income tax 1,027 231 3,008 895
Deferred federal income tax 718 1,280 2,689 2,256
- --------------------------------------------------------------------------
Total income taxes 1,745 1,511 5,697 3,151
- --------------------------------------------------------------------------
NET INCOME $ 5,419 3,785 14,850 9,958
==========================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Statement of Stockholder's Equity
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
- -----------------------------------------------------------------
<S> <C>
Common stock:
Balance at beginning of period $ 15,000
- -----------------------------------------------------------------
Balance at end of period 15,000
- -----------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of period 205,808
Capital contribution 2,667
- -----------------------------------------------------------------
Balance at end of period 208,475
- -----------------------------------------------------------------
Unrealized (depreciation) appreciation
on investments, net of tax:
Balance at beginning of period 3,286
Unrealized depreciation on
investments (2,897)
- -----------------------------------------------------------------
Balance at end of period 389
- -----------------------------------------------------------------
Retained earnings:
Balance at beginning of period 41,972
Net income 14,850
- -----------------------------------------------------------------
Balance at end of period 56,822
- -----------------------------------------------------------------
Total stockholder's equity $ 280,686
=================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 14,850 9,958
- --------------------------------------------------------------------------------
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Reserve for losses and
loss adjustment expenses 3,054 1,474
Unearned premiums 15,643 17,982
Deferred acquisition costs (7,188) (6,981)
Premiums receivable (528) 81
Accrued investment income (468) 63
Income taxes payable 2,341 2,447
Net realized capital gains (111) (449)
Accounts payable and other
accrued expenses 5,445 3,456
Prepaid reinsurance (4,630) (5,564)
Other, net (381) 2,253
- --------------------------------------------------------------------------------
Total adjustments 13,177 14,762
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 28,027 24,720
- --------------------------------------------------------------------------------
Cash flows from investing
activities:
Purchases of investments (154,308) (109,235)
Proceeds from sale of
investments 35,388 38,577
Proceeds from maturities
of investments 91,063 37,361
- --------------------------------------------------------------------------------
Net cash used in investing
activities (27,857) (33,297)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Paid-in capital - 9,000
- --------------------------------------------------------------------------------
Net cash provided by
financing activities - 9,000
- --------------------------------------------------------------------------------
Net increase in cash 170 423
Cash balance at beginning
of period 344 85
- --------------------------------------------------------------------------------
Cash balance at end of
period $ 514 508
================================================================================
Supplemental disclosures
of cash flow information:
Income taxes paid $ 3,225 650
Tax and loss bonds
purchased $ 131 54
================================================================================
</TABLE>
See acccompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Notes to Unaudited Financial Statements
September 30, 1996
1. Background
Capital Markets Assurance Corporation ("CapMAC") is a New York-domiciled
monoline stock insurance company which engages only in the business of
financial guaranty and surety insurance. CapMAC is a wholly-owned
subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed in all
50 states in addition to the District of Columbia, the Commonwealth of
Puerto Rico and the territory of Guam. CapMAC insures structured asset-
backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. CapMAC also provides financial guaranty
reinsurance for structured asset-backed, corporate, municipal and other
financial obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated triple-A by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Duff & Phelps Credit
Rating Co., and Nippon Investors Service, Inc., a Japanese rating agency.
Such ratings reflect only the views of the respective rating agencies, are
not recommendations to buy, sell or hold securities and are subject to
revision or withdrawal at any time by such rating agencies.
2. Basis of Presentation
CapMAC's unaudited interim financial statements have been prepared on the
basis of generally accepted accounting principles and, in the opinion of
management, reflect all adjustments necessary for a fair presentation of
the CapMAC's financial condition, results of operations and cash flows for
the periods presented. The results of operations for the nine months ended
September 30, 1996 may not be indicative of the results that may be
expected for the full year ending December 31, 1996. These financial
statements and notes should be read in conjunction with the financial
statements and notes included in the audited financial statements of
CapMAC as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995.
3. Reclassifications
Certain prior period balances have been reclassified to conform to the
current period presentation.
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE>
[LETTERHEAD OF PEAT MARWICK LLP APPEARS HERE]
Independent Auditors' Report
----------------------------
The Board of Directors
Capital Markets Assurance Corporation:
We have audited the accompanying balance sheets of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the related statements of
income, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," at December 31, 1993.
/s/ KPMG PEAT MARWICK LLP
January 25, 1996
[LETTERHEAD BOTTOM OF PEAT MARWICK LLP APPEARS HERE]
<PAGE>
Capital Markets Assurance Corporation
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
------
December 31 December 31
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Bonds at fair value (amortized cost $210,651 $ 215,706 172,016
at December 31, 1995 and $178,882 at December 31,
1994)
Short-term investments (at amortized cost which 68,646 2,083
approximates fair value)
Mutual funds at fair value (cost $16,434 at - 14,969
December 31, 1994)
- --------------------------------------------------------------------------------
Total investments 284,352 189,068
- --------------------------------------------------------------------------------
Cash 344 85
Accrued investment income 3,136 2,746
Deferred acquisition costs 35,162 24,860
Premiums receivable 3,540 3,379
Prepaid reinsurance 13,171 5,551
Other assets 3,428 3,754
- --------------------------------------------------------------------------------
Total assets $ 343,133 229,443
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Unearned premiums $ 45,767 25,905
Reserve for losses and loss adjustment expenses 6,548 5,191
Ceded reinsurance 2,469 1,497
Accounts payable and other accrued expenses 10,844 10,372
Current income taxes 136 -
Deferred income taxes 11,303 3,599
- --------------------------------------------------------------------------------
Total liabilities 77,067 46,564
- --------------------------------------------------------------------------------
Stockholder's Equity:
Common stock 15,000 15,000
Additional paid-in capital 205,808 146,808
Unrealized appreciation (depreciation) on
investments, net of tax 3,286 (5,499)
Retained earnings 41,972 26,570
- --------------------------------------------------------------------------------
Total stockholder's equity 266,066 182,879
- --------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 343,133 229,443
================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Direct premiums written $ 56,541 43,598 24,491
Assumed premiums written 935 1,064 403
Ceded premiums written (15,992) (11,069) (3,586)
- --------------------------------------------------------------------------------
Net premiums written 41,484 33,593 21,308
Increase in unearned
premiums (12,242) (10,490) (3,825)
- --------------------------------------------------------------------------------
Net premiums earned 29,242 23,103 17,483
Net investment income 11,953 10,072 10,010
Net realized capital gains 1,301 92 1,544
Other income 2,273 120 354
- --------------------------------------------------------------------------------
Total revenues 44,769 33,387 29,391
- --------------------------------------------------------------------------------
Expenses:
Losses and loss adjustment
expenses 3,141 1,429 902
Underwriting and operating
expenses 13,808 11,833 11,470
Policy acquisition costs 7,203 4,529 2,663
- --------------------------------------------------------------------------------
Total expenses 24,152 17,791 15,035
- --------------------------------------------------------------------------------
Income before income taxes 20,617 15,596 14,356
- --------------------------------------------------------------------------------
Income Taxes:
Current income tax 2,113 865 1,002
Deferred income tax 3,102 2,843 2,724
- --------------------------------------------------------------------------------
Total income taxes 5,215 3,708 3,726
- --------------------------------------------------------------------------------
NET INCOME $ 15,402 11,888 10,630
================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Statements of Stockholder's Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning of period $ 15,000 15,000 15,000
- ----------------------------------------------------------------------------------------------
Balance at end of period 15,000 15,000 15,000
- ----------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of period 146,808 146,808 146,808
Paid-in capital 59,000 - -
- ----------------------------------------------------------------------------------------------
Balance at end of period 205,808 146,808 146,808
- ----------------------------------------------------------------------------------------------
Unrealized (depreciation) appreciation
on investments, net of tax:
Balance at beginning of period (5,499) 3,600 -
Unrealized appreciation (depreciation) on
investments 8,785 (9,099) 3,600
- ----------------------------------------------------------------------------------------------
Balance at end of period 3,286 (5,499) 3,600
- ----------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of period 26,570 14,682 4,052
Net income 15,402 11,888 10,630
- ----------------------------------------------------------------------------------------------
Balance at end of period 41,972 26,570 14,682
- ----------------------------------------------------------------------------------------------
Total stockholder's equity $ 266,066 182,879 180,090
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Statements of Cash Flows
(Dollar in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,402 11,888 10,630
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Reserve for losses and loss adjustment
expenses 1,357 1,429 902
Unearned premiums 19,862 15,843 4,024
Deferred acquisition costs (10,302) (9,611) (9,815)
Premiums receivable (161) (2,103) (432)
Accrued investment income (390) (848) (110)
Income taxes payable 3,621 2,611 2,872
Net realized capital gains (1,301) (92) (1,544)
Accounts payable and other accrued
expenses 472 3,726 1,079
Prepaid reinsurance (7,620) (5,352) (199)
Other, net 992 689 1,201
- -----------------------------------------------------------------------------------------------------------
Total adjustments 6,530 6,292 (2,022)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,932 18,180 8,608
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investments (158,830) (77,980) (139,061)
Proceeds from sales of investments 49,354 39,967 24,395
Proceeds from maturities of investments 28,803 19,665 106,042
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (80,673) (18,348) (8,624)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Capital contribution 59,000 - -
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 59,000 - -
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 259 (168) (16)
Cash balance at beginning of period 85 253 269
- -----------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 344 85 253
===========================================================================================================
Supplemental disclosure of cash flow
information:
Income taxes paid $ 1,450 1,063 833
===========================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
December 31, 1995 and 1994
1) Background
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a New
York-domiciled monoline stock insurance company which engages only in the
business of financial guarantee and surety insurance. CapMAC is a wholly
owned subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed
in all 50 states in addition to the District of Columbia, the Commonwealth
of Puerto Rico and the territory of Guam. CapMAC insures structured asset-
backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. CapMAC also provides financial
guarantee reinsurance for structured asset-backed, corporate, municipal
and other financial obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Group
("S&P"), "AAA" by Duff & Phelps Credit Rating Co. ("Duff & Phelps"), and
"AAA" by Nippon Investors Service, Inc., a Japanese rating agency. Such
ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to
revision or withdrawal at any time by such rating agencies.
2) Significant Accounting Policies
Significant accounting policies used in the preparation of the
accompanying financial statements are as follows:
a) Basis of Presentation
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Such accounting
principles differ from statutory reporting practices used by insurance
companies in reporting to state regulatory authorities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management believes
the most significant estimates relate to deferred acquisition costs,
reserve for losses and loss adjustment expenses and disclosures of
financial guarantees outstanding. Actual results could differ from
those estimates.
b) Investments
At December 31, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS
No. 115, the Company can classify its debt and marketable equity
securities in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally
for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability
and intent to hold the securities until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale. As of December 31, 1995 and 1994, all of the
Company's securities have been classified as available-for-sale.
1
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Available-for-sale securities are recorded at fair value. Fair value is
based upon quoted market prices. Unrealized holding gains and losses, net
of the related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholder's
equity until realized. Transfers of securities between categories are
recorded at fair value at the date of transfer.
A decline in the fair value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in
the establishment of a new cost basis for the security.
Short-term investments are those investments having a maturity of less
than one year at purchase date. Short-term investments are carried at
amortized cost which approximates fair value.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses are included in earnings and are derived using the FIFO
(first-in, first-out) method for determining the cost of securities sold.
c) Revenue Recognition
Premiums which are payable monthly to CapMAC are reflected in income when
due, net of amounts payable to reinsurers. Premiums which are payable
quarterly, semi-annually or annually are reflected in income, net of
amounts payable to reinsurers, on an equal monthly basis over the
corresponding policy term. Premiums that are collected as a single premium
at the inception of the policy and have a term longer than one year are
earned, net of amounts payable to reinsurers, by allocating premium to
each bond maturity based on the principal amount and earning it straight-
line over the term of each bond maturity. For the year ended December 31,
1995, 91% of net premiums earned were attributable to premiums payable in
installments and 9% were attributable to premiums collected on an up-front
basis.
d) Deferred Acquisition Costs
Certain costs incurred by CapMAC, which vary with and are primarily
related to the production of new business, are deferred. These costs
include direct and indirect expenses related to underwriting, marketing
and policy issuance, rating agency fees and premium taxes. The deferred
acquisition costs are amortized over the period in proportion to the
related premium earnings. The actual amount of premium earnings may differ
from projections due to various factors such as renewal or early
termination of insurance contracts or different run-off patterns of
exposure resulting in a corresponding change in the amortization pattern
of the deferred acquisition costs.
e) Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses consists of a
Supplemental Loss Reserve ("SLR") and a case basis loss reserve. The SLR
is established based on expected levels of defaults resulting from credit
failures on currently insured issues. This SLR is based on estimates of
the portion of earned premiums required to cover those claims.
2
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
A case basis loss reserve is established for insured obligations when, in
the judgement of management, a default in the timely payment of debt
service is imminent. For defaults considered temporary, a case basis loss
reserve is established in an amount equal to the present value of the
anticipated defaulted debt service payments over the expected period of
default. If the default is judged not to be temporary, the present value
of all remaining defaulted debt service payments is recorded as a case
basis loss reserve. Anticipated salvage recoveries are considered in
establishing case basis loss reserves when such amounts are reasonably
estimable.
Management believes that the current level of reserves is adequate to
cover the estimated liability for claims and the related adjustment
expenses with respect to financial guaranties issued by CapMAC. The
establishment of the appropriate level of loss reserves is an inherently
uncertain process involving numerous estimates and subjective judgments by
management, and therefore there can be no assurance that losses in
CapMAC's insured portfolio will not exceed the loss reserves.
f) Depreciation
Leasehold improvements, furniture and fixtures are being depreciated over
the lease term or useful life, whichever is shorter, using the straight-
line method.
g) Income Taxes
Deferred income taxes are provided with respect to temporary differences
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
h) Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
3
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
3) Insured Portfolio
At December 31, 1995 and 1994, the principal amount of financial
obligations insured by CapMAC was $16.9 billion and $11.6 billion,
respectively, and net of reinsurance (net principal outstanding), was
$12.6 billion and $9.4 billion, respectively, with a weighted average life
of 6.0 years and 5.0 years, respectively. CapMAC's insured portfolio was
broadly diversified by geographic distribution and type of insured
obligations, with no single insured obligation in excess of statutory
single risk limits, after giving effect to any reinsurance and collateral,
which are a function of CapMAC's statutory qualified capital (the sum of
statutory capital and surplus and mandatory contingency reserve). At
December 31, 1995 and 1994, the statutory qualified capital was
approximately $240 million and $170 million, respectively.
<TABLE>
<CAPTION>
Net Principal Outstanding
December 31, 1995 December 31, 1994
------------------------ --------------------
Type of Obligations Insured ($ in millions) Amount % Amount %
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer receivables $ 6,959 55.1 $ 4,740 50.4
Trade and other corporate obligations 4,912 38.9 4,039 43.0
Municipal/government obligations 757 6.0 618 6.6
----------------------------------------------------------------------------------------------
Total $12,628 100.0 $ 9,397 100.0
==============================================================================================
</TABLE>
At December 31, 1995, approximately 85% of CapMAC's insured portfolio was
comprised of structured asset-backed transactions. Under these structures,
a pool of assets covering at least 100% of the principal amount guaranteed
under its insurance contract is sold or pledged to a special purpose
bankruptcy remote entity. CapMAC's primary risk from such insurance
contracts is the impairment of cash flows due to delinquency or loss on
the underlying assets. CapMAC, therefore, evaluates all the factors
affecting past and future asset performance by studying historical data on
losses, delinquencies and recoveries of the underlying assets. Each
transaction is reviewed to ensure that an appropriate legal structure is
used to protect against the bankruptcy risk of the originator of the
assets. Along with the legal structure, an additional level of first loss
protection is also created to protect against losses due to credit or
dilution. This first level of loss protection is usually available from
reserve funds, excess cash flows, overcollateralization, or recourse to a
third party. The level of first loss protection depends upon the
historical losses and dilution of the underlying assets, but is typically
several times the normal historical loss experience for the underlying
type of assets.
During 1995, the Company sold without recourse its interest in potential
cash flows from transactions included in its insured portfolio and
recognized $2,200,000 of income which has been included in other income in
the accompanying financial statements.
The following entities each accounted for, through referrals and
otherwise, 10% or more of total revenues for each of the periods
presented:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
----------------------------- --------------------------- --------------------------
% of % of % of
Name Revenues Name Revenues Name Revenues
----------------------------- --------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Citicorp 15.2 Citicorp 16.3 Citicorp 13.7
Merrill Lynch & Co. 14.1
</TABLE>
4
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
4) Investments
At December 31, 1995 and 1994, all of the Company's investments were
classified as available-for-sale securities. The amortized cost, gross
unrealized gains, gross unrealized losses and estimated fair value for
available-for-sale securities by major security type at December 31, 1995
and 1994 were as follows ($ in thousands):
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,153 55 - 4,208
Mortgage-backed securities of
U.S. government
instrumentalities
and agencies 100,628 313 79 100,862
Obligations of states,
municipalities and political
subdivisions 166,010 4,809 82 170,737
Corporate and asset-backed
securities 8,506 45 6 8,545
--------------------------------------------------------------------------------
Total $ 279,297 5,222 167 284,352
================================================================================
<CAPTION>
December 31, 1994
--------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,295 - 153 4,142
Mortgage-backed securities of
U.S. government
instrumentalities and agencies 40,973 - 2,986 37,987
Obligations of states,
municipalities and political
subdivisions 128,856 364 3,994 125,226
Corporate and asset-backed
securities 6,841 15 112 6,744
Mutual funds 16,434 - 1,465 14,969
--------------------------------------------------------------------------------
Total $ 197,399 379 8,710 189,068
================================================================================
</TABLE>
The Company's investment in mutual funds in 1994 represents an investment
in an open-end management investment company which invests primarily in
investment-grade fixed-income securities denominated in foreign and United
States currencies.
5
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 by contractual maturity are shown below
($ in thousands):
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------
Amortized Estimated
Securities Available-for-Sale Cost Fair Value
--------------------------------------------------------------------
<S> <C> <C>
Less than one year to maturity $ 5,569 5,572
One to five years to maturity 37,630 38,553
Five to ten years to maturity 99,567 102,264
Greater than ten years to maturity 35,903 37,101
--------------------------------------------------------------------
Sub-total 178,669 183,490
Mortgage-backed securities 100,628 100,862
--------------------------------------------------------------------
Total $ 279,297 284,352
====================================================================
</TABLE>
Actual maturities may differ from contractual maturities because borrowers
may call or prepay obligations with or without call or prepayment
penalties.
Proceeds from sales of investment securities were approximately $49
million, $40 million and $24 million in 1995, 1994 and 1993, respectively.
Gross realized capital gains of $1,320,000, $714,000 and $1,621,000, and
gross realized capital losses of $19,000, $622,000 and $77,000 were
realized on those sales for the years ended December 31, 1995, 1994 and
1993, respectively.
Investments include bonds having a fair value of approximately $3,985,000
and $3,873,000 (amortized cost of $3,970,000 and $4,011,000) which are on
deposit at December 31, 1995 and 1994, respectively, with state regulators
as required by law.
Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
$ in thousands December 31, 1995 December 31, 1994 December 31, 1993
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $ 11,105 9,193 7,803
Short-term investments 1,245 484 572
Mutual funds (162) 579 1,801
Investment expenses (235) (184) (166)
-------------------------------------------------------------------------------------------
Total $ 11,953 10,072 10,010
===========================================================================================
</TABLE>
6
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The change in unrealized appreciation (depreciation) on available-for-sale
securities is included in a separate component of stockholder's equity as
shown below:
<TABLE>
<CAPTION>
Year Ended Year Ended
$ in thousands December 31, 1995 December 31, 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ (5,499) 3,600
Change in unrealized appreciation (depreciation) 13,386 (13,786)
Income tax effect (4,601) 4,687
-------------------------------------------------------------------------------------------------------
Net change 8,785 (9,099)
-------------------------------------------------------------------------------------------------------
Balance at end of period $ 3,286 (5,499)
=======================================================================================================
</TABLE>
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 10% of stockholder's equity as of
December 31, 1995.
5) Deferred Acquisition Costs
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
$ in thousands December 31, 1995 December 31, 1994 December 31, 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 24,860 15,249 5,434
Additions 17,505 14,140 12,478
Amortization (policy
acquisition costs) (7,203) (4,529) (2,663)
------------------------------------------------------------------------------------------------------
Balance at end of period $ 35,162 24,860 15,249
======================================================================================================
</TABLE>
6) Employee Benefits
On June 25, 1992, CapMAC entered into a Service Agreement with CapMAC
Financial Services, Inc. ("CFS"), which was then a newly formed wholly
owned subsidiary of Holdings. Under the Service Agreement, CFS has agreed
to provide various services, including underwriting, reinsurance, data
processing and other services to CapMAC in connection with the operation
of CapMAC's insurance business. CapMAC pays CFS an arm's length fee for
providing such services, but not in excess of CFS's cost for such
services. CFS incurred, on behalf of CapMAC, total compensation expenses,
excluding bonuses, of $13,484,000, $11,081,000 and $9,789,000 in 1995,
1994 and 1993, respectively.
CFS maintains an incentive compensation plan for its employees. The plan
is an annual discretionary bonus award based upon Holdings' and an
individual's performance. CFS also has a health and welfare plan and a
401(k) plan to cover substantially all of its employees. CapMAC reimburses
CFS for all out-of-pocket expenses incurred by CFS in providing services
to CapMAC, including awards given under the incentive compensation plan
and benefits provided under the health and welfare plan. For the years
ended December 31, 1995, 1994 and 1993, the Company had provided
approximately $7,804,000, $5,253,000 and $3,528,000, respectively, for the
annual discretionary bonus plan.
7
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
On June 25, 1992, certain officers of CapMAC were granted 182,633
restricted stock units ("RSU") at $13.33 a share in respect of certain
deferred compensation. On December 7, 1995, the RSU's were converted to
cash in the amount of approximately $3.7 million, and such officers agreed
to defer receipt of such cash amount in exchange for receiving the same
number of new shares of restricted stock of Holdings as the number of
RSU's such officers previously held. The cash amount will be held by
Holdings and invested in accordance with certain guidelines. Such amount,
including the investment earnings thereon, will be paid to each officer
upon the occurrence of certain events but no later than December, 2000.
7) Employee Stock Ownership Plan
On June 25, 1992, Holdings adopted an Employee Stock Ownership Plan
("ESOP") to provide its employees the opportunity to obtain beneficial
interests in the stock of Holdings through a trust (the "ESOP Trust"). The
ESOP Trust purchased 750,000 shares at $13.33 per share of Holdings'
stock. The ESOP Trust financed its purchase of common stock with a loan
from Holdings in the amount of $10 million. The ESOP loan is evidenced by
a promissory note delivered to Holdings. An amount representing unearned
employee compensation, equivalent in value to the unpaid balance of the
ESOP loan, is recorded as a deduction from stockholder's equity
(unallocated ESOP shares).
CFS is required to make contributions to the ESOP Trust, which enables the
ESOP Trust to service its loan to Holdings. The ESOP expense is calculated
using the shares allocated method. Shares are released for allocation to
the participants and held in trust for the employees based upon the ratio
of the current year's principal and interest payment to the sum of
principal and interest payments estimated over the life of the loan. As of
December 31, 1995 approximately 262,800 shares were allocated to the
participants. Compensation expense related to the ESOP was approximately
$2,087,000, $2,086,000 and $1,652,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
8) Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses consists of a case
basis loss reserve and the SLR.
In 1995 CapMAC incurred its first claim on a financial guarantee policy.
Based on its current estimate, the Company expects the aggregate amount of
claims and related expenses not to exceed $2.7 million, although no
assurance can be given that such claims and related expenses will not
exceed that amount. Such loss amount was covered through a recovery under
a quota share reinsurance agreement of $0.2 million and a reduction in the
SLR of $2.5 million. The portion of such claims and expenses not covered
under the quota share agreement is being funded through payments to CapMAC
from the Lureco Trust Account (see note 12).
8
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The following is a summary of the activity in the case basis loss reserve
account and the components of the liability for losses and loss adjustment
expenses ($ in thousands):
<TABLE>
<CAPTION>
Case Basis Loss Reserve:
<S> <C>
Net balance at January 1, 1995 $ -
--------------------------------------------------------------------
Incurred related to:
Current year 2,473
Prior years -
--------------------------------------------------------------------
Total incurred 2,473
--------------------------------------------------------------------
Paid incurred to:
Current year 1,853
Prior years -
--------------------------------------------------------------------
Total paid 1,853
--------------------------------------------------------------------
Balance at December 31, 1995 620
--------------------------------------------------------------------
Reinsurance recoverable 69
--------------------------------------------------------------------
Supplemental loss reserve 5,859
--------------------------------------------------------------------
Total $ 6,548
====================================================================
</TABLE>
9) Income Taxes
Pursuant to a tax sharing agreement with Holdings, the Company is included
in Holdings' consolidated U.S. Federal income tax return. The Company's
annual Federal income tax liability is determined by computing its pro
rata share of the consolidated group Federal income tax liability.
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
$ in thousands Amount % Amount % Amount %
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed $ 7,216 35.0 $ 5,303 34.0 $ 4,881 34.0
at the statutory rate
Increase (decrease) in tax
resulting from:
Tax-exempt interest (2,335) (11.3) (1,646) (10.6) (1,140) (7.9)
Other, net 334 1.6 51 0.4 (15) (0.1)
-----------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 5,215 25.3 $ 3,708 23.8 $ 3,726 26.0
=============================================================================================================================
</TABLE>
9
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
$ in thousands December 31, 1995 December 31, 1994
----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Unrealized capital losses on investments $ - (2,833)
Deferred compensation (1,901) (1,233)
Losses and loss adjustment expenses (1,002) (936)
Unearned premiums (852) (762)
Other, net (98) (228)
----------------------------------------------------------------------------------
Total gross deferred tax assets (3,853) (5,992)
----------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 12,307 8,453
Unrealized capital gains on investments 1,769 -
Deferred capital gains on investments 654 726
Other, net 426 412
---------------------------------------------------------------------------------
Total gross deferred tax liabilities 15,156 9,591
---------------------------------------------------------------------------------
Net deferred tax liability $ 11,303 3,599
=================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes that the deferred tax assets will be fully realized in the
future.
10) Insurance Regulatory Restrictions
CapMAC is subject to insurance regulatory requirements of the State of New
York and other states in which it is licensed to conduct business.
Generally, New York insurance laws require that dividends be paid from
earned surplus and restrict the amount of dividends in any year that may
be paid without obtaining approval for such dividends from the
Superintendent of Insurance to the lower of (i) net investment income as
defined or (ii) 10% of statutory surplus as of December 31 of the
preceding year. No dividends were paid by CapMAC to Holdings during the
years ended December 31, 1995, 1994 and 1993. No dividends could be paid
during these periods because CapMAC had negative earned surplus. Statutory
surplus at December 31, 1995 and 1994 was approximately $195,018,000 and
$139,739,000, respectively. Statutory surplus differs from stockholder's
equity determined under GAAP principally due to the mandatory contingency
reserve required for statutory accounting purposes and differences in
accounting for investments, deferred acquisition costs, SLR and deferred
taxes provided under GAAP. Statutory net income was $9,000,000, $4,543,000
and $4,528,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. Statutory net income differs from net income determined
under GAAP principally due to deferred acquisition costs, SLR and deferred
income taxes.
10
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
11) Commitments and Contingencies
On January 1, 1988, the Company assumed from Citibank, N.A. the obligations
of a sublease agreement for space occupied in New York. On November 21,
1993, the sublease was terminated and a new lease was negotiated which
expires on November 20, 2008. CapMAC has a lease agreement for its London
office beginning October 1, 1992 and expiring October 1, 2002. As of
December 31, 1995, future minimum payments under the lease agreements are
as follows:
<TABLE>
<CAPTION>
$ in thousands Payment
- --------------------------------------------------------------------------
<S> <C>
1996 $ 2,255
1997 2,948
1998 3,027
1999 3,476
2000 and thereafter 36,172
- --------------------------------------------------------------------------
Total $ 47,878
==========================================================================
</TABLE>
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1995, 1994 and 1993 amounted to $1,939,000, $2,243,000 and
$2,065,000, respectively.
CapMAC has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a consortium of banks, headed by
Bank of Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and
Moody's, respectively. Under the Liquidity Facility, CapMAC will be able,
subject to satisfying certain conditions, to borrow funds from time to time
in order to enable it to fund any claim payments or payments made in
settlement or mitigation of claim payments under its insurance contracts.
For the years ended December 31, 1995, 1994 and 1993, no draws had been
made under the Liquidity Facility.
12) Reinsurance
In the ordinary course of business, CapMAC cedes exposure under various
treaty, pro rata and excess of loss reinsurance contracts primarily
designed to minimize losses from large risks and protect the capital and
surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as
follows:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------
1995 1994 1993
-------------------- ------------------- ---------------------
$ in thousands Written Earned Written Earned Written Earned
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 56,541 36,853 43,598 28,561 24,491 20,510
Assumed 935 761 1,064 258 403 364
Ceded (15,992) (8,372) (11,069) (5,716) (3,586) (3,391)
- -----------------------------------------------------------------------------------
Net Premiums $ 41,484 29,242 33,593 23,103 21,308 17,483
===================================================================================
</TABLE>
11
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of
insurers for financial statement purposes to treat reinsured risks as though
they were risks for which the ceding insurer was only contingently liable. A
contingent liability exists with respect to the aforementioned reinsurance
arrangements which may become a liability of CapMAC in the event the
reinsurers are unable to meet obligations assumed by them under the
reinsurance contracts. At December 31, 1995 and 1994, CapMAC had ceded loss
reserves of $69,000 and $0, respectively and had ceded unearned premiums of
$13,171,000 and $5,551,000, respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco Treaty")
with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a European-based
reinsurer. The agreement is renewable annually at the Company's option,
subject to satisfying certain conditions. The agreement reinsured and
indemnified the Company for any loss incurred by CapMAC during the agreement
period up to the limits of the agreement. The Lureco Treaty provides that the
annual reinsurance premium payable by CapMAC to Lureco, after deduction of the
reinsurer's fee payable to Lureco, be deposited in a trust account (the
"Lureco Trust Account") to be applied by CapMAC, at its option, to offset
losses and loss expenses incurred by CapMAC in connection with incurred
claims. Amounts on deposit in the Lureco Trust Account which have not been
applied against claims are contractually due to CapMAC at the termination of
the treaty.
The premium deposit amounts in the Lureco Trust Account have been reflected as
assets by CapMAC during the term of the agreement. Premiums in excess of the
deposit amounts have been recorded as ceded premiums in the statements of
income. In the 1994 policy year, the agreement provided $5 million of loss
coverage in excess of the premium deposit amounts of $2 million retained in
the Lureco Trust Account. No losses were applied against the Lureco Trust
Account or ceded to the Lureco Treaty in 1994. The agreement was renewed for
the 1995 policy year and provides $5 million of loss coverage in excess of the
premium deposit amount of $4.5 million retained in the Lureco Trust Account.
Additional coverage is provided for losses incurred in excess of 200% of the
net premiums earned up to $4 million for any one agreement year. In September
1995, a claim of approximately $2.5 million on an insurance policy was applied
against the Lureco Trust Account.
In addition to its capital (including statutory contingency reserves) and
other reinsurance available to pay claims under its insurance contracts, on
June 25, 1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the
"Stop-loss Agreement") with Winterthur Swiss Insurance Company ("Winterthur")
which is rated "AAA" by S&P and "Aaa" by Moody's. At the same time, CapMAC
and Winterthur also entered into a Quota Share Reinsurance Agreement (the
"Winterthur Quota Share Agreement") pursuant to which Winterthur had the right
to reinsure on a quota share basis 10% of each policy written by CapMAC.
The Winterthur Stop-loss Agreement had an original term of seven years and was
renewable for successive one-year periods. In April 1995, Winterthur notified
CapMAC that it was canceling the Winterthur Stop-loss Agreement and the
Winterthur Quota Share Agreement effective June 30, 1996.
CapMAC elected to terminate the Winterthur Stop-loss Agreement effective
November 30, 1995 and, on the same date, entered into a Stop-loss Reinsurance
Agreement with Mitsui Marine (the "Mitsui Stop-loss Agreement"). Under the
Mitsui Stop-loss Agreement, Mitsui
12
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Marine would be required to pay any losses in excess of $100 million in the
aggregate incurred by CapMAC during the term of the Mitsui Stop-loss
Agreement on the insurance policies in effect on December 1, 1995 and
written during the one-year period thereafter, up to an aggregate limit
payable under the Mitsui Stop-loss Agreement of $50 million. The Mitsui
Stop-loss Agreement has a term of seven years and is subject to early
termination by CapMAC in certain circumstances.
The Winterthur Quota Share Agreement was canceled November 30, 1995. On
January 1, 1996, CapMAC reassumed the liability, principally unearned
premium, for all policies reinsured by Winterthur. As a result, CapMAC
reassumed approximately $1.4 billion of principal insured by Winterthur as
of December 31, 1995. In connection with the commutation, Winterthur will
return the unearned premiums as of December 31, 1995, net of ceding
commission and federal excise tax. Such amount is expected to total
approximately $2.0 million.
13) Disclosures About Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Estimated Carrying Estimated
$ in thousands Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Investments $ 284,352 284,352 189,068 189,068
Off-Balance-Sheet Instruments
Financial Guarantees Outstanding $ - 147,840 - 93,494
Ceding Commission $ - 44,352 - 28,048
- ------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments summarized above:
Investments
The fair values of fixed maturities and mutual funds are based upon quoted
market prices. The fair value of short-term investments approximates
amortized cost.
13
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Financial Guarantees Outstanding
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the
fair value of installment revenue which is derived by calculating the
present value of the estimated future cash inflow to CapMAC of policies in
force having installment premiums, net of amounts payable to reinsurers, at
a discount rate of 7% at December 31, 1995 and 1994. The amount calculated
is equivalent to the consideration that would be paid under market
conditions prevailing at the reporting dates to transfer CapMAC's financial
guarantee business to a third party under reinsurance and other agreements.
Ceding commission represents the expected amount that would be paid to
CapMAC to compensate CapMAC for originating and servicing the insurance
contracts. In constructing estimated future cash inflows, management makes
assumptions regarding prepayments for amortizing asset-backed securities
which are consistent with relevant historical experience. For revolving
programs, assumptions are made regarding program utilization based on
discussions with program users. The amount of installment premium actually
realized by the Company could be reduced in the future due to factors such
as early termination of insurance contracts, accelerated prepayments of
underlying obligations or lower than anticipated utilization of insured
structured programs, such as commercial paper conduits. Although increases
in future installment revenue due to renewals of existing insurance
contracts historically have been greater than reductions in future
installment revenue due to factors such as those described above, there can
be no assurance that future circumstances might not cause a net reduction
in installment revenue, resulting in lower revenues.
14) Capitalization
The Company's certificate of incorporation authorizes the issuance of
15,000,000 shares of common stock, par value $1.00 per share. Authorized,
issued and outstanding shares at December 31, 1995 and 1994 were 15,000,000
at $1.00 per share.
In 1995, $59.0 million of the proceeds received by Holdings from the sale
of shares in connection with an Initial Public Offering and private
placements were contributed to CapMAC.
14
<PAGE>
ANNEX A
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Certificates through DTC (in
the United States) or CEDEL or Euroclear (in Europe) if they are Participants
of such system, or indirectly through organizations that are participants in
such systems. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants and the Euroclear Participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books
of their respective depositaries (collectively, the "Depositaries") which in
turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. DTC is a limited purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, 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 Section
17A of the Securities Exchange Act of 1934, as amended. DTC was created to
hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
computerized book-entries, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. CEDEL Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day. Cash
received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available
in the relevant CEDEL or Euroclear cash account only as of the business day
following settlement in DTC. For additional information regarding clearance
and settlement procedures of the Offered Certificates and for information with
respect to tax documentation procedures relating to the Offered Certificates,
see Exhibit B hereto.
The holders of Offered Certificates that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Offered Certificates may do so only through
Participants or Indirect Participants. In addition, holders of Offered
Certificates will receive all distributions of principal and interest from the
Trustee through the Participants who in turn will receive them from DTC. Under
a book-entry format, holders of Offered Certificates may experience some delay
in their receipt of payments,
A-1
<PAGE>
since such payments will be forwarded by the Trustee to Cede & Co., as nominee
for DTC. DTC will forward such payments to its Participants, which thereafter
will forward them to Indirect Participants or holders of Offered Certificates.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Offered Certificates among Participants on whose behalf it acts with respect
to the Offered Certificates and to receive and transmit distributions of
principal of, and interest on, the Offered Certificates. Participants and
Indirect Participants with which the holders of Offered Certificates have
accounts with respect to the Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Offered Certificates. Accordingly, although the
holders of Offered Certificates will not possess the Offered Certificates, the
Rules provide a mechanism by which Participants will receive payments on
Offered Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a holder of an Offered Certificate under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose accounts
with DTC the Offered Certificates are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Except as required by law, neither the Depositor, the Servicer, nor the
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Offered
Certificates held by Cede & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter. Indirect access to CEDEL is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry deliver against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear system includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. Euroclear is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator"), under contract with Euroclear Clearance System, S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the
A-2
<PAGE>
Euroclear system on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriter.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers and receipts of payments with respect to securities in the
Euroclear system. All securities in the Euroclear system are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants and has no record of or
relationship with persons holding through Euroclear Participants.
The information herein concerning DTC, CEDEL and Euroclear and their book-
entry systems has been obtained from sources believed to be reliable, but the
Depositor takes no responsibility for the accuracy or completeness thereof.
DEFINITIVE CERTIFICATES
Offered Certificates issued in fully registered, certificated form
("Definitive Certificates") will be delivered to Certificate Owners (or their
nominees) only if (i) DTC is no longer willing or able properly to discharge
its responsibilities as depository with respect to the Book-Entry
Certificates, and the Trustee is unable to locate a qualified successor, (ii)
the Trustee, at its sole option, elects to terminate the book-entry system
through DTC, or (iii) after the occurrence of an Event of Default under the
Pooling and Servicing Agreement, Certificate Owners representing a majority in
principal amount of the Book-Entry Certificates then outstanding advise DTC
through DTC Participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interest
of Certificate Owners.
Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, DTC is required to notify all
DTC Participants of the availability through DTC of Definitive Certificates.
Upon delivery of Definitive Certificates, the Trustee, Certificate Registrar,
and Servicer will recognize the holders of such Definitive Certificates as
holders under the Pooling and Servicing Agreement ("Holders"). Distributions
of principal of and interest on the Definitive Certificates will be made by
the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth in the Prospectus and the Pooling and Servicing
Agreement.
A-3
<PAGE>
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Bay View
Securitization Corporation, Automobile Receivable Backed Certificates, Series
BVSC Auto Trust 1997-RA-1 (the "Global Securities") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), CEDEL or
Euroclear. The Global Securities will be tradable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar days settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Offered Certificates will be effected on a delivery
against payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations of their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
A-4
<PAGE>
Trading Between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, calculated on the basis of a year
of 360 days, in each case for the actual number of days occurring in the
period for which such interest is payable. Payment will then be made by the
respective Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or
Euroclear Participant's account. The securities credit will appear the next
day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants can elect not to pre-position funds and allow that
credit line to be drawn upon to finance settlement. Under this procedure,
CEDEL Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Global Securities were credited to their accounts. However, interest
on the Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that one
day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, calculated on
the basis of a year of 360 days, in each case for the actual number of days
occurring in the period for which such interest is payable. The payment will
then be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-
valuation will extinguish any overdraft charges incurred over the one-day
period. If settlement is not completed on the intended value day
A-5
<PAGE>
(i.e., the trade fails) receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchaser from the DTC Participant is at least
one day prior to the value date for the sale to CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest (including original issue discount) on registered debt issued by
U.S. Persons (as defined herein), unless (i) each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain or intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate.
Exception for non-U.S. Persons (Form W-8). Beneficial owners of Certificates
that are exempt foreign persons can qualify for a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exception for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Certificates and
reside in a country that has a tax treaty with the United States can qualify
for an exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively qualifies for an exemption by filing Form W-8.
Form 1001 may be filed by the Holder of Certificates or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global Security
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds the
Certificates (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
A-6
<PAGE>
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate that
is subject to U.S. federal income tax regardless of the source of its income
or a trust if (A) for taxable years beginning after December 31, 1996 (or for
taxable years ending after August 20, 1996, if the trustee has made an
applicable election), a court within the United States is able to exercise
primary supervision over the administration of such trust, and one or more
United States fiduciaries have the authority to control all substantial
decisions of such trust, or (B) for all other taxable years, such trust is
subject to United States federal income tax regardless of the source of its
income. Investors are advised to consult their own tax advisors for specific
tax advice concerning their purchase, ownership and disposition of the Global
Securities.
A-7
<PAGE>
PROSPECTUS
BAY VIEW AUTO TRUSTS
ASSET BACKED CERTIFICATES
----------------
BAY VIEW SECURITIZATION CORPORATION
DEPOSITOR
CALIFORNIA THRIFT & LOAN
SERVICER
The asset backed certificates described herein (the "Certificates") may be
sold from time to time in one or more series (each, a "Series"), in amounts,
at prices and on terms to be determined at the time of sale and to be set
forth in a supplement to this Prospectus (a "Prospectus Supplement"). Each
Series of Certificates will be issued by a trust (each, a "Trust") to be
formed with respect to such Series and will include one or more classes of
Certificates. The property of each Trust will include a pool of motor vehicle
installment sale or installment loan contracts secured by new and used
automobiles, light trucks, recreational vehicles, motorcycles and vans (the
"Receivables"), certain monies received thereunder after the applicable cutoff
date, security interests in the vehicles financed thereby and certain other
property, as more fully described herein and as more specifically described in
the related Prospectus Supplement. For a description of the types of property
that may be included in the Trusts, see "The Trusts". If so specified in the
related Prospectus Supplement, the property of a Trust will include monies on
deposit in a trust account, which will be used to purchase additional
Receivables after the related closing date. California Thrift & Loan will act
as servicer (in such capacity, the "Servicer") of the Receivables for each
Trust. Each class of Certificates of any Series will represent the right to
receive a specified amount of payments of principal and interest on the
related Receivables, at the rates, on the dates and in the manner described
herein and to the extent specified in the related Prospectus Supplement. If so
provided in the related Prospectus Supplement, a Series of Certificates may
include one or more classes of Certificates entitled to interest distributions
with disproportionate, nominal or no distributions in respect of principal, or
to principal distributions with disproportionate, nominal or no distributions
in respect of interest. As more fully described herein and in the related
Prospectus Supplement, distributions on any class of Certificates may be
senior or subordinate to distributions on one or more other classes of
Certificates of the same Series.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE 11 OF THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
----------------
THE CERTIFICATES OF A SERIES WILL REPRESENT BENEFICIAL INTERESTS IN THE RELATED
TRUST ONLY, AND WILL NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT
GUARANTEED OR INSURED BY, BAY VIEW SECURITIZATION CORPORATION, ANY AFFILIATE
THEREOF OR ANY GOVERNMENTAL INSTRUMENTALITY.
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Certificates of any Series unless accompanied by the
related Prospectus Supplement.
----------------
January 24, 1997
<PAGE>
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-
3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Certificates being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648, and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding the Depositor's electronic filings with the Commission. The address
of the Commission's Web site is "http://www.sec.gov".
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
investor's representative within the period during which there is an
obligation to deliver a Prospectus Supplement and Prospectus, the Depositor or
such Underwriter will promptly deliver, or cause to be delivered, without
charge, to such investor a paper copy of the Prospectus Supplement and
Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer or the Depositor on behalf of the Trust
referred to in the accompanying Prospectus Supplement with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), after the date of this Prospectus
and prior to the termination of the offering of the Certificates offered by
such Trust shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the dates of filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the accompanying Prospectus Supplement) or in any subsequently
filed document that also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Servicer on behalf of any Trust will provide without charge to each
person to whom a copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference. Requests to the Servicer for such copies should be
addressed to California Thrift & Loan, 818 Oakpark Road, Covina, California
91724, (800) 524-9292.
2
<PAGE>
SUMMARY OF TERMS
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to each Series of Certificates contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Certificates. Certain capitalized terms used in this
summary are defined elsewhere in this Prospectus in the "Index of Principal
Terms" on page 52 of this Prospectus.
Issuer........................ With respect to any Series of Certificates, a
Trust formed pursuant to a pooling and
servicing agreement (each, a "Pooling and
Servicing Agreement") among the Depositor, the
Servicer and the Trustee for such Trust.
Depositor..................... Bay View Securitization Corporation, a Delaware
corporation having its principal office and
place of business in San Mateo, California (the
"Depositor"). The Depositor's principal
executive offices are located at 2121 South El
Camino Real, San Mateo, California 94403, and
its telephone number is (415) 573-7300.
Servicer...................... California Thrift & Loan, a California
corporation havingits principal office and
place of business in Santa Barbara,California
(in its capacity as servicer, the "Servicer",
otherwise "CTL") The Servicer's operations are
located at 818 Oakpark Road, Covina, California
91724, and its telephone number is (800) 524-
9292.
Trustee....................... With respect to each Trust, the trustee
specified in the related Prospectus Supplement
(the "Trustee").
Securities Offered............ Each Series of asset backed securities issued
by a Trust will consist of one or more classes
of Certificates. Each class of Certificates of
a Series will be issued pursuant to the related
Pooling and Servicing Agreement. The related
Prospectus Supplement will specify which class
or classes of Certificates of the related
Series are being offered thereby.
Each class of Certificates will have a stated
certificate balance (the "Class Certificate
Balance") and will accrue interest on such
Class Certificate Balance at a specified rate
(with respect to each class of Certificates,
the "Pass-Through Rate"). If so specified in
the related Prospectus Supplement, one or more
classes of Certificates ("Strip Certificates")
may be entitled to (i) interest distributions
with disproportionate, nominal or no principal
distributions or (ii) principal distributions
with disproportionate, nominal or no interest
distributions. See "Description of the
Certificates--Distributions of Principal and
Interest."
3
<PAGE>
Each class of Certificates may have a different
Pass-Through Rate, which may be a fixed,
variable or adjustable Pass-Through Rate, or
any combination of the foregoing. The related
Prospectus Supplement will specify the Pass-
Through Rate, or the method for determining the
applicable Pass-Through Rate, for each class of
Certificates.
A Series of Certificates may include two or
more classes of Certificates that differ as to
timing and/or priority distributions,
seniority, allocations of losses, Pass-Through
Rate, amount of distributions in respect of
principal or interest, or any combination of
the foregoing. Additionally, distributions in
respect of principal or interest in respect of
any such class or classes may or may not be
made upon the occurrence of specified events or
on the basis of collections from designated
portions of the related Receivables Pool.
If so specified in the related Prospectus
Supplement, Certificates will be available in
book-entry form only and will be available for
purchase in minimum denominations of $1,000 and
integral multiples thereof, except that one
Certificate of each class may be issued in such
denomination as is required to include any
residual amount. Certificateholders will not be
able to receive physical delivery of the
Certificates beneficially owned by book-entry
registration except in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Description
of the Certificates--Definitive Certificates"
and "--Book-Entry Registration."
Optional Purchase by the
Servicer..................... If so provided in the related Prospectus
Supplement, the Servicer may be entitled to
purchase the Receivables of a Trust or to cause
such Receivables to be purchased by another
entity, in the manner and subject to the
conditions described in such Prospectus
Supplement. If the Servicer exercises any such
option to purchase the Receivables or to cause
the Receivables to be purchased, the
Certificates will be prepaid as set forth in
the related Prospectus Supplement. See
"Description of the Transfer and Servicing
Agreements--Termination" herein. In addition,
if the related Prospectus Supplement provides
that the property of a Trust will include a
Pre-Funding Account, one or more classes of
Certificates may be subject to a partial
prepayment of principal following the end of
the Funding Period, in the manner and to the
extent specified in the related Prospectus
Supplement. See "Description of the Transfer
and Servicing Agreements--Accounts--Pre-Funding
Account" herein.
The Trust Property............ The property of each Trust will include a pool
of simple interest and/or precomputed interest
installment sale and installment loan contracts
secured by new and used automobiles, light
trucks, recreational vehicles, motorcycles and
vans (the "Receivables"), certain monies due or
received thereunder after the date specified
4
<PAGE>
in the related Prospectus Supplement (each, a
"Cutoff Date"), security interests in the
vehicles financed thereby (the "Financed
Vehicles"), any right to recourse the purchaser
of the Receivables may have against the dealers
who sold the Financed Vehicles (the "Dealers"),
proceeds from claims on certain insurance
policies, and certain rights under the purchase
agreement (each, a "Purchase Agreement") among
CTL and the Depositor pursuant to which the
Depositor will purchase the related Receivables
from CTL. The majority of the Receivables are
currently originated in the States of
California and Texas. The property of each
Trust also will include amounts on deposit in,
or certain rights with respect to, certain
accounts, including the related Certificate
Account and any Pre-Funding Account, Cash
Collateral Account, Yield Supplement Account or
any other account or assets identified in the
applicable Prospectus Supplement. See
"Description of the Transfer and Servicing
Agreements--Accounts."
To the extent specified in the related
Prospectus Supplement, the Receivables arise,
or will arise, from motor vehicle installment
sale contracts that were originated by new and
used car, light truck, recreational vehicle and
motorcycle dealers for assignment to CTL or
motor vehicle loan contracts that were
solicited by dealers for origination by CTL
(the "Contracts"). Payment of the amount due
under each Contract is secured by a first
perfected security interest in the related
Financed Vehicle. To the extent specified in
the related Prospectus Supplement, CTL is the
registered lienholder on the certificate of
title of each of the Financed Vehicles and the
certificates of title to such Financed Vehicles
will not be amended to reflect the assignment
either to the Depositor or to the Trust. If
specified in the related Prospectus Supplement,
CTL may purchase Receivables from third party
originators, in which case the registered
lienholder on the certificate of title will be
named in the Prospectus Supplement. The
Receivables for each Receivables Pool will be
selected from the Contracts owned by CTL based
on the criteria specified in the related
Pooling and Servicing Agreement and described
herein under "The Receivables Pools" and
"Description of the Transfer and Servicing
Agreement--Sale and Assignment of Receivables"
and in the related Prospectus Supplement under
"The Receivables Pool."
Pre-Funding Account........... On the date of issuance of a Series of
Certificates (each, a "Closing Date"), the
Depositor will convey Receivables to the
related Trust in the aggregate principal amount
provided in the related Prospectus Supplement
and, if so provided in such Prospectus
Supplement, will deposit the amount specified
in such Prospectus Supplement (the "Pre-Funded
Amount") into a trust account established in
the name of the Trustee for the benefit of the
Certificateholders (the "Pre-Funding Account").
The Pre-Funded Amount with respect to any Trust
will not exceed 25% of the initial aggregate
Class Certificate Balances for the related
Series (the "Certificate Balance").
5
<PAGE>
If the property of a Trust includes a Pre-
Funding Account, CTL will be obligated under
the related Purchase Agreement to sell
additional Receivables (the "Subsequent
Receivables") to the Depositor from time to
time during the period provided in the related
Prospectus Supplement (the "Funding Period")
having an aggregate principal balance
approximately equal to the Pre-Funded Amount.
The Depositor, in turn, will be obligated under
the Pooling and Servicing Agreement to sell
such Subsequent Receivables to the related
Trust, and the Trust will be obligated to
purchase the Subsequent Receivables, subject to
the satisfaction of certain conditions set
forth in the Pooling and Servicing Agreement
and described herein under "Description of the
Transfer and Servicing Agreements--Sale and
Assignment of Receivables." As used in this
Prospectus, the term Receivables will include
the Receivables transferred to a Trust on the
related Closing Date as well as any Subsequent
Receivables transferred to such Trust during
the related Funding Period. All Receivables
originated or purchased from dealers by CTL
will be underwritten as described herein under
"The Receivable Pools--Underwriting
Procedures." In the event CTL purchases
Receivables from a third party originator, all
such Receivables shall meet CTL's underwriting
standards. Additionally, the Rating Agencies
must approve the transfer of the Subsequent
Receivables, all as set forth under
"Description of the Transfer and Servicing
Agreements--Sale and Assignment of the
Receivables."
Amounts on deposit in any Pre-Funding Account
during the Funding Period will be invested by
the Trustee (as directed by the Servicer) in
Eligible Investments, and any resultant
investment income (less any related investment
expenses) will be included, on the Distribution
Date immediately following the date on which
such investment income is paid to the Trust, in
the Available Funds for such Distribution Date.
Any funds remaining in a Pre-Funding Account at
the end of the related Funding Period will be
distributed to holders of the related Series of
Certificates (the "Certificateholders") as a
prepayment of principal of the Certificates, in
the amounts and priority described in the
related Prospectus Supplement. No Funding
Period will continue for more than three
calendar months after the related Closing Date.
See "Description of the Transfer and Servicing
Agreements--Accounts--Pre-Funding Account".
Repurchase of Certain
Receivables.................. In each Purchase Agreement, CTL will make
certain representations and warranties with
respect to the related Receivables and will
undertake to repurchase from the Depositor at
the Purchase Amount (as defined herein) any
Receivable with respect to which there exists
an uncured breach of any of its representations
or warranties, if such breach materially and
adversely affects the rights of the Depositor,
or the Depositor's assignee, in such
Receivable. In each Pooling and Servicing
Agreement, the Depositor will assign to the
related Trust certain rights under the related
Purchase Agreement, including the right to
6
<PAGE>
cause CTL to repurchase any Receivable in
respect of which there is an uncured breach of
a representation or warranty that materially
and adversely affects the interest of the Trust
in such Receivable. The repurchase obligation
pursuant to each Purchase Agreement and Pooling
and Servicing Agreement will constitute the
sole remedy available to the related
Certificateholders or Trustee for any uncured
breach of a representation or warranty. See
"Description of the Transfer and Servicing
Agreements--Sale and Assignment of
Receivables."
Credit and Cash Flow
Enhancement.................. If, and to the extent, specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust or any class or classes of
Certificates may include any one or more of the
following: subordination of one or more other
classes of Certificates of the same Series,
Cash Collateral Accounts, yield supplement
accounts, spread accounts, surety bonds,
insurance policies, letters of credit, credit
or liquidity facilities, over-
collateralization, guaranteed investment
contracts, swaps or other interest rate
protection agreements, repurchase obligations,
other agreements with respect to third-party
payments or other support, cash deposits, or
other arrangements. To the extent specified in
the related Prospectus Supplement, a form of
credit enhancement with respect to a Trust or
class or classes of Certificates may be subject
to certain limitations and exclusions from
coverage thereunder.
Transfer and Servicing
Agreements................... Pursuant to each Purchase Agreement, CTL will
sell the related Receivables to the Depositor
without recourse and, if so stated in the
related Prospectus Supplement, will undertake
to sell Subsequent Receivables, in the
aggregate amount specified therein, to the
Depositor during the related Funding Period.
The Depositor, in turn, will sell such
Receivables to the related Trust, without
recourse, and will undertake to sell any such
Subsequent Receivables to the related Trust
during the related Funding Period. In addition,
the Servicer will agree in each Pooling and
Servicing Agreement to be responsible for
servicing, managing, maintaining custody of and
making collections on the related Receivables.
In the event a Receivable which is outstanding
during the calendar month preceding any
Distribution Date (as defined herein) (the
"Collection Period") becomes more than 30 days
delinquent, the Servicer will advance funds
(each, an "Advance") to cover 30 days of
interest due on such delinquent Receivable
(each, an "Interest Shortfall"), but only to
the extent that the Servicer, in its sole
discretion, expects to be able to recoup such
Advance from subsequent payments on the
Receivable. Advances by the Servicer will add
to the funds available for distributions to
Certificateholders on a Distribution
7
<PAGE>
Date, but the Servicer will be entitled to
reimbursement for such Advances from subsequent
payments of the Receivables or, to the extent
set forth in the related Prospectus Supplement,
from insurance proceeds or withdrawals from any
Cash Collateral Account or similar form of
credit enhancement. See "Risk Factors--Risks
Associated with Automobile Loans," and
"Description of the Transfer and Servicing
Agreements--Advances." Certificateholders will
receive notice of such Advance as described
herein under "Description of the Certificates--
Statements to Certificateholders."
CTL will be obligated to repurchase from the
Trust any Receivable in which the interest of
such Trust is materially and adversely affected
as a result of a breach of any representation
or warranty made by CTL in the related Purchase
Agreement if such breach is not cured in a
timely manner following the discovery by or
notice to CTL. The Servicer will be obligated
under each Pooling and Servicing Agreement to
purchase any Receivable at the Purchase Amount
(as defined herein) if (i) among other things,
the Servicer reduces the rate of interest under
the related Contract (the "Contract Rate"),
reduces the amount of the scheduled monthly
payments or reduces the amount financed or if
the Servicer fails to maintain a perfected
security interest in the related Financed
Vehicle and (ii) the interest of the
Certificateholders in such Receivable is
materially and adversely affected by such
action or failure to act of the Servicer. If
the Servicer extends the date for final payment
by the obligor on the related Contract (each,
an "Obligor") so that the Receivable remains
outstanding on the final scheduled maturity
date with respect to a Series of Certificates
specified in the related Prospectus Supplement
(the "Final Scheduled Maturity Date"), the
Servicer will be obligated to purchase the
Receivable at the Purchase Amount as of the
last day of the Collection Period preceding
such Final Scheduled Maturity Date.
The Servicer will receive a fee for servicing
the Receivables of each Trust equal to the
Servicing Fee Rate times the aggregate
outstanding principal balance of the related
Receivables (the "Pool Balance"), plus certain
late fees, prepayment charges and other
administrative fees or similar charges. The
Servicer may also receive investment earnings
from certain accounts and other cash flows with
respect to a Trust. See "Description of the
Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses."
Certain Legal Aspects of the
Receivables; Repurchase
Obligations.................. In connection with each sale of Receivables by
CTL to the Depositor and by the Depositor to a
Trust, security interests in the related
Financed Vehicles will be assigned by CTL to
the
8
<PAGE>
Depositor and by the Depositor to the Trust;
due to the administrative and quality control
concerns related to the retitling of a large
amount of certificates of title and related
fees and expenses of each state's Department of
Motor Vehicles, however, the certificates of
title to such Financed Vehicles will not be
amended to reflect the assignment either to the
Depositor or to the Trust. In the absence of
such an amendment, the Trust may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states.
CTL will be obligated to repurchase from a
Trust any Receivable sold to such Trust as to
which all action necessary to secure a first
perfected security interest in the name of the
Trust in the Financed Vehicle securing such
Receivable shall not have been taken as of the
date such Receivable is purchased by such
Trust, if such breach materially and adversely
affects the interest of the related
Certificateholders in such Receivable and if
such failure or breach is not cured by the last
day of the month following the discovery by or
notice to the Servicer of such breach. If a
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, a
Trust will have a prior claim over subsequent
purchasers of the Financed Vehicle and holders
of subsequently perfected security interests.
However, as against liens for repairs of
Financed Vehicles or for taxes unpaid by the
related Obligor, or through fraud or
negligence, a Trust could lose its security
interest or the priority of its security
interest in a Financed Vehicle. Neither the
Depositor nor CTL will be obligated to
repurchase a Receivable with respect to which a
Trust loses its security interest or the
priority of its security interest in the
related Financed Vehicle after the Closing Date
as the result of any such tax lien or
mechanic's lien or the fraud or negligence of a
third party.
Federal and state consumer protection laws
impose requirements on creditors in connection
with extensions of credit and collections of
retail installment loans, and certain of these
laws make an assignee of such a loan liable to
the obligor thereon for any violation by the
lender. CTL will be required to repurchase from
the Trust any Receivable that fails to comply
with the requirements of such consumer
protection laws on or before the last day of
the month following discovery by or notice to
the Servicer of such failure, if such failure
materially and adversely affects the interests
of the related Certificateholders in such
Receivable. See "Risk Factors--Perfection of
Security Interests in Financed Vehicles" and
"Certain Legal Aspects of the Receivables."
9
<PAGE>
Tax Considerations............ If a Prospectus Supplement specifies that the
related Trust is a grantor trust, to the extent
provided in such Prospectus Supplement, upon
the issuance of the related Series of
Certificates, Silver, Freedman & Taff, L.L.P.,
special federal tax counsel to the Trust, will
deliver an opinion to the effect that such
Trust will be treated as a grantor trust for
federal income tax purposes and will not be
subject to federal income tax.
If a Prospectus Supplement does not specify
that the related Trust is a grantor trust, upon
the issuance of the related Series of
Certificates, Silver, Freedman & Taff, L.L.P.
will deliver an opinion to the effect that such
Trust will not be treated as an association
taxable as a corporation or as a "publicly
traded partnership" taxable as a corporation.
See "Federal Income Tax Consequences" for
additional information regarding the
application of federal tax laws to a Trust and
the related Series of Certificates.
ERISA Considerations.......... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
related Prospectus Supplement and unless
otherwise provided therein, any Certificates
that meet certain United States Department of
Labor requirements are eligible for purchase by
employee benefit plans and other retirement
arrangements subject to Title I of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"). Any class of Certificates that is
subordinated to any other class of Certificates
of the same Series may not be acquired by any
such employee benefit plan or retirement
arrangement. See "ERISA Considerations" herein
and in the related Prospectus Supplement.
Ratings....................... It is a condition to the issuance of the
Certificates to be offered hereunder that they
be rated in one of the four highest rating
categories by at least one nationally
recognized statistical rating organization
(each, a "Rating Agency"). A rating is not a
recommendation to purchase, hold or sell
Certificates inasmuch as a rating does not
comment as to market price or suitability for a
particular investor. Ratings of Certificates
will address the likelihood of the payment of
principal of and interest on the Certificates
pursuant to their terms. There can be no
assurance that a rating will remain for a given
period of time or that a rating will not be
lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the
future so warrant. See "Risk Factors--Ratings
of the Certificates" herein. For more detailed
information regarding the ratings assigned to
any class of Certificates of a particular
Series, see "Summary of Terms--Ratings" and
"Risk Factors--Ratings of the Certificates" in
the related Prospectus Supplement.
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of any Series of Certificates, prospective investors should
carefully consider the following risk factors before investing in any class or
classes of Certificates of any such Series.
RISK ASSOCIATED WITH PRE-FUNDING ACCOUNTS
If so provided in the related Prospectus Supplement, on the Closing Date the
Depositor will deposit the Pre-Funded Amount specified in such Prospectus
Supplement into the Pre-Funding Account. In no event will the Pre-Funded
Amount exceed 25% of the initial Certificate Balance of the related Series of
Certificates. The Pre-Funded Amount will be used to purchase Subsequent
Receivables from the Depositor (which, in turn, will acquire such Subsequent
Receivables from CTL) from time to time during the Funding Period. During the
Funding Period and until such amounts are applied by the Trustee to purchase
Subsequent Receivables, amounts on deposit in the Pre-Funding Account will be
invested by the Trustee (as instructed by the Servicer) in Eligible
Investments, and any investment income with respect thereto (net of any
related investment expenses) will be distributed on each Distribution Date
during the Funding Period as part of the Available Funds for the related
Collection Period. No Funding Period will end more than three calendar months
after the related Closing Date.
To the extent that the entire Pre-Funded Amount has not been applied to the
purchase of Subsequent Receivables by the end of the related Funding Period,
any amounts remaining in the Pre-Funded Account will be distributed as a
prepayment of principal to Certificateholders following the end of the Funding
Period, in the amounts and pursuant to the priorities set forth in the related
Prospectus Supplement. Such prepayment will reduce the outstanding principal
balance of one or more classes of the related Series of Certificates and may
reduce the anticipated yield thereon.
SALES OF SUBSEQUENT RECEIVABLES
If so provided in the related Prospectus Supplement, (i) CTL will be
obligated pursuant to the Purchase Agreement to sell Subsequent Receivables
(subject only to the availability thereof) to the Depositor from time to time
during the Funding Period in an aggregate principal amount approximately equal
to the Pre-Funded Amount, (ii) the Depositor, in turn, will be obligated
pursuant to the Pooling and Servicing Agreement to sell such Subsequent
Receivables to the Trust and (iii) the Trust will be obligated to purchase
such Subsequent Receivables, subject only to the satisfaction of certain
conditions set forth in the Pooling and Servicing Agreement and described in
the related Prospectus Supplement. If the principal amount of eligible
Subsequent Receivables originated or acquired by CTL during a Funding Period
is less than the Pre-Funded Amount, CTL and the Depositor may have
insufficient Subsequent Receivables to transfer to a Trust, and holders of one
or more classes of the related Series of Certificates may receive a full or
partial prepayment of principal at the end of the Funding Period as described
above under "--Pre-Funding Accounts."
PERFECTION OF SECURITY INTERESTS IN FINANCED VEHICLES
Simultaneously with each sale of Receivables, CTL will assign to the
Depositor, and the Depositor will assign to the related Trust, security
interests in the related Financed Vehicles; due to administrative and quality
control concerns related to the retitling of a large amount of certificates of
title and related fees and expenses of each state's Department of Motor
Vehicles, however, the certificates of title to such Financed Vehicles will
not be amended to reflect the assignment to either the Depositor or the Trust.
In the absence of such amendments, a Trust may not have a perfected security
interest in such Financed Vehicles in some states, including Texas. In
California the security interest will continue to be perfected against
creditors and transferees of the vehicle owner. CTL will be obligated to
repurchase from the related Trust any Receivable sold to a Trust as to which
all actions necessary to secure a first perfected security interest in the
name of the Trustee in the Financed Vehicle securing such Receivable shall not
have been taken as of the date such Receivable is transferred to such Trust,
if such breach materially and adversely affects the interest of the
Certificateholders in such Receivable and if such failure or breach is not
timely cured following discovery by or notice thereof to the Depositor or CTL.
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If a 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 Vehicle and holders of subsequently perfected security
interests; however, the Trust could lose its security interest or the priority
of its security interest in a Financed Vehicle as against liens for repairs of
such Financed Vehicle or for taxes unpaid by the related Obligor or through
fraud or negligence. Neither the Depositor nor CTL will have any obligation to
repurchase a Receivable in respect of which a Trust loses its security
interest or the priority of its security interest in the related Financed
Vehicle as the result of any such mechanic's or tax lien or the fraud or
negligence of a third party occurring after the date such security interest
was conveyed to the Trust. See "Certain Legal Aspects of the Receivables--
Security Interests in Vehicles."
PERFECTION OF SECURITY INTERESTS IN CONNECTION WITH THE TRANSFER OF
RECEIVABLES
Generally each Receivable will be "chattel paper" as defined in the Uniform
Commercial Code ("UCC") as in effect in California (where CTL's and the
Depositor's chief executive offices are located) and the jurisdiction in which
the related Financed Vehicle was located at origination. Under the UCC as in
effect in each such jurisdiction, the sale of chattel paper is treated in a
manner similar to perfection of a security interest in chattel paper. Each of
CTL and the Depositor will make appropriate filings of UCC-1 financing
statements in the Office of the Secretary of State of the State of California
to give notice of the sale of the Receivables. These steps may not be
sufficient to protect the Trust's interest in the Receivables against the
claims of CTL's creditors or a trustee (or a receiver or conservator, as the
case may be) of CTL in bankruptcy to the extent that the Receivables do not
constitute "chattel paper" within the meaning of the UCC as in effect in
California. The Trust's interest in the Receivable could also be defeated if a
subsequent purchaser were able to take physical possession of the Receivables
without notice of such assignment. Pursuant to the Purchase Agreement,
however, CTL will be obligated to repurchase a Receivable if its
representation and warranties with respect to the Receivable are not true and
correct.
RISK ASSOCIATED WITH CONSUMER PROTECTION LAWS
Federal and state consumer protection laws impose requirements on 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 a
Trust) liable to the obligor thereon for any violation by the lender. To the
extent specified herein and in the related Prospectus Supplement, CTL will be
obligated to make certain indemnities and to repurchase from the related Trust
any Receivable that fails to comply with such requirements. See "Certain Legal
Aspects of the Receivables--Consumer Protection Laws."
INSOLVENCY CONSIDERATIONS
The Depositor has been established as a special purpose subsidiary of Bay
View Capital Corporation ("Bay View"), the holding company of CTL, to reduce
the risk of bankruptcy of the Depositor and its resulting effect on the
Certificates of each Series. In addition, the Depositor has undertaken to
follow certain procedures to preserve its corporate separateness, with a view
to maintaining the assets of the Depositor separate from the assets of Bay
View, with the result that the assets of the Depositor would not be available
directly to creditors of Bay View or its affiliates, to the representative of
any bankruptcy estate of Bay View or to any bankruptcy trustee or receiver or
conservator which may be appointed with respect to Bay View or any of its
affiliates other than the Depositor. There can be no assurance, however, that,
despite the bankruptcy remote nature of the Depositor and the procedures
described above, an appropriate party in interest would not succeed in an
effort to cause consolidation of the assets and liabilities of the Depositor
with those of Bay View or any of its affiliates or that the appointment of the
Federal Deposit Insurance Corporation ("FDIC") as receiver or conservator of
CTL would not have an adverse impact on one or more Series of Certificates.
In the event of impairment of the capital of CTL or certain other events,
the California Commissioner of Corporations has the authority to take
possession of the property and business of CTL and retain possession as
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conservator or liquidator of CTL, and to exercise the powers set forth for
such purpose in the California Industrial Loan Law. In such an event, however,
it is likely that the FDIC would become conservator or receiver of CTL and
able to exercise its powers as such under federal law. So long as CTL remains
an FDIC insured institution, in the event that the FDIC were appointed
receiver or conservator for CTL, the FDIC could exercise legal authority to
prevent the Trustee from taking any remedial action based solely upon such
appointment or insolvency of CTL or the FDIC may take other actions which may
have an adverse impact on one or more Series of Certificates.
CTL will warrant to the Depositor in each Purchase Agreement (the benefit of
which warranty will be assigned by the Depositor to each Trust in the related
Pooling and Servicing Agreement), that the sale of the related Receivables by
CTL to the Depositor is a sale, and not a financing, of the Receivables to the
Depositor. Likewise, the Depositor will warrant to the Trustee under the
related Pooling and Servicing Agreement that the sale of the related
Receivables by the Depositor to the Trustee is a sale, and not a financing, of
the Receivables to such Trust. If the transactions contemplated under the
related Transfer and Servicing Agreements are treated as a sale, the
Receivables would not be part of CTL's or the Depositor's insolvency or
conservatorship estate and would not be available to the creditors of CTL or
the Depositor. Notwithstanding the foregoing, if CTL were to become the
subject of receivership or conservatorship proceedings, or the Depositor were
to become a debtor in a bankruptcy case, and an appropriate party in interest
were to take the position that the sale of Receivables to the Depositor or
such Trust, as applicable, should be treated as a pledge of such Receivables
to secure a borrowing of CTL or the Depositor, then delays in payments of
collections of Receivables to Certificateholders could occur or reductions in
the amounts of such payments could result. If the transfer of Receivables to
the Depositor or any Trust is treated as a pledge instead of a sale, a tax or
government lien on the property of CTL or the Depositor, as applicable,
arising before the transfer of such Receivables to such Trust may have
priority over such Trust's interest in such Receivables.
The decision of the U.S. Court of Appeals for the Tenth Circuit, Octagon Gas
Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May 27, 1993),
contains language to the effect that accounts sold by a debtor would remain
property of the debtor's bankruptcy estate under the UCC, whether or not the
sale of the accounts was perfected. Although the Receivables constitute
chattel paper under the UCC, rather than accounts, Article 9 of the UCC
applies to the sale of chattel paper as well as the sale of accounts, and
perfection of a security interest in both chattel paper and accounts may be
accomplished by the filing of a UCC-1 financing statement. If, following an
insolvency proceeding in respect of the Depositor or an appointment of the
FDIC as receiver or conservator for CTL, a court or the FDIC were to follow
the reasoning of the Tenth Circuit, then the Receivables could be included in
the insolvency estate of the Depositor or the receivership or conservatorship
estate of CTL, as applicable, and delays and reductions in payments of
collections on or in respect of the Receivables could occur.
LIMITED OBLIGATIONS OF CTL AND THE DEPOSITOR
Neither CTL nor the Depositor will be generally obligated to make any
payments to a Trust in respect of the related Certificates or Receivables.
However, in connection with the sale of the Receivables, CTL will make
representations and warranties regarding the characteristics of such
Receivables and, in certain circumstances, CTL will be required to repurchase
from the Trust any Receivables with respect to which such representations and
warranties have been breached. See "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables." In addition, CTL, as
Servicer, may be required to purchase Receivables from a Trust under certain
circumstances set forth in the Pooling and Servicing Agreement. See
"Description of the Transfer and Servicing Agreements--Servicing Procedures."
SUBORDINATION OF CERTAIN CLASSES OF CERTIFICATES
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on one or more classes of Certificates may be
subordinated in priority of payment to interest and principal due on one or
more other classes of Certificates of the same Series.
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LIMITED ASSETS OF EACH TRUST
None of the Trusts will have, nor will any such Trust be permitted or
expected to have, any significant assets or sources of funds other than the
related Receivables and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account or Cash Collateral Account, yield supplement
account or other form of credit enhancement. Subject to the foregoing, the
Certificates of each Series will represent interests solely in the related
Trust and will not represent obligations of or interests in, or be insured or
guaranteed by, CTL, the Depositor, the Trustee or any other entity.
Consequently, holders of the Certificates of any Series must rely for
repayment upon payments on the related Receivables and, if and to the extent
available, amounts available under any available form of credit enhancement,
all as specified in the related Prospectus Supplement.
RISKS ASSOCIATED WITH AUTOMOBILE LOANS
Automobiles rapidly depreciate. As a consequence, the Obligor's continuing
financial stability rather than the value of the vehicle is generally relied
upon for the repayment of the related receivable. This is especially true with
respect to Receivables purchased by CTL, because CTL's underwriting procedures
are primarily based on the ability of the Obligor to repay. As a result,
subject to the credit score, CTL may permit the origination of a loan in
excess of the manufacturer's suggested retail price, in the case of new
vehicles, or the value established by used car reference publications.
Therefore, a repossessed automobile may not provide an adequate source of
repayment of the outstanding loan balance. See "The Receivables Pools--
Underwriting Procedures." Furthermore, the application of various federal and
state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans. See "The Receivables Pools--
Delinquencies and Credit Losses."
MATURITY AND PREPAYMENT CONSIDERATIONS
All of the Receivables are prepayable at any time by the related Obligor. As
used herein with respect to any Receivable, the term prepayment includes
prepayments in full, partial prepayments (including those related to rebates
of extended warranty contract costs and insurance premiums) and liquidations
due to defaults, as well as receipts of proceeds from physical damage, credit
life and disability insurance policies and any lender's insurance policy, and
Purchase Amounts with respect to certain other Receivables repurchased by CTL
as a result of a breach of a representation or warranty or purchased by the
Servicer for administrative reasons. The rate of prepayments on the
Receivables may be influenced by a variety of economic, social and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a Receivable without the consent of CTL. The
rate of prepayment on the Receivables may also be influenced by the structure
of the underlying loans. To the extent prepayments on the Receivables are more
rapid than expected, Certificateholders' anticipated yield may be reduced to
the extent the Certificates were purchased at a premium. See "Weighted Average
Life of the Certificates." In addition, if so provided in the related
Prospectus Supplement, the Servicer may be entitled to purchase the
Receivables of a given Receivables Pool under the circumstances described in
such Prospectus Supplement. See "Description of the Transfer and Servicing
Agreements--Termination."
In addition, a Series of Certificates may include one or more classes of
interest-only or other Strip Certificates that may be more sensitive than
other classes of Certificates of such Series to the rate of payment on the
related Receivables. Prospective investors in any such class of Certificates
should carefully consider the information provided with respect to such
Certificates under "Risk Factors" and elsewhere in the related Prospectus
Supplement.
RATINGS OF THE CERTIFICATES
It is a condition of the issuance of the Certificates to be offered
hereunder that they be rated in one of the four highest rating categories by
at least one nationally recognized statistical rating organization. A rating
is not a recommendation to purchase, hold or sell Certificates inasmuch as a
rating does not comment as to market price or suitability for a particular
investor. The ratings of the Certificates will address the likelihood of the
payment of principal and interest thereon pursuant to their terms. There can
be 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
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Rating Agency if in its judgment circumstances in the future so warrant. For
more detailed information regarding the ratings assigned to any class of a
particular Series of Certificates, see "Summary of Terms--Ratings" and "Risk
Factors--Ratings of the Certificates" in the related Prospectus Supplement.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, each class of the
Certificates of a given Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee of The Depository Trust Company ("DTC") set forth in the related
Prospectus Supplement, and will not be registered in the names of the holders
of such Certificates or their nominees. Because of this, unless and until
Definitive Certificates for such Series are issued, the beneficial owners of
such Certificates will not be recognized by the Trustee as
"Certificateholders" (as such term is used herein or in the related Pooling
and Servicing Agreement). Hence, until Definitive Certificates are issued,
beneficial owners of the Certificates will be able to exercise the rights of
Certificateholders only indirectly through DTC and its participating
organizations. See "Description of the Certificates--Book-Entry Registration"
and "--Definitive Certificates."
LIMITED LIQUIDITY
There can be no assurance that a secondary market will develop for the
Certificates or, if it does develop, that it will provide the holders of the
Certificates with liquidity of investment or that it will remain for the term
of the Certificates. The issuance of the Certificates in book-entry form may
reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Certificates in the secondary
trading market for which they cannot obtain physical certificates. See
"Description of the Certificates--Book-Entry Registration."
DIFFICULTY IN PLEDGING
Since transactions in Certificates can be effected only through DTC,
participating organizations, indirect participants and certain banks, the
ability of a beneficial Owner to pledge a Certificate to persons or entities
that do not participate in the DTC system, or otherwise to take actions in
respect of such Certificates, may be limited due to the lack of a physical
certificate representing the Certificates. See "Description of the
Certificates--Book-Entry Registration."
THE TRUSTS
Each Series of Certificates will be issued by a separate Trust established
by the Depositor pursuant to a Pooling and Servicing Agreement for the
transactions described herein and in the related Prospectus Supplement. The
property of each Trust will include a pool (a "Receivables Pool") of simple
interest and/or precomputed interest retail installment sale or installment
loan contracts secured by new or used automobiles, recreational vehicles,
light trucks, motorcycles or vans and certain payments due or received
thereunder after the applicable Cutoff Date. To the extent specified in the
related Prospectus Supplement, the Receivables in each Receivables Pool were
or will be either (a) originated by Dealers for assignment to CTL or (b)
solicited by Dealers for origination by CTL. CTL is the registered lienholder
listed on the certificates of title of the Financed Vehicles. If specified in
the related Prospectus Supplement, CTL may purchase Receivables from third
party originators, in which case the registered lienholder on the certificate
of title will be named in the Prospectus Supplement. The Receivables will
continue to be serviced by CTL as the initial Servicer under each Pooling and
Servicing Agreement.
On or prior to the applicable Closing Date, CTL will sell to the Depositor,
pursuant to the Purchase Agreement, Receivables in the aggregate principal
amount specified in the related Prospectus Supplement. Thereafter, on such
Closing Date, the Depositor will convey such Receivables and, if so provided
in the related Prospectus Supplement, the Pre-Funded Amount to the related
Trust in exchange for the delivery to the Depositor of the Series of
Certificates issued on such date by such Trust. If the Prospectus Supplement
provides for the conveyance of a Pre-Funded Amount to the related Trust, CTL
will also be required under the Purchase Agreement, and the Depositor will be
required under the related Pooling and Servicing Agreement, to convey to
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the Depositor and the Trust, respectively, Subsequent Receivables from time to
time during the Funding Period in an aggregate principal amount approximately
equal to such Pre-Funded Amount. Any Subsequent Receivables so conveyed to a
Trust will also be assets of such Trust. The property of each Trust will also
include (i) interests in certain amounts that may from time to time be held in
separate trust accounts established and maintained pursuant to the related
Pooling and Servicing Agreement and, if so provided in the related Prospectus
Supplement, the proceeds of such accounts; (ii) security interests in the
Financed Vehicles and any other interest of CTL and the Depositor in such
Financed Vehicles; (iii) any recourse rights of CTL against Dealers; (iv) any
rights of CTL to proceeds from claims on or refunds of premiums with respect
to certain physical damage, credit life and disability insurance policies
covering the Financed Vehicles or the Obligors, as the case may be, including
any lender's insurance policy; (v) any property that secures a Receivable and
that has been acquired by the Trust; (vi) certain rights under the related
Purchase Agreement; and (vii) any and all proceeds of the foregoing. CTL will
not convey to the Depositor, and the Depositor will not convey to a Trust, and
the related Certificateholders will have no interest in, any contract with a
Dealer establishing "dealer reserves" or any rights to recapture dealer
reserves pursuant to such a contract. To the extent specified in the related
Prospectus Supplement, a Pre-Funding Account or a Cash Collateral Account, a
yield supplement account, surety bond, swap or other interest rate protection,
or any other form of credit enhancement may be a part of the property of a
Trust or may be held by the Trustee for the benefit of holders of the related
Certificates.
CTL, as initial Servicer under each Pooling and Servicing Agreement, will
continue to service the Receivables held by each Trust and will receive fees
for such services. See "Description of the Transfer and Servicing Agreements--
Servicing Compensation and Payment of Expenses" herein. To facilitate the
servicing of the Receivables, the Depositor and each Trustee will designate
the Servicer as custodian of the Receivables and the related documents for the
related Trust; due to the administrative burden and expense, however, the
certificates of title to the Financed Vehicles will not be amended to reflect
the sale and assignment of the security interest in the Financed Vehicles to
either the Depositor or the Trust. In the absence of such an amendment, a
Trust may not have a perfected security interest in certain of the Financed
Vehicles in some states. See "Certain Legal Aspects of the Receivables" and
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables."
If the protection provided to the holders of the Certificates of any Series
(the "Certificateholders") by the subordination, if any, of one or more
classes of Certificates of such Series and by any Cash Collateral Account,
yield supplement account or other available form of credit enhancement for
such Series is insufficient, such Certificateholders will have to look to
payments by or on behalf of Obligors on the related Receivables and the
proceeds from the repossession and sale of Financed Vehicles that secure
defaulted Receivables for distributions of principal of and interest on the
related Certificates. In such event, certain factors, such as the Trust's not
having perfected security interests in all of the Financed Vehicles, may limit
the ability of a Trust to realize on the collateral securing the related
Receivables or may limit the amount realized to less than the amount due
thereunder. Certificateholders may thus be subject to delays in payment on, or
may incur losses on their investment in, such Certificates as a result of
defaults or delinquencies by Obligors and depreciation in the value of the
related Financed Vehicles. See "Description of the Transfer and Servicing
Agreements--Credit and Cash Flow Enhancement" and "Certain Legal Aspects of
the Receivables."
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale
of the related Certificates is limited solely to the express obligations of
such Trustee set forth in the related Pooling and Servicing Agreement. A
Trustee may resign at any time, in which event the Servicer will be obligated
to appoint a successor Trustee. The Servicer may also remove a Trustee if such
Trustee ceases to be eligible to continue as Trustee under the related Pooling
and Servicing Agreement or if such Trustee becomes insolvent. If the Servicer
so removes a Trustee, the Servicer will be obligated to appoint a successor to
such Trustee. Any resignation or removal of a Trustee and appointment of a
successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
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THE RECEIVABLES POOLS
GENERAL
To the extent specified in the related Prospectus Supplement, the
Receivables arise, or will arise, from motor vehicle installment sale
contracts that were originated by new and used car, light truck, recreational
vehicle, van and motorcycle dealers for assignment to CTL or motor vehicle
loan contracts that were solicited by dealers for origination by CTL in the
ordinary course of business. CTL is the registered lienholder on the
certificates of title to each of the Financed Vehicles. If specified in the
related Prospectus Supplement, CTL may purchase Receivables from third party
originators, in which case the registered lienholder on the certificate of
title will be named in the Prospectus Supplement.
The Receivables to be sold to each Trust will be selected from CTL's
portfolio for inclusion in a Receivables Pool based on several criteria,
including that each Receivable (i) is secured by a new or used vehicle, (ii)
provides for level monthly payments (except for the last payment, which may be
different from the level payments) that fully amortize the amount financed
over the original term to maturity of the Receivable, (iii) is a Precomputed
Receivable or a Simple Interest Receivable (each as defined herein) and (iv)
satisfies the other criteria, if any, set forth in the related Prospectus
Supplement. No selection procedures believed by CTL or the Depositor to be
adverse to Certificateholders were or will be used in selecting the
Receivables.
UNDERWRITING PROCEDURES
CTL uses the degree of the applicant's creditworthiness as the basic
criterion when originating an installment sales contract or purchasing such a
contract from a Dealer. Each credit application requires that the applicant
provide current information regarding the applicant's employment history, bank
accounts, debts, credit references, and other factors that bear on
creditworthiness. CTL generally applies uniform underwriting standards when
originating loans on new and used vehicles. CTL also typically obtains a
credit report from a major credit reporting agency summarizing the applicant's
credit history and paying habits, including such items as open accounts,
delinquent payments, bankruptcies, repossessions, lawsuits, and judgments.
Information relating to the applicant and supplied by the applicant on the
loan application combined with information provided by credit reporting
agencies is used to generate the borrower's credit score.
The credit score generated is used as the basic determinant for loan
approval. CTL's credit scoring model was developed by an independent firm
experienced in developing such models and utilizes extensive historical data
related to CTL's origination and servicing experience as well as the
experience of CTL's senior management. CTL's credit scoring model evaluates an
applicant's credit profile along with certain applicant specific
characteristics to arrive at an estimate of the associated credit risk.
Additionally, CTL's credit analysts may also verify an applicant's employment
income and/or residency or where appropriate, verify an applicant's payment
history directly with the applicant's creditors. CTL will also generally
verify receipt of the automobile and other information directly with the
borrower. Based on these procedures, a credit decision is considered and
approved by CTL personnel at various levels of authority, depending on a
variety of factors including the amount of the loan and the applicant's credit
score.
CTL's underwriting guidelines adhere to no specific loan-to-value ratios
because the primary focus is on the ability of the borrower to repay the loan
rather than the value of underlying collateral. The amount financed by CTL
will generally be up to the full sales price of the vehicle plus sales tax,
dealer preparation fees, license fees and title fees, plus the cost of service
and warranty contracts and premiums for physical damage, credit life and
disability insurance obtained in connection with the vehicle or the financing
(such amounts in addition to the sales price, collectively the "Additional
Vehicle Costs"). Accordingly, the amount financed by CTL under an installment
contract generally may exceed, depending on the credit score, in the case of
new vehicles, the manufacturer's suggested retail price of the financed
vehicle and the Additional Vehicle Costs. In the case of used vehicles, if the
applicant meets CTL's creditworthiness criteria, the amount financed may
exceed the vehicle's value as assigned by one of the three standard reference
sources for dealers of used cars and the Additional Vehicle Costs. Depending
on the dealer's location, CTL will use the "Kelley Blue Book," "NADA Official
Used Car Guide" or the "Black Book" published by National Auto Research to
obtain a value to assign to a used vehicle for underwriting purposes.
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CTL believes based on its historical experience that the resale value of a
new vehicle purchased by an obligor will generally decline below the
manufacturer's suggested retail price and, in some cases, may decline for a
period of time below the principal balance outstanding on the related
installment contract. CTL also believes that the resale value of a used
vehicle purchased by an obligor will generally decline, but believes that the
percentage of such decline generally will be less than the percentage of
decline in the resale value of a new vehicle. CTL regularly reviews the
quality of the Contracts purchased from Dealers and periodically conducts
quality control audits to ensure compliance with its established policies and
procedures. See also "California Thrift & Loan and Affiliates" herein.
ALLOCATION OF PAYMENTS
The Receivables will be either Simple Interest Receivables or Precomputed
Receivables. "Simple Interest Receivables" provide for equal monthly payments
that are applied, first, to collection fees, if any, then to applicable late
charges, then to pay interest accrued to the date of such payment, then to
principal due on such date, and then to further reduce the outstanding
principal balance. Accordingly, if an Obligor pays a fixed monthly installment
before its due date under a Simple Interest Receivable, the portion of the
payment allocable to interest for the period since the preceding payment will
be less than it would have been had the payment been made on the contractual
due date, and the portion of the payment applied to reduce the principal
balance of the Receivable will be correspondingly greater. Conversely, if an
Obligor pays a fixed monthly installment under a Simple Interest Receivable
after its contractual due date, the portion of such payment allocable to
interest for the period since the preceding payment will be greater than it
would have been had the payment been made when due, and the portion of such
payment applied to reduce the principal balance of the Receivable will be
correspondingly less, in which case a larger portion of the principal balance
may be due on the final scheduled payment date.
"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" 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 of the receivable, consists of an
amount of interest equal to 1/12 of the annual percentage rate 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 Obligor of a specified total amount
of payments, payable in equal monthly installments on each due date, which
total represents the principal amount financed and add-on interest for the
term of the receivable. The rate at which the amount of add-on interest is
earned and, correspondingly, the amount of each fixed monthly payment
allocated to reduction of the outstanding principal amount of the Receivable
are calculated in accordance with the sum of the periodic time balances or the
"Rule of 78's." If a Precomputed Receivable is prepaid in full (voluntarily or
by liquidation, acceleration or otherwise), under the terms of the Contract a
"refund" or "rebate" will be made to the Obligor of the portion of the total
amount of payments then due and payable under the Contract allocable to
"unearned" interest. Unearned interest is calculated in accordance with the
sum of the periodic time balances method, the Rule of 78's or an equivalent
method. The amount of any such rebate under a Precomputed Receivable generally
will be less than or equal to the remaining scheduled payments of interest
that would have been due under a Simple Interest Receivable for which all
payments were made on schedule and generally will be significantly less than
such amount.
To the extent specified in the related Prospectus Supplement, all of the
Receivables that are Precomputed Receivables will be Rule of 78's Receivables;
however, the Trust will account for all Rule of 78's Receivables as if such
Receivables were Actuarial Receivables. If so provided in the related
Prospectus Supplement early payments on Precomputed Receivables ("Payaheads")
will be deposited to the Payahead Account as described under "Description of
the Transfer and Servicing Agreements--Accounts." Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding principal balance of such Receivable (computed on an actuarial
basis) will not be passed through to Certificateholders, except to the extent
necessary to pay interest and principal on the Certificates.
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In the event of the liquidation of a Receivable or the repossession of a
Financed Vehicle, amounts recovered are applied first to the expenses of
repossession, and then to unpaid interest (to the extent not previously
written off) and principal and any related payment or other fee.
DELINQUENCIES AND CREDIT LOSSES
Certain information concerning the delinquencies and credit losses with
respect to new and used retail automobile, light truck, recreational vehicle,
motorcycle and van receivables will be set forth in each Prospectus
Supplement. There can be no assurance that the delinquency and credit loss
experience with respect to any Receivables Pool will be comparable to prior
experience or to such information.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The weighted average life of the Certificates of any Series generally will
be influenced by the rate at which the principal balances of the related
Receivables are paid, which payment may be in the form of scheduled
amortization or prepayments. For this purpose, the term prepayments includes
prepayments in full, partial prepayments (including those related to rebates
of extended warranty contract costs and insurance premiums), liquidations due
to defaults, as well as receipts of proceeds, if any, from physical damage,
credit life and disability and/or any lender's insurance policies, and the
amount of Receivables repurchased by CTL due to a breach of a representation
or warranty or purchased by the Servicer for administrative purposes. All of
the Receivables are prepayable at any time without penalty (or with a de
minimis charge) to the Obligor. The rate of prepayment of automotive
receivables is influenced by a variety of economic, social and other factors,
including the fact that an Obligor generally may not sell or transfer the
Financed Vehicle securing a Receivable without the consent of the registered
lienholder (or the Servicer on behalf of such lienholder). The rate of
prepayment on the Receivables may also be influenced by the structure of the
loan. In addition, under certain circumstances, CTL will be obligated to
repurchase Receivables from a Trust pursuant to the related Purchase Agreement
and Pooling and Servicing Agreement as a result of breaches of representations
and warranties, and the Servicer will be obligated to purchase Receivables
from a Trust pursuant to the related Pooling and Servicing Agreement as a
result of breaches of certain covenants. See "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables" and "--Servicing
Procedures." See also "Description of the Transfer and Servicing Agreements--
Termination" regarding the option of the Servicer to purchase the Receivables
from a Trust.
A Series of Certificates may include one or more classes of Strip
Certificates that are more sensitive than certain other classes of
Certificates of the same Series to the rate of payment of the related
Receivables. Prospective investors in any such Strip Certificates should
consider carefully the information regarding such Certificates in the related
Prospectus Supplement.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Certificates of a Series on any
Distribution Date since such amount will depend, in part, on the amount of
principal collected on the related Receivables Pool during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the
Certificateholders. The related Prospectus Supplement may set forth certain
additional information with respect to the maturity and prepayment
considerations applicable to the particular Receivables Pool and the related
Series of Certificates or particular classes of Certificates.
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POOL FACTORS AND OTHER CERTIFICATE INFORMATION
The "Certificate Pool Factor" for each class of Certificates will be a
seven-digit decimal which the Servicer will compute prior to each distribution
with respect to such class of Certificates and which will indicate the
remaining Class Certificate Balance of such class of Certificates, as of the
applicable Distribution Date (after giving effect to distributions to be made
on such Distribution Date), as a fraction of the initial Class Certificate
Balance of such class of Certificates. Each Certificate Pool Factor will be
1.0000000 as of the related Closing Date and thereafter will decline to
reflect reductions in the applicable Class Certificate Balance. A
Certificateholder's portion of the aggregate outstanding Class Certificate
Balance will equal the product of (a) the original denomination of such
Certificateholder's Certificate and (b) the applicable Certificate Pool Factor
at the time of determination.
The Certificateholders will receive reports on or about each Distribution
Date concerning payments received on the Receivables, the Pool Balance and
each Certificate Pool Factor. In addition, Certificateholders of record during
any calendar year will be furnished information for tax reporting purposes not
later than the latest date permitted by law. See "Description of the
Certificates--Statements to Certificateholders."
USE OF PROCEEDS
On each Closing Date, the Depositor will convey the Receivables and, if so
provided in the related Prospectus Supplement, the applicable Pre-Funded
Amount to the related Trust in exchange for the related Series of
Certificates. The Depositor will apply the net proceeds from the sale of the
Certificates to the purchase of the Receivables from CTL and, if so provided
in the related Prospectus Supplement, to fund the Pre-Funding Account, and to
such other things, if any, as specified in the related Prospectus Supplement.
CTL will use the portion of such proceeds paid to it to repay deposits, short-
term borrowings and for general corporate purposes.
CALIFORNIA THRIFT & LOAN AND AFFILIATES
CTL is a 38 year-old, FDIC-insured California thrift and loan. CTL's
business is the underwriting and purchasing of high yield consumer loans
(primarily retail installment sales contracts secured by new and used
automobiles and light-duty trucks), residential real estate loans and
commercial equipment leases for small and medium sized businesses. CTL
conducts its business primarily in the States of California, Arizona,
Colorado, Illinois, New Mexico, Nevada, Oregon and Texas.
On June 14, 1996 Bay View acquired CTL Credit, Inc., the holding company of
CTL. CTL is now a wholly-owned subsidiary of Bay View.
The Depositor is a wholly-owned subsidiary of Bay View, formed in November
1996 as a Delaware corporation, and is organized for the limited purpose of
purchasing, acquiring owning and holding vehicle installment sale and
installment loan contracts, reselling such receivables and conducting
activities incidental thereto.
The Depositor has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary
application for relief by the Depositor under the United States Bankruptcy
Code or other applicable laws ("Insolvency Laws") will not result in the
consolidation of the assets and liabilities of the Depositor with those of Bay
View or CTL. These steps include the creation of the Depositor as a separate,
limited-purpose subsidiary pursuant to a certificate of incorporation
containing certain limitations (including restrictions on the nature of the
Depositor's business, as described above, and restrictions on the Depositor's
ability to commence a voluntary case or proceeding under any Insolvency Law
without the unanimous affirmative vote of all its directors). However, there
can be no assurance that the activities of the Depositor would
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not result in a court concluding that the assets and liabilities of the
Depositor should be consolidated with those of Bay View or CTL in a proceeding
under an Insolvency Law. See "Risk Factors--Insolvency Considerations."
In addition, tax and certain other statutory liabilities, such as
liabilities to the Pension Benefit Guaranty Corporation, if any, relating to
the underfunding of pension plans of Bay View or its affiliates can be
asserted against the Depositor. To the extent that any such liabilities arise
after the transfer of Receivables to a Trust, the Trust's interest in the
Receivables would be prior to the interest of the claimant with respect to any
such liabilities. However, the existence of a claim against the Depositor
could permit the claimant to subject the Depositor to an involuntary
proceeding under the Bankruptcy Code or other Insolvency Laws. See "Risk
Factors--Insolvency Considerations."
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Trust will issue a Series of Certificates pursuant to a Pooling and
Servicing Agreement. A form of the Pooling and Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The following is a summary of the material terms of the
Certificates and is subject to, and is qualified in its entirety by reference
to, the provisions of the related Certificates and Pooling and Servicing
Agreement.
If so specified in the related Prospectus Supplement, the Certificates will
be available for purchase in minimum denominations of $1,000 and integral
multiples in excess thereof in book-entry form only.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest on each class of Certificates of a Series
will be described in the related Prospectus Supplement. Distributions on such
Certificates will be made on the dates specified in the related Prospectus
Supplement (the "Distribution Date") and may be made prior to distributions
with respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a Series of Certificates may include one or
more classes of Strip Certificates entitled to (i) interest distributions with
disproportionate, nominal or no principal distributions or (ii) principal
distributions with disproportionate, nominal or no interest distributions.
Each class of Certificates may have a different Pass-Through Rate, which may
be a fixed, variable or adjustable Pass-Through Rate (and which may be zero
for certain classes of Strip Certificates) or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through
Rate for each class of Certificates of a Series or the method for determining
such Pass-Through Rate.
To the extent specified in any Prospectus Supplement, one or more classes of
Certificates of a given Series may have fixed principal and/or interest
distribution schedules, as set forth in such Prospectus Supplement.
In the case of a Series of Certificates that includes two or more classes of
Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or
formula or other provisions applicable to the determination thereof, of each
such class shall be as set forth in the related Prospectus Supplement.
Distributions in respect of interest on and principal of any class of
Certificates will be made on a pro rata basis among all holders of
Certificates of such class.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, each class of
Certificates initially will berepresented by one or more certificates, in each
case registered in the name of the nominee of DTC. Unless
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another nominee is specified in the related Prospectus Supplement, the nominee
of DTC will be Cede. Accordingly, such nominee is expected to be the holder of
record of the Certificates of each Series, except for Certificates, if any,
retained by the Depositor. Unless and until Definitive Certificates are issued
under the limited circumstances described herein or in the related Prospectus
Supplement, no Certificateholder will be entitled to receive a physical
certificate representing a Certificate; all references herein and in the
related Prospectus Supplement to actions by Certificateholders will refer to
actions taken by DTC upon instructions from its participating members
("Participants"), and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders will refer to distributions, notices, reports and
statements to DTC or its nominee, as the case may be, as the registered holder
of the Certificates, for distribution to Certificateholders in accordance with
DTC's procedures with respect thereto. Beneficial owners of the Certificates
("Certificate Owners") will not be recognized as "Certificateholders" by the
related Trustee, as such term is used in each Pooling and Servicing Agreement,
and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the UCC in effect in the State of New York, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for the Participants and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations. Indirect access to
the DTC system also is available to banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest
in, the Certificates may do so only through Participants and Indirect
Participants. In addition, all Certificate Owners will receive all
distributions of principal and interest from the related Trustee through
Participants. Under a book-entry format, Certificate Owners may experience
some delay in their receipt of payments, since such payments will be forwarded
by the Trustee to DTC's nominee. DTC will then forward such payments to the
Participants, which thereafter will forward them to Indirect Participants or
Certificate Owners.
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 Certificates
and to receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required
to make book-entry transfers and to receive and transmit such payments on
behalf of their respective Certificate Owners. Accordingly, although
Certificate Owners will not possess physical certificates representing the
Certificates, the Rules provide a mechanism by which Participants and Indirect
Participants will receive payments and transfer interests, directly or
indirectly, on behalf of Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
Certificates, may be limited due to the lack of a physical certificate
representing such Certificates.
DTC may take any action permitted to be taken by a Certificate Owner under
the Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are credited. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
Except as required by law, the related Trustee will not have any liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of Certificates of any Series held by
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DTC's nominee, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DEFINITIVE CERTIFICATES
To the extent the related Prospectus Supplement specifies the related
Certificates be delivered through the facilities of DTC, the Certificates of a
given Series will be issued in fully registered, certificated form
("Definitive Certificates") to Certificateholders or their respective
nominees, rather than to DTC or its nominee, only if (i) the Depositor advises
the related Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to the
related Certificates and the Depositor or such Trustee is unable to locate a
qualified successor, (ii) the Depositor, at its option, advises the Trustee in
writing that it elects to terminate the book-entry system through DTC or (iii)
after the occurrence of an Event of Default, Certificate Owners representing
not less than 50% of the Certificate Balance of the Certificates of such
Series advise the related Trustee through DTC in writing that the continuation
of a book-entry system through DTC (or a successor thereto) is no longer in
the best interests of the related Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the related Trustee will notify DTC of the occurrence of
such events and of the availability of Definitive Certificates to Certificate
Owners. Upon surrender to the Trustee by DTC of the certificates representing
all Certificates of any affected class and the receipt of instructions from
DTC for re-registration, the Trustee will issue Definitive Certificates to the
related Certificate Owners. Distributions on the related Definitive
Certificates will be made thereafter by the related Trustee directly to the
holders in whose name the related Definitive Certificates are registered at
the close of business on the applicable record date, in accordance with the
procedures set forth herein and in the related Pooling and Servicing
Agreement. Distributions will be made by check mailed to the address of such
holders as they appear on the register specified in the related Pooling and
Servicing Agreement.
Definitive Certificates will be transferable and exchangeable at the offices
of the related Trustee (or any security registrar appointed thereby). No
service charge will be imposed for any registration of transfer or exchange,
but such Trustee may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
STATEMENTS TO CERTIFICATEHOLDERS
With respect to each Series of Certificates, on or prior to each
Distribution Date, the Servicer (to the extent applicable to such
Certificateholder) will prepare and forward to the related Trustee to be
included with the distribution to each Certificateholder of record a statement
setting forth for the related Collection Period substantially the following
information (and any other information specified in the related Prospectus
Supplement):
(i) the amount of the distribution allocable to principal (including any
overdue principal) of each class of Certificates of such Series;
(ii) the amount of the distribution allocable to interest (including any
overdue interest) on each class of Certificates of such Series;
(iii) the amount of fees and compensation paid to the Servicer and the
Trustee with respect to the related Collection Period;
(iv) the Class Certificate Balance and Certificate Pool Factor for each
class of Certificates of such Series as of the related record date;
(v) the amount, if any withdrawn from and the balance of any Cash
Collateral Account or other form of credit enhancement, after giving
effect to any additions thereto or withdrawals therefrom or reductions
thereto to be made on the following Distribution Date;
(vi) with respect to any Series of Certificates as to which a Pre-Funding
Account has been established, for Distribution Dates during the
Funding Period, the remaining Pre-Funded Amount; and
(vii) for the Distribution Date that falls on or immediately after the end
of the Funding Period, if any, the amount of the Pre-Funded Amount
that has not been used to purchase Subsequent Receivables.
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(viii) the aggregate net losses on the Receivables for the related
Collection Period;
(ix) the aggregate principal balance of all Receivables which were
delinquent 30 days or more as of the last day of the related
Collection Period; and
(x) the amount of Advances made on such Distribution Date; the aggregate
amount of outstanding Advances on such Distribution Date; and the
amount of Advances reimbursed to the Servicer on such Distribution Date
based on the fact that the related Receivable became a Defaulted
Receivable during the prior Collection Period.
Dollar amounts described in items (i), (ii) and (iv) above will be expressed
as a dollar amount per $1,000 of initial Class Certificate Balance of such
Certificates.
In addition, within the prescribed period of time for tax reporting purposes
after the end of each calendar year during the term of each Trust, the related
Trustee will mail to each person who at any time during such calendar year
shall have been a registered Certificateholder a statement containing certain
information for the purposes of such Certificateholder's preparation of
federal income tax returns. See "Federal Income Tax Consequences."
LIST OF CERTIFICATEHOLDERS
Each Trustee, within 15 days after receipt of written request of the
Servicer, will provide the Servicer with a list of the names and addresses of
all holders of record as of the most recent record date of the related Series
of Certificates. In addition, three or more holders of the Certificates of any
Series or one or more holders of such Certificates evidencing not less than
25% of the applicable Certificate Balance may, by written request to the
related Trustee, obtain access to the list of all Certificateholders
maintained by such Trustee for the purpose of communicating with other
Certificateholders with respect to their rights under the related Pooling and
Servicing Agreement or under such Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following is a summary of the material terms of each Purchase Agreement
and Pooling and Servicing Agreement (collectively, the "Transfer and Servicing
Agreements") pursuant to which the Depositor will purchase Receivables from
CTL, a Trust will purchase Receivables from the Depositor, and the Servicer
will agree to service such Receivables. Forms of the Purchase Agreement and
Pooling and Servicing Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The following
summary is subject to, and is qualified in its entirety by reference to, the
provisions of the related Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On the related Closing Date, (i) CTL will sell and assign to the Depositor
pursuant to the related Purchase Agreement, without recourse, its entire right
in the related Receivables, including its security interests in the related
Financed Vehicles and (ii) the Depositor will sell and assign to the related
Trust pursuant to the related Pooling and Servicing Agreement, without
recourse, (a) its entire right in such Receivables and all of its right, title
and interest under the Purchase Agreement, including the security interests in
the Financed Vehicles, and (b) if so provided in the related Prospectus
Supplement, the applicable Pre-Funded Amount. Each Receivable will be
identified in a schedule appearing as an exhibit to the related Purchase
Agreement and Pooling and Servicing Agreement. The Trustee will, concurrently
with such sale and assignment of the Receivables and, if applicable, the Pre-
Funded Amount, to the related Trust, execute, authenticate and deliver the
related Series of Certificates to the Depositor in exchange for such
Receivables and such Pre-Funded Amount, if any. The related Prospectus
Supplement will specify whether the property of a Trust will include the Pre-
Funded Amount and, if so, the terms, conditions and manner under which
Subsequent Receivables will be sold and assigned by the Depositor to the
related Trust.
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In each Purchase Agreement, CTL will represent and warrant to the Depositor,
among other things, that (i) the information provided with respect to the
related Receivables is correct in all material respects; (ii) the Obligor on
each such Receivable has obtained or agreed to obtain and maintain physical
damage insurance covering the Financed Vehicle in accordance with CTL's normal
requirements; (iii) at the Closing Date, with respect to Receivables conveyed
to a Trust on the Closing Date, and on the applicable Subsequent Transfer Date
with respect to any Subsequent Receivables, the Receivables are free and clear
of all security interests, liens, charges and encumbrances, other than the
lien of the Depositor, and no offsets, defenses or counterclaims against the
Depositor or CTL have been asserted or threatened with respect to the related
Receivables; (iv) at the Closing Date or Subsequent Transfer Date, as
applicable, each of the related Receivables secured by a security interest in
a Financed Vehicle registered in the State of California is secured by a first
perfected security interest in the related Financed Vehicle in favor of the
Trustee on behalf of the Trust as secured party or all necessary action has
been taken by CTL to secure such a first perfected security interest; and (v)
each of the related Receivables, at the time it was originated, complied and,
at the Closing Date or Subsequent Transfer Date, as applicable, complies, in
all material respects with applicable federal and state laws, including,
without limitation, consumer credit, truth in lending, equal credit
opportunity and disclosure laws. As of the last day of any Collection Period
following the discovery by or notice to CTL of a breach of any such
representation or warranty that materially and adversely affects the interests
of the Depositor or its assignee in a Receivable (or as of the last day of the
preceding Collection Period, if CTL so elects), CTL, unless it has cured such
breach, will repurchase the Receivable at a price equal to the unpaid
principal balance owed by the Obligor thereon plus, accrued interest thereon
at the applicable Contract Rate to the date of purchase (the "Purchase
Amount"), and such Receivable will be considered a "Purchased Receivable" as
of such date. In each Pooling and Servicing Agreement, the Depositor will
assign certain rights under the related Purchase Agreement to the related
Trust, including the right to cause CTL to repurchase Receivables with respect
to which it is in breach of any such representation and warranty. The
repurchase obligation of CTL pursuant to each Purchase Agreement and Pooling
and Servicing Agreement will constitute the sole remedy available to the
related Certificateholders or Trustee for any uncured breach of a
representation or warranty.
If the related Prospectus Supplement provides that the property of a Trust
will include a Pre-Funding Account, CTL will be obligated to sell and assign
to the Depositor pursuant to the related Purchase Agreement, and the Depositor
will be obligated to sell and assign to the related Trust pursuant to the
related Pooling and Servicing Agreement, Subsequent Receivables from time to
time during the Funding Period in an aggregate outstanding principal amount
approximately equal to the Pre-Funded Amount. Any conveyance of Subsequent
Receivables to a Trust is subject to the satisfaction, on or before the
related transfer date (each, a "Subsequent Transfer Date"), of the following
conditions precedent, among others: (i) each such Subsequent Receivable must
satisfy the eligibility criteria specified in the related Pooling and
Servicing Agreement; (ii) the Subsequent Receivables shall have been selected
based on the criteria specified in the applicable Prospectus Supplement and
neither CTL nor the Depositor shall have selected such Subsequent Receivables
in a manner that it deems is adverse to the interests of holders of the
related Certificates; (iii) as of the respective Cutoff Date for such
Subsequent Receivables, all of the Receivables in the Trust, including the
Subsequent Receivables to be conveyed to the Trust as of such date, must
satisfy the parameters described under "The Receivables Pools" herein and "The
Receivables Pool" in the related Prospectus Supplement; (iv) any required
deposit to any Cash Collateral Account or other similar account shall have
been made; and (v) CTL must execute and deliver to the Depositor, and the
Depositor must execute and deliver to such Trust, a written assignment
conveying such Subsequent Receivables to the Depositor or such Trust, as
applicable. In addition, the conveyance of Subsequent Receivables to a Trust
is subject to the satisfaction of the following conditions subsequent, among
others, each of which must be satisfied within the applicable time period
specified in the related Prospectus Supplement: (a) the Depositor must deliver
certain opinions of counsel to the related Trustee with respect to the
validity of the conveyance of the Subsequent Receivables to the Trust; (b) the
Trustee must receive written confirmation from a firm of certified independent
public accountants that, as of the end of the period specified therein, the
Receivables in the Trust, including the Subsequent Receivables, satisfied the
parameters described under "The Receivables Pools" herein and "The Receivables
Pool" in the related Prospectus Supplement; and (c) each of the Rating
Agencies must notify the Depositor in writing that, following the conveyance
of the Subsequent
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Receivables to the Trust, each class of Certificates will have the same rating
assigned to it by such Rating Agency that it had on the Closing Date. Such
confirmation of the ratings of the Certificates may depend on factors other
than the characteristics of the Subsequent Receivables, including the
delinquency, repossession and net loss experience on the automobile, light
truck, motorcycle and van receivables in the portfolio serviced. If any such
conditions precedent or conditions subsequent are not met with respect to any
Subsequent Receivables within the time period specified in the related
Prospectus Supplement, CTL will be required under the related Purchase
Agreement and Pooling and Servicing Agreement to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor. See "Risk Factors--Sales of Subsequent
Receivables."
CUSTODY OF RECEIVABLE FILES
If so specified in the related Prospectus Supplement, CTL initially will be
appointed to act as custodian for the Receivable files of each Trust. Pursuant
to the related Pooling and Servicing Agreement, CTL or another institution
specified in the related Prospectus Supplement will agree to hold the
Receivable files on behalf of the related Trust. Any such custodial
arrangement may be terminated by the Trust or any credit enhancer upon the
terms set forth therein. See also "Risk Factors--Insolvency Considerations."
If, through inadvertence or otherwise, any of the Receivables were sold to
another party (or a security interest therein were granted to another party)
that purchased (or took such security interest in) any of such Receivables in
the ordinary course of its business and took possession of such Receivables,
the purchaser (or secured party) would acquire an interest in the Receivables
superior to the interest of the related Trust if the purchaser (or secured
party) acquired (or took a security interest in) the Receivables for new value
and without actual knowledge of such Trust's interest. See "Risk Factors--
Perfection of Security Interests in Connection with the Transfer of
Receivables."
ACCOUNTS
Certificate Account. With respect to each Trust, the Servicer will establish
and maintain one or more accounts, in the name of the Trustee on behalf of the
related Certificateholders, into which all payments made on or in respect of
the related Receivables will be deposited and from which all distributions
with respect to the related Certificates will be made (the "Certificate
Account"). The amounts on deposit in the Certificate Account will be invested
by the Trustee in Eligible Investments.
Payahead Account. If so provided in the related Prospectus Supplement, the
Servicer will establish an additional account (the "Payahead Account"), in the
name of the Trustee and for the benefit of Obligors on the Receivables, into
which, to the extent required by the Pooling and Servicing Agreement,
Payaheads on Precomputed Receivables will be deposited until such time as the
payment becomes due. Until such time as payments are transferred from the
Payahead Account to the Certificate Account, they will not constitute
collected interest or collected principal and will not be available for
distribution to Certificateholders. The Payahead Account will initially be
maintained with the Trustee. Interest earned on the balance in the Payahead
Account will be remitted to the Servicer monthly. Collections on a Precomputed
Receivable made during a Collection Period shall be applied first to any
overdue scheduled payment on such Receivable, then to the scheduled payment on
such Receivable due in such Collection Period. If any collections remaining
after the scheduled payment is made are insufficient to prepay the Precomputed
Receivable in full, then generally such remaining collections shall be
transferred to and kept in the Payahead Account until such later Collection
Period as the collections may be retransferred to the Certificate Account and
applied either to a later scheduled payment or to prepay such Receivable in
full.
Pre-Funding Account. If so provided in the related Prospectus Supplement,
the Servicer will establish and maintain an account, in the name of the
related Trustee on behalf of the related Certificateholders, into which the
Depositor will deposit the Pre-Funded Amount on the related Closing Date (the
"Pre-Funding Account"). In no
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event will the Pre-Funded Amount exceed 25% of the aggregate Certificate
Balance of the related Series of Certificates. The Pre-Funded Amount will be
used by the related Trustee to purchase Subsequent Receivables from the
Depositor from time to time during the Funding Period. The amounts on deposit
in the Pre-Funding Account during the Funding Period will be invested by the
Trustee in Eligible Investments. Any investment income received on the
Eligible Investments during a Collection Period (such amounts, net of any
related investment expenses, "Investment Income") will be included in the
interest distribution amount on the following Distribution Date. The Funding
Period, if any, for a Trust will begin on the related Closing Date and will
end on the date specified in the related Prospectus Supplement, which in no
event will be later than the date that is three calendar months after the
related Closing Date. Any amounts remaining in the Pre-Funding Account at the
end of the Funding Period will be distributed to the related
Certificateholders, in the manner and priority specified in the related
Prospectus Supplement, as a prepayment of principal of the related
Certificates.
Any other accounts to be established with respect to a Trust, including any
Cash Collateral Account or yield supplement account, will be described in the
related Prospectus Supplement.
For each Series of Certificates, funds in the Certificate Account, Pre-
Funding Account and any other account identified as such in the related
Prospectus Supplement (collectively, the "Trust Accounts") will be invested as
provided in the related Pooling and Servicing Agreement in Eligible
Investments and any related Investment Income will be distributed as described
herein and in the related Prospectus Supplement. "Eligible Investments"
generally will be limited to investments acceptable to the Rating Agencies as
being consistent with the rating of the related Certificates. Except as may be
otherwise indicated in the applicable Prospectus Supplement, Eligible
Investments will include (i) direct obligations of, and obligations guaranteed
by, the United States of America, the Federal National Mortgage Association,
or any instrumentality of the United States of America; (ii) demand and time
deposits in or similar obligations of any depository institution or trust
company (including the Trustee or any agent of the Trustee, acting in their
respective commercial capacities) rated P-1 by Moody's Investors Service, Inc.
("Moody's") or A-1+ by Standard & Poor's Ratings Services ("Standard &
Poor's") (an "Approved Rating") or any other deposit which is fully insured by
the FDIC; (iii) repurchase obligations with respect to any security issued or
guaranteed by an instrumentality of the United States of America entered into
with a depository institution or trust company having an Approved Rating
(acting as principal); (iv) short-term corporate securities bearing interest
or sold at a discount issued by any corporation incorporated under the laws of
the United States of America or any State, the short-term unsecured
obligations of which have an Approved Rating, or higher, at the time of such
investment; (v) commercial paper having an Approved Rating at the time of such
investment; (vi) a guaranteed investment contract issued by any insurance
company or other corporation acceptable to the Rating Agencies; (vii)
interests in any money market fund having a rating of Aaa by Moody's or AAAm
by Standard & Poor's; and (viii) any other investment approved in advance in
writing by the Rating Agencies.
Except as described herein or in the related Prospectus Supplement, Eligible
Investments will be limited to obligations or securities that mature on or
before the date of the next scheduled distribution to Certificateholders of
such Series; provided, however, that each Pooling and Servicing Agreement will
generally permit the investment of funds in any Cash Collateral Account or
similar type of credit enhancement account to be invested in Eligible
Investments without the limitation that such Eligible Investments mature not
later than the business day prior to the next succeeding Distribution Date if
(i) the Servicer obtains a liquidity facility or similar arrangement with
respect to such Cash Collateral Account or other account and (ii) each rating
agency that initially rated the related Certificates confirms in writing that
the ratings of such Certificates will not be lowered or withdrawn as a result
of eliminating or modifying such limitation.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution has a credit rating from
each Rating Agency in one of its generic rating categories that
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signifies investment grade. "Eligible Institution" means, with respect to a
Trust, (a) the corporate trust department of the related Trustee or (b) a
depository institution organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank) (i) which has (A) (1) a long-term unsecured
debt rating of at least Baa3 from Moody's and at least BBB- from Standard &
Poor's and (2) a short term unsecured debt rating of at least P-2 from Moody's
and at least A-2 from Standard & Poor's or (B) is approved by each Rating
Agency and any credit enhancer of the related Series and (ii) whose deposits
are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and will, consistent with the related Pooling and
Servicing Agreement, follow such collection procedures as it follows with
respect to comparable automotive installment contracts that it owns or
services for others. The Servicer will continue to follow such normal
collection practices and procedures as it deems necessary or advisable to
realize upon any Receivables with respect to which the Servicer determines
that eventual payment in full is unlikely. The Servicer may sell the Financed
Vehicle securing such Receivables at a public or private sale, or take any
other action permitted by applicable law.
Consistent with its normal procedures, the Servicer may, in its discretion,
arrange with the Obligor on a Receivable to extend or modify the payment
schedule; if, however, the extension of a payment schedule causes a Receivable
to remain outstanding on the Final Scheduled Maturity Date the Servicer will
purchase such Receivable at the Purchase Amount as of the last day of the
Collection Period preceding such Final Scheduled Distribution Date. In
addition, unless otherwise provided in the related Prospectus Supplement, the
Servicer will be obligated under each Pooling and Servicing Agreement to
purchase any Receivable at the Purchase Amount if (i) among other things, the
Servicer reduces the Contract Rate, reduces the amount of the scheduled
monthly payments or reduces the amount financed or fails to maintain a
perfected security interest in the related Financed Vehicle and (ii) the
interest of the Certificateholders in such Receivable is materially and
adversely affected by such action or failure to act of the Servicer. The
Servicer's purchase obligation will constitute the sole remedy available to
the related Certificateholders or Trustee for any such modification of a
Contract.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments (from
whatever source) on and all proceeds of the related Receivables collected
during a Collection Period into the related Certificate Account not later than
two business days after receipt thereof. However, at any time that and for so
long as (i) CTL is the Servicer, (ii) no Event of Default shall have occurred
and be continuing with respect to the Servicer and (iii) each other condition
to making deposits less frequently than daily as may be specified by the
Rating Agencies or set forth in the related Prospectus Supplement is
satisfied, the Servicer will not be required to deposit such amounts into the
Certificate Account until on or before the applicable Distribution Date.
Pending deposit into the Certificate 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. If the Servicer were unable to remit such
funds, Certificateholders might incur a loss. To the extent set forth in the
related Prospectus Supplement, the Servicer may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related Trust to secure timely remittances of collections
on the related Receivables and payment of the aggregate Purchase Amounts with
respect to Receivables purchased by the Servicer.
Payaheads on Precomputed Receivables will be transferred from the
Certificate Account and deposited into the Payahead Account for subsequent
transfer to the Certificate Account, as described above under "--Accounts."
ADVANCES
If a Receivable is delinquent more than 30 days at the end of a Collection
Period, the Servicer will make an Advance in the amount of 30 days of interest
due on such Receivable, but only to the extent that the Servicer, in
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its sole discretion, expects to recoup the Advance from subsequent collections
on the Receivable or from withdrawals from any Cash Collateral Account or
other form of credit enhancement. The Servicer will deposit Advances in the
Certificate Account on or prior to the date specified therefor in the related
Prospectus Supplement. If the Servicer determines that reimbursement of an
Advance from subsequent payments on or with respect to the related Receivable
is unlikely, the Servicer may recoup such Advance from insurance proceeds,
collections made on other Receivables or from any other source specified in
the related Prospectus Supplement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive a fee with respect to each Trust
(the "Servicing Fee"), equal to one percent (1.00%) per annum (the "Servicing
Fee Rate"), payable monthly at one-twelfth the annual rate, of the related
aggregate Pool Balance. The Servicer also will collect and retain any late
fees, prepayment charges, other administrative fees or similar charges allowed
by applicable law with respect to the Receivables and will be entitled to
reimbursement from each Trust for certain liabilities.
The Servicing Fee will compensate the Servicer for performing the functions
of a third-party servicer of automotive receivables as an agent for the
related Trust, including collecting and posting all payments, making Advances,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment coupons to Obligors, and overseeing the
collateral in cases of Obligor default. The Servicing Fee will also compensate
the Servicer for administering the related Receivables Pool, including
accounting for collections and furnishing monthly and annual statements to the
related Trustee with respect to distributions, and generating federal income
tax information for such Trust and for the related Certificateholders. The
Servicing Fee also will reimburse the Servicer for certain taxes, accounting
fees, outside auditor fees, data processing costs, and other costs incurred in
connection with administering the applicable Receivables Pool.
DISTRIBUTIONS
With respect to each Series of Certificates, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of
principal and interest (or, where applicable, of interest only or principal
only) on each class of Certificates entitled thereto will be made by the
related Trustee to the related Certificateholders. The timing, calculation,
allocation, order, source and priorities of, and requirements for, all
distributions to the holders of each class of Certificates will be set forth
in the related Prospectus Supplement.
With respect to each Trust, collections on or with respect to the related
Receivables will be deposited into the related Certificate Account for
distribution to the related Certificateholders on each Distribution Date to
the extent and in the priority provided in the related Prospectus Supplement.
Credit enhancement, such as a Cash Collateral Account or yield supplement
account or other arrangement, may be available to cover shortfalls in the
amount available for distribution on such date to the extent specified in the
related Prospectus Supplement. As more fully described in the related
Prospectus Supplement, and unless otherwise specified therein, distributions
in respect of principal of a class of Certificates of a Series will be
subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of a Series
may be subordinate to payments in respect of other classes of Certificates.
Distributions of principal on the Certificates of a Series may be based on the
amount of principal collected or due, or the amount of realized losses
incurred, in a Collection Period.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of any credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Certificates of a Series will be set forth in the related Prospectus
Supplement. To the extent provided in the related Prospectus Supplement,
credit or cash flow enhancement may be in the form of subordination of one or
more classes of Certificates, Cash Collateral Accounts, reserve accounts,
yield supplement accounts, spread accounts, letters of credit, surety bonds,
insurance policies, over-collateralization, credit or liquidity facilities,
guaranteed investment contracts, swaps or other interest rate
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protection agreements, repurchase obligations, other agreements with respect
to third-party payments or other support, cash deposits, or such other
arrangements as may be described in the related Prospectus Supplement, or any
combination of the foregoing. If specified in the applicable Prospectus
Supplement, credit or cash flow enhancement for a class of Certificates may
cover one or more other classes of Certificates of the same Series, and credit
enhancement for a Series of Certificates may cover one or more other Series of
Certificates.
The existence of a Cash Collateral Account or other form of credit
enhancement for the benefit of any class or Series of Certificates is intended
to enhance the likelihood of receipt by the Certificateholders of such class
or Series of the full amount of principal and interest due thereon and to
decrease the likelihood that such Certificateholders will experience losses.
To the extent specified in the related Prospectus Supplement, the credit
enhancement for a class or Series of Certificates will not provide protection
against all risks of loss and will not guarantee repayment of all principal
and interest thereon. If losses occur which exceed the amount covered by such
credit enhancement or which are not covered by such credit enhancement,
Certificateholders will bear their allocable share of such losses, as
described in the related Prospectus Supplement. In addition, if a form of
credit enhancement covers more than one Series of Certificates,
Certificateholders of any such Series will be subject to the risk that such
credit enhancement may be exhausted by the claims of Certificateholders of
other Series.
Cash Collateral Account. If so provided in the related Prospectus
Supplement, pursuant to the related Pooling and Servicing Agreement the
Depositor will establish an account (a "Cash Collateral Account") for a Series
or class or classes of Certificates, which will be maintained with the related
Trustee. To the extent provided in the related Prospectus Supplement, a Cash
Collateral Account will be funded by an initial deposit by the Depositor on
the Closing Date in the amount set forth in the related Prospectus Supplement
and, if the related Series has a Funding Period, may also be funded on each
Subsequent Transfer Date to the extent described in the related Prospectus
Supplement. As further described in the related Prospectus Supplement, the
amount on deposit in the Cash Collateral Account may be increased or
reinstated on each Distribution Date, to the extent described in the related
Prospectus Supplement, by the deposit thereto of the amount of collections on
the related Receivables remaining on such Distribution Date after the payment
of all other required payments and distributions on such date. The related
Prospectus Supplement will describe the circumstances under which and the
manner in which distributions may be made out of any such Cash Collateral
Account, either to holders of the Certificates covered thereby or to the
Depositor or to any other entity.
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will provide that a firm of independent
public accountants will furnish annually to the related Trustee a statement as
to compliance by the Servicer during the preceding twelve months with certain
standards relating to the servicing of the Receivables.
Each Pooling and Servicing Agreement will also provide for delivery to the
related Trustee each year of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled its obligations under the
related Pooling and Servicing Agreement throughout the preceding twelve months
or, if there has been a default in the fulfillment of any such obligation,
describing each such default. The Servicer has agreed or will agree to give
each Trustee notice of Events of Defaults under the related Pooling and
Servicing Agreement. Copies of the foregoing statements and certificates may
be obtained by Certificateholders by a request in writing addressed to the
related Trustee at the Corporate Trust Office for such Trustee specified in
the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE SERVICER
Each Pooling and Servicing Agreement will provide that CTL may not resign
from its obligations and duties as Servicer thereunder, except upon
determination that CTL's performance of such duties is no longer permissible
under applicable law. Under certain circumstances, CTL may transfer its
obligations and duties as Servicer to a qualified affiliate of Bay View. No
such assignment or resignation will become effective until the
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related Trustee or a successor servicer has assumed CTL's servicing
obligations and duties under the related Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees and agents will be
under any liability to the related Trust or Certificateholders for taking any
action or for refraining from taking any action pursuant to the related
Pooling and Servicing Agreement or for errors in judgment; provided, however,
that neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of the Servicer's duties or by
reason of reckless disregard of its obligations and duties thereunder. In
addition, each Pooling and Servicing Agreement will provide that the Servicer
is under no obligation to appear in, prosecute or defend any legal action that
is not incidental to its servicing responsibilities under such Pooling and
Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in each Pooling and Servicing Agreement,
any entity into which CTL may be merged or consolidated, or any entity
resulting from any merger or consolidation to which CTL is a party, or any
entity succeeding to the indirect automobile financing or receivable servicing
business of CTL, which corporation or other entity assumes the obligations of
the Servicer, will be the successor to the Servicer under the related Pooling
and Servicing Agreement.
CTL has a contract with Norwest Financial Inc., pursuant to which Norwest
Financial Inc. will provide CTL data processing and communication system
services through October, 2001.
EVENTS OF DEFAULT
"Events of Default" under each Pooling and Servicing Agreement will consist
of: (i) any failure by the Servicer or CTL to deliver to the related Trustee
for distribution to the related Certificateholders any required payment, which
failure continues unremedied for five business days after discovery by an
officer of the Servicer or after written notice to the Servicer of such
failure from the Trustee or holders of the related Certificates evidencing not
less than 25% of the aggregate Certificate Balance (or notional principal
amount, if applicable); (ii) any failure by the Servicer, CTL or the Depositor
duly to observe or perform in any material respect any covenant or agreement
in the related Pooling and Servicing Agreement, Certificates or Purchase
Agreement, which failure materially and adversely affects the rights of the
related Certificateholders and which continues unremedied for 60 days after
written notice of such failure is given (1) to the Servicer, CTL or the
Depositor, as the case may be, by the related Trustee or (2) to the Servicer,
CTL or the Depositor, as the case may be, and to the related Trustee by
holders of the related Certificates evidencing not less than 25% of the
related Certificate Balance (or notional principal amount, if applicable); and
(iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities, or similar proceedings with respect to the Servicer
and certain actions by the Servicer indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the related Pooling and Servicing
Agreement remains unremedied, the related Trustee or holders of Certificates
of the related Series evidencing not less than 25% of the Certificate Balance
(or notional principal amount, if applicable) may terminate all the rights and
obligations of the Servicer under such Pooling and Servicing Agreement,
whereupon a successor Servicer appointed by the related Trustee or such
Trustee will succeed to all the responsibilities, duties and liabilities of
the Servicer under such Pooling and Servicing Agreement and will be entitled
to similar compensation arrangements, provided, however, that if the Trustee
becomes the successor Servicer it will not be subject to all of the
indemnification obligations of the Servicer. In the event that the related
Trustee is unwilling or unable to act as successor to the Servicer, such
Trustee may appoint, or may petition a court of competent jurisdiction to
appoint a successor with assets of at
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least $50,000,000 and whose regular business includes the servicing of
automotive receivables. The related Trustee may arrange for compensation to be
paid to such successor Servicer, which in no event may be greater than the
servicing compensation paid to the Servicer under the related Pooling and
Servicing Agreement. See "Risk Factors--Insolvency Considerations." A credit
enhancement provider may have certain rights upon Event of Default, as
specified in the related Prospectus Supplement.
WAIVER OF PAST DEFAULTS
Holders of Certificates evidencing not less than a majority of the related
aggregate Certificate Balance (or notional principal amount, if applicable)
may, on behalf of all such Certificateholders, waive any default by the
Servicer in the performance of its obligations under the related Pooling and
Servicing Agreement and its consequences, except a default in making any
required deposits to or payments from any Account in accordance with the
Pooling and Servicing Agreement. No such waiver will impair the
Certificateholders' rights with respect to subsequent Events of Default.
AMENDMENT
Each Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the related Trustee, without the consent of the
related Certificateholders, to cure any ambiguity, correct or supplement any
provision therein that may be inconsistent with other provisions therein, or
to make any other provisions with respect to matters or questions arising
under such Pooling and Servicing Agreement that are not inconsistent with the
provisions of the Pooling and Servicing Agreement; provided that such action
shall not, in the opinion of counsel satisfactory to the related Trustee,
materially and adversely affect the interests of any related
Certificateholder. Each Pooling and Servicing Agreement may also be amended by
the Depositor, the Servicer and the related Trustee with the consent of the
holders of the related Certificates evidencing not less than 51% of the
related aggregate Certificate Balance (and notional principal amount, if
applicable) for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Pooling and Servicing
Agreement or of modifying in any manner the rights of such Certificateholders;
provided, however, that no such amendment may (i) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on or in respect of the related Receivables or distributions that are
required to be made for the benefit of such Certificateholders or (ii) reduce
the aforesaid percentage of the Certificate Balance of such Series that is
required to consent to any such amendment, without the consent of the holders
of all of the outstanding Certificates of such Series. Any provision in a
Pooling and Servicing Agreement that imposes unlimited liability on the holder
of a Class IC Certificate and provides for the termination of the related
Trust upon the occurrence of an "Insolvency Event" (as described in the
related Prospectus Supplement) with respect to such holder of the Class IC
Certificate, shall not be amended without the unanimous consent of the Trustee
and all holders of outstanding Certificates of such Series (or unless an
opinion of Counsel is delivered to the effect that such provision is not
required under relevant state law). No amendment of a Pooling and Servicing
Agreement shall be permitted unless an opinion of counsel is delivered to the
Trustee to the effect that such amendment will not adversely affect the tax
status of the Trust.
TERMINATION
The obligations of the Servicer, the Depositor and the related Trustee
pursuant to the related Pooling and Servicing Agreement will terminate upon
the earlier to occur of (i) the maturity or other liquidation of the last
Receivable in the related Receivables Pool and the disposition of any amounts
received upon liquidation of any such remaining Receivables; (ii) the payment
to the related Certificateholders of all amounts required to be paid to them
pursuant to the Pooling and Servicing Agreement; and (iii) the occurrence of
certain Insolvency Events, to the extent set forth in the related Prospectus
Supplement.
In order to avoid excessive administrative expenses, the Servicer will be
permitted to purchase from each Trust or to cause such Trust to sell all
remaining Receivables in the related Receivables Pool as of the end of any
Collection Period, if the Certificate Balance as of the Distribution Date
following such Collection Period would be less than or equal to 10% of the
initial aggregate Certificate Balance, at a purchase price equal to the fair
market value of such Receivables, but not less than the sum of (x) the
outstanding Pool Balance and
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(y) accrued and unpaid interest on such amount computed at a rate equal to the
weighted average Contract Rate, minus any amount representing payments
received on the Receivables and not yet applied to reduce the principal
balance thereof or interest related thereto. To the extent there is an
interest only class of Strip Certificates offered under the related Prospectus
Supplement, the right of the Servicer to purchase the remaining Receivables
will be contingent on the reduction to zero of the notional amount of such
class.
If and to the extent provided in the related Prospectus Supplement, the
related Trustee may, within ten days following a Distribution Date as of which
the Pool Balance is equal to or less than 10% of the original Pool Balance,
solicit bids for the purchase of the Receivables remaining in such Trust, in
the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Trust
will be sold to the highest bidder at a purchase price equal to the fair
market value of such Receivables, but not less than the sum of (x) the
outstanding Pool Balance and (y) accrued and unpaid interest on such amount
computed at a rate equal to the weighted average Contract Rate, minus any
amount representing payments received on the Receivables and not yet applied
to reduce the principal balance thereof or interest related thereto.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN VEHICLES
Installment sale contracts such as those included in the Receivables
evidence the credit sale of automobiles, light trucks, recreational vehicles,
motorcycles and vans by dealers to obligors; the contracts and the installment
loan and security agreements also constitute personal property security
agreements and include grants of security interests in the vehicles under the
UCC. Perfection of security interests in the vehicles is generally governed by
the motor vehicle registration laws of the state in which the vehicle is
located. In all of the States where CTL currently acquires or originates
Receivables, a security interest in a vehicle is perfected by notation of the
secured party's lien on the vehicle's certificate of title. A majority of the
Receivables are currently originated in California and Texas. Unless otherwise
specified in the related Prospectus Supplement, with respect to the
Receivables, the lien is or will be perfected in the name of CTL. Each
Receivable prohibits the sale or transfer of the Financed Vehicle without the
lienholder's consent.
Pursuant to each Purchase Agreement, CTL will assign its security interests
in the Financed Vehicles to the Depositor along with the Receivables. Pursuant
to each Pooling and Servicing Agreement, the Depositor will assign its
security interests in the Financed Vehicles to the related Trustee along with
the Receivables. Because of the administrative and quality control concerns
related to the retitling of a large amount of certificates of title and
related fees and expenses of each state's Department of Motor Vehicles,
neither the Depositor nor the related Trustee will amend any certificate of
title to identify itself as the secured party.
In most states, including California, an assignment such as that under a
Pooling and Servicing Agreement should be an effective conveyance of a
security interest without amendment of any lien noted on a vehicle's
certificate of title, and the assignee succeeds thereby to the assignor's
rights as secured party. In certain other states, the laws governing
certificates of title are silent on the question of the effect of an
assignment on the continued validity and perfection of a security interest in
vehicles. However, with respect to security interests perfected by a central
filing, the UCC in these states provides that a security interest continues to
be valid and perfected even though the security interest has been assigned to
a third party and no amendments or other filings are made to reflect the
assignment. An official comment to the UCC states that this rule should
control a security interest in a vehicle which is perfected by the notation of
the lien on the certificate of title. Although the comment does not have the
force of law, official comments are typically given substantial weight by the
courts.
Other states, including Texas, have statutory provisions that address or
could be interpreted as addressing assignments. However, nearly all of these
statutory provisions either do not require compliance with the procedure
outlined to insure the continued validity and perfection of the lien or are
ambiguous (including Texas) on the issue of whether the procedure must be
followed. Under the official comment noted above, if these procedures for
noting an assignee's name on a certificate of title are determined to be
merely permissive in nature, the procedures would not have to be followed as a
condition to the continued validity and perfection of the security interest.
By not identifying the Trust as the secured party on the certificate of
title, the security interest of the Trust in the vehicle could be defeated
through fraud or negligence. In the absence of fraud or forgery by the vehicle
owner or CTL, or administrative error by state or local agencies, the notation
of CTL's lien on the certificates should be sufficient to protect the Trust
against the right of subsequent purchasers of a vehicle or subsequent lenders
who take a security interest in a vehicle securing a Receivable. If there are
any vehicles as to which CTL failed to obtain a perfected security interest,
its security interest would be subordinate to, among others, subsequent
purchasers of the vehicles and holders of perfected security interests. Such a
failure, however, would constitute a breach of warranties under the related
Pooling and Servicing Agreement and Purchase Agreement and would create an
obligation of CTL to repurchase the related Receivable, unless such breach
were cured in a timely manner. See "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables."
Under the laws of most states, including California and Texas, the perfected
security interest in a vehicle continues for four months after a vehicle is
moved to a state other than the state which issued the certificate of title
and thereafter until the vehicle owner re-registers the vehicle in the new
state. A majority of states, including
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California and Texas, require surrender of a certificate of title to re-
register a vehicle. Since CTL will have its lien noted on the certificates of
title and the Servicer will retain possession of the certificates issued by
most states in which Receivables were or will be originated, the Servicer
would ordinarily learn of an attempt at re-registration through the request
from the obligor to surrender possession of the certificate of title or would
receive notice of surrender from the state of re-registration since the
security interest would be 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, the Servicer 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,
the Servicer must surrender possession of the certificate of title or will
receive notice as a result of CTL's lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related Receivable before
release of the lien. Under each Pooling and Servicing Agreement, the Servicer
is obligated to take appropriate steps, at its own expense, to maintain
perfection of security interests in the Financed Vehicles.
Under the laws of most states, including California and Texas, liens for
repairs performed on a motor vehicle and liens for unpaid taxes would take
priority over even a perfected security interest in a Financed Vehicle. In
some states, a perfected security interest in a Financed Vehicle may take
priority over liens for repairs.
CTL will represent and warrant in each Purchase Agreement and Pooling and
Servicing Agreement that, as of the date of issuance of the Certificates, 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 could arise at any time during the term of a Receivable. No
notice will be given to the Trustee or Certificateholders in the event such a
lien arises.
REPOSSESSION
In the event of a default by vehicle purchasers, the holder of a retail
installment sale contract or an installment loan and security agreement has
all of the remedies of a secured party under the UCC, except where
specifically limited by other state laws. The remedy employed by the Servicer
in most cases of default is self-help repossession and is accomplished simply
by taking possession of the Financed Vehicle. The self-help repossession
remedy is available under the UCC in most of the states, including California
and Texas, in which Receivables have been or will be originated as long as the
repossession can be accomplished without a breach of the peace.
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. The vehicle must then be repossessed in
accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by an obligor, some jurisdictions (not including
California or Texas) 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. The written terms of the Receivables, however, may require such
notice. 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 an obligor
with reasonable notice of the date, time and place of any public sale and/or
the date after which any private sale of the collateral may be held. The
obligor generally 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 its sale, and, to the extent
provided in the related retail installment sale contract, and, as permitted by
law, reasonable attorneys' fees.
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DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. If the net proceeds from resale do not cover the full amount of
the indebtedness, a deficiency judgment may be sought. 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 all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exists, the UCC requires the lender to remit
the surplus to the former owner of the vehicle.
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
Billing 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,
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. Those requirements impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases, this liability could affect an assignee's ability
to enforce consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other state statutes, or the common laws in
certain states, has the effect of subjecting a seller (and certain related
lenders and their assignees) in a consumer credit transaction and any assignee
of the seller to all claims and defenses that 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 Trustee, as holder of the
Receivables, will be subject to any claims or defenses that the purchaser of
the related financed vehicle may assert against the seller of the vehicle.
Such claims are limited to a maximum liability equal to the amounts paid by
the Obligor on the Receivable.
Under most state motor vehicle dealer licensing laws, including California
and Texas, dealers of motor vehicles are required to be licensed to sell motor
vehicles at retail sale. In addition, with respect to used vehicles, the
Federal Trade Commission's Rule on Sale of Used Vehicles requires that all
sellers of used vehicles prepare, complete and display a "Buyer's Guide" which
explains the warranty coverage for such vehicles. Furthermore, Federal
Odometer Regulations promulgated under the Motor Vehicle Information and Cost
Savings Act requires that all sellers of 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 either a Buyer's Guide or
Odometer Disclosure Statement was not provided to the purchaser of the related
financed vehicle, the obligor may be able to assert a defense against the
seller of the vehicle. If an Obligor were successful in asserting any such
claim or defense, such claim or defense would constitute a breach of CTL's
representations and warranties under each Purchase Agreement and Pooling and
Servicing Agreement and would create an obligation of CTL to make certain
indemnities and repurchase the Receivable unless such breach were cured in a
timely manner. See "Description of the Transfer and Servicing Agreements--Sale
and Assignment of Receivables."
Courts have applied general equitable principles to secured parties pursuing
repossession 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.
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In several cases, consumers 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.
CTL will represent and warrant in each Purchase Agreement that each
Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against a Trust for violation of any
law and such claim materially and adversely affects the Trust's interest in a
Receivable, such violation would constitute a breach of CTL's representations
and warranties under the Purchase Agreement and would create an obligation of
CTL to repurchase such Receivable unless the breach were cured. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing an automobile, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
automobile 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.
FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
Certificates, to the extent it relates to matters of law or legal conclusions
with respect to the Trust being classified as a partnership represents the
opinion of Silver, Freedman & Taff, L.L.P., counsel to the Depositor, subject
to the assumptions or qualifications set forth herein. The discussion is
directed to investors who will hold the Certificates as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code of 1996, as
amended (the "Code") and does not purport to discuss all federal income taxes
that may be applicable to the individual circumstances of particular investors
which, or categories of holders (such as insurance companies, regulated
investment companies or dealers in securities) who, may be subject to special
rules under the Code. Further, the authorities on which this discussion, and
the opinion as to partnership classification referred to below, are based are
subject to change or potential differing interpretations which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the Internal Revenue Service (the "IRS") with respect to
any of the United States federal income tax consequences discussed below and
no assurance can be given that the IRS will not take contrary positions.
Taxpayers and preparers of tax returns should be aware that under applicable
Treasury regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (i) is given with
respect to events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions, and (ii)
is directly relevant to the determination of an entry on a tax return.
Accordingly, prospective investors should consult their tax advisors and tax
return preparers regarding the preparation of any item on a tax return, even
where the anticipated tax treatment is discussed herein. In addition to the
United States federal income tax consequences described herein, prospective
investors are advised to consider the state, local, foreign and other tax
consequences that may be applicable to them in connection with the purchase,
ownership and disposition of Certificates. Certificate Owners are advised to
consult their tax advisors concerning all tax consequences applicable to them
(including federal, state, local, foreign or other tax consequences) arising
from the purchase, ownership and disposition of Certificates.
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Prior to the issuance of any Certificates by each Trust, an opinion of
counsel to the Depositor will be delivered as to whether the Trust will be
classified as a partnership or as a grantor trust for United States federal
income tax purposes. The tax opinion as to partnership classification will be
the same or substantially the same as the Silver, Freedman & Taff, L.L.P.
opinion set forth under the heading "Tax Characterization of the Trust as a
Partnership" in this Prospectus. Silver, Freedman & Taff, L.L.P. has agreed to
deliver a tax opinion, based upon the assumption that current tax laws and
interpretations thereof shall continue in full force and effect without
modification, to the effect that if the Trust is not classified as a
partnership for tax purposes, it will be classified as a grantor trust for
United States federal income tax purposes. For purposes of the discussion set
forth herein, references to the Trust, the Certificates and related terms,
parties and documents shall be deemed to refer, unless otherwise specified
herein, to each Trust and Certificates and the related terms, parties and
documents applicable to such Trust.
As discussed below, the United States federal income tax consequences to
Certificate Owners will vary depending on whether the Trust is treated as a
partnership or whether the Trust will be treated as a grantor trust under the
Code. The Prospectus Supplement for each Series of Certificates will specify
whether the Trust will be treated as a partnership (not taxable as a
corporation) or a grantor trust. In addition, a copy of the tax opinion of
Silver, Freedman & Taff, L.L.P., counsel to the Depositor, with respect to
each Trust will be filed by the Depositor with the Commission on a Current
Report on Form 8-K within 15 days after the Closing Date for the Series of
Certificates issued by such Trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
In the opinion of Silver, Freedman & Taff, L.L.P., under current law, the
Trust will not be classified as an association (or publicly traded
partnership) taxable as a corporation for United States federal income tax
purposes. This opinion is based on the assumption that the terms of the
Pooling and Servicing Agreement and related documents will be complied with,
and that (i) the Trust will make a proper election not to be treated as an
association taxable as a corporation pursuant to the final "check-the-box"
regulations issued by the Department of the Treasury on December 17, 1996 and
effective as of January 1, 1997, by timely filing Form 8832--Entity
Classification Election, with the appropriate IRS service center as further
provided in the Pooling and Servicing Agreement, and (ii) the nature of the
income of the Trust will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations.
As a result of the Trust's tax classification, each Certificate Owner will
be required to include in its gross income its pro rata share of the original
issue discount accrued with respect to the Receivables whether or not cash is
actually distributed to the Certificate Owner. See "--Discussion of Tax
Consequences to Holders of the Certificates--Discount and Premium" and "Trusts
Treated As Grantor Trusts--Stripped Bonds and Stripped Coupons--Original Issue
Discount."
DISCUSSION OF TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Depositor and the Servicer will
agree, and the related Certificate Owners will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificate Owners (including
the holder of the Class IC Certificate). Although the proper characterization
of the arrangement involving the Trust, the Certificates, the Depositor and
the Servicer is not certain because there is no authority on transactions
closely comparable to that contemplated herein, the related Pooling and
Servicing Agreement will provide that an election to treat the Trust as a
partnership shall be made under the "check-the-box" procedure described above
under "Tax Characterization of the Trust as a Partnership."
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Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificate Owner 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 and finance charges earned on the related Receivables
(including appropriate adjustments for market discount, original issue
discount ("OID") and bond premium) and any gain upon collection or disposition
of such Receivables. The Trust's deductions will consist primarily of
servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (i.e., the
Pooling and Servicing Agreement and related documents). The Pooling and
Servicing Agreement will provide, in general, that the Certificate Owners will
be allocated taxable income of the Trust for each month equal to the sum of:
(i) the interest that accrues on the Certificates in accordance with their
terms for such month, including interest accruing at the related Pass-Through
Rate for such month and interest, if any, on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust income attributable to
discount on the related Receivables that corresponds to any excess of the
principal amount of the Certificates over their initial issue price; (iii) any
other amounts of income payable to the Certificate Owners for such month; and
(iv) in the case of an individual, such Certificate Owner's share of income
corresponding to the miscellaneous itemized deductions described in the next
paragraph. Such allocation will be reduced by any amortization by the Trust of
premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. It is anticipated that all remaining
taxable income of the Trust will be allocated to the Class IC
Certificateholder. In the event the Trust issues interest-only Class I
Certificates, the amount allocated to such Certificate Owners will equal the
excess of (i) the Class I Pass-Through Rate times the Notional Principal
Amount for such month over (ii) the portion of the amount distributed with
respect to the Class I Certificates for such month that would constitute a
return of basis if the Class I Certificates constituted an instrument
described in Section 860G(a)(1)(B)(ii) of the Code, applying the principles of
Section 1272(a)(6) of the Code and employing the constant yield method of
accrual (utilizing the appropriate prepayment assumption); provided, that no
negative accruals shall be permitted, and, provided further, that other
deductions derived by the Trust equal to the aggregate remaining capital
account balances of the Class I Certificate Owners will be allocated to the
Class I Certificates in proportion to the respective capital account balances
immediately before the final redemption.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer, but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income
that exceeds the amount of cash actually distributed to such holder over the
life of the Trust. Any net loss of the Trust will be allocated first to the
Class IC Certificateholder to the extent of its adjusted capital account and
then to the other Certificate Owners in the priorities set forth in the
Pooling and Servicing Agreement to the extent of their respective adjusted
capital accounts, and thereafter to the Class IC Certificateholder.
The Trust intends to make all calculations relating to market discount
income and amortization of premium with respect to both Simple Interest
Receivables and Precomputed Receivables on an aggregate basis rather than a
Receivable-by-Receivable basis. If the IRS were to require that such
calculations be made separately for each Receivable, the Trust might be
required to incur additional expense, but it is believed that there would not
be a material adverse effect on Certificate Owners.
Discount and Premium. It is believed that the Receivables were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the related Receivables may be greater or
less than the remaining principal balance of the Receivables at the time of
purchase. If so, the Receivables will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
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If the Trust acquires the related Receivables at a market discount or
premium, it will elect to include any such discount in income currently as it
accrues over the life of such Receivables or to offset any such premium
against interest income on such Receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificate Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data. Under proposed Treasury regulations, the foregoing
treatment would be replaced by new rules under which a 50% or greater
transfer, as described above, would cause a deemed contribution of the assets
of the Trust to a new partnership in exchange for interests in the Trust. Such
interests in a new partnership would be deemed distributed to the partners of
the Trust in liquidation thereof, which would not constitute a sale or
exchange. It is not known when or whether such proposed Treasury regulations
will become effective.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificate Owner's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the
amount realized on a sale of a Certificate would include the holder's share of
the 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, to allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the related 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 those special reporting requirements, the Trust will elect to
include market discount in income as it accrues.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificate Owners in
proportion to the principal amount of Certificates (or notional principal
amount, in the case of any interest only Certificates) owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability
and tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificate Owners. The
Class IC Certificateholder, acting as tax matters partner for the Trust, will
be authorized to revise the Trust's method of allocation between transferors
and transferees to conform to a method permitted by future regulations.
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Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Trust will not
make such election. As a result, Certificate Owners 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 Trustee is required to keep or have 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 fiscal year
of the Trust is expected to be the calendar year. The Trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Trust and will report each Certificate Owner's allocable share of
items of Trust income and expense to holders and the IRS on Schedule K-1. The
Trust will provide the Schedule K-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 return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (a) the name, address and identification number of such
person, (b) 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 (c) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not
required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described
above may be subject to penalties.
The Class IC Certificateholder or the party named in the related Prospectus
Supplement will be designated as the tax matters partner for each Trust in the
related Pooling and Servicing Agreement and, as such, will be responsible for
representing the Certificate Owners in any dispute with the IRS. 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 Certificate
Owners, and, under certain circumstances, a Certificate Owner 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 Certificate Owner's returns and
adjustments of items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificate Owners. It is not clear whether 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 because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to foreign Certificate Owners pursuant to Section 1446 of
the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are
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taxable as corporations and 39.6% for all other foreign holders. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures. In
determining a holder's withholding status, the Trust may rely on IRS Form W-8,
IRS Form W-9 or the holder's certification of nonforeign status signed under
penalties of perjury.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Trust's income. Each foreign holder must obtain a
taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, 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
Certificate Owner who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard
to the income of the Trust. If these interest payments are properly
characterized as guaranteed payments, then the interest will not be considered
"portfolio interest". As a result, Certificate Owners will 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. In such case, a
foreign holder would only be entitled to claim a refund for that portion of
the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds from
the sale of the Certificates will be subject to a "backup" withholding tax of
31% if, in general, the Certificate Owner fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF GRANTOR TRUSTS
If specified in the related Prospectus Supplement, Silver, Freedman & Taff,
L.L.P. will deliver its opinion that the Trust will not be classified as an
association taxable as a corporation and that such Trust will be classified as
a grantor trust under subpart E, Part I of subchapter J of the Code. In this
case, beneficial owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as
"Grantor Trust Certificates."
DISCUSSION OF TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Characterization. Each Grantor Trust Certificateholder will be treated as
the beneficial owner of a pro rata undivided interest in the interest and
principal portions of the Trust represented by the Grantor Trust Certificates
and will be considered the equitable owner of a pro rata undivided interest in
each of the Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they replace.
To the extent a particular Series provides for a Yield Supplement Account,
each Grantor Trust Certificateholder will also be treated as the beneficial
owner of a pro rata undivided interest in a contractual obligation of the
Depositor to pay interest at the applicable Pass-Through Rates on the Grantor
Trust Certificateholders' respective undivided interests in the Receivables
for which the Note Rate is less than the sum of (i) the initial weighted
average of the applicable Pass-Through Rates and (ii) the per annum rate used
to calculate the Monthly Servicing Fee (such obligation, the "Yield Supplement
Agreement"). In such case, however the Service could assert that the
Certificates represent indebtedness of the Depositor either in their entirety
or in an amount corresponding to the principal amount of the Receivables that
are covered by the Yield Supplement Agreement for federal income tax purposes.
The Depositor believes that, except as noted below, such a determination would
not have a materially different effect on the timing or character of taxable
income to Grantor Trust Certificateholders.
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Each Grantor Trust Certificateholder must allocate the amount it pays for
its Grantor Trust Certificate between its interest in the Receivables and its
interest in the other assets of the Trust, including, in particular, the Yield
Supplement Agreement. Such allocation must be made based on the relative fair
market values of the Receivables and the Yield Supplement Agreement. Because
the Yield Supplement Deposit is not expected to be significant relative to the
Certificate Principal Balance as of the Cutoff Date and because of the
expected amortization method of reporting amounts received pursuant to the
Yield Supplement Agreement (described below under "Yield Supplement
Agreement"), such allocation will not be provided separately in reports to
Grantor Trust Certificateholders. As further described below, a Grantor Trust
Certificateholder would calculate separately its income realized with respect
to the Receivables and its income with respect to the Yield Supplement
Agreement.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Receivables in the Trust represented by Grantor Trust
Certificates, including interest, OID, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges received
by the Servicer, and its share of the income portion of payments on the Yield
Supplement Agreement (as discussed below under "Yield Supplement Agreement").
The portion of each monthly payment to a Grantor Trust Certificateholder that
is allocable to principal on the Receivables will represent a return of
capital (other than accrued market discount not yet reported as income), and
there will be a corresponding reduction in the tax basis of such Grantor Trust
Certificateholder's undivided interest in the Receivables. Grantor Trust
Certificateholders also will be entitled to amortize their basis in the
Grantor Trust Certificates allocated to the Yield Supplement Agreement under
one of the methods described below under "Yield Supplement Agreement."
Under Code Sections 162 or 212, each Grantor Trust Certificateholder will be
entitled to deduct, consistent with its method of accounting, its pro rata
share of servicing fees, prepayment fees, assumption fees and late payment
charges retained by the Servicer, provided that such amounts are reasonable
compensation for services rendered to the Trust. Code Section 67 provides,
however, that if a Grantor Trust Certificateholder is an individual, estate,
or trust, the deduction for its pro rata share of such fees will be allowed
only to the extent that all of its miscellaneous itemized deductions,
including its share of such fees will be allowed only to the extent that all
of its miscellaneous itemized deductions, including its share of such fees,
exceed 2% of its adjusted gross income. In addition, Code Section 68 provides
that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (subject to adjustment for inflation) or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
year. To the extent either of such limitations apply, such Grantor Trust
Certificateholder may have gross income in excess of interest received in cash
without a corresponding deduction.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using
an accrual method of accounting must take into account its pro rata share of
income and deductions as they become due or are paid to the Servicer,
whichever is earlier. If the servicing fees paid to the Servicer are deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Servicer (or any person to
whom the Servicer assigned for value all or a portion of the servicing fees)
in a portion of the interest payments on the Receivables. The Receivables
would then be subject to the "coupon stripping" rules of the Code discussed
below.
For federal income tax purposes, the outstanding principal balance of each
Rule of 78's Receivable as of the Cutoff Date is based on the Rule of 78's
(the "Cutoff Date Scheduled Balance"). Because the Rule of 78's allocates a
greater portion of the early payments on a Rule of 78's Receivable to interest
than the actuarial method, the Cutoff Date Scheduled Balance of each Rule of
78's Receivable exceeds the amount that would have been its principal balance
as of the Cutoff Date if each Rule of 78's Receivable had been amortized from
origination under the actuarial method (such amount, the "Cutoff Date
Actuarial Balance"). The purchase price paid by Grantor Trust
Certificateholders for each Rule of 78's Receivable will reflect the Cutoff
Date Actuarial Balance.
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The proper tax method for accounting for the Rule of 78's Receivables is
uncertain. As described above, the Servicer and the Trustee intend to report
income to Grantor Trust Certificateholders based on the actuarial method.
However, prospective investors should consult their tax advisors as to whether
they may be required or permitted to use the Rule of 78's method to account
for interest on the Rule of 78's Receivables. A Grantor Trust
Certificateholder will be furnished information for federal income tax
purposes enabling him to report interest on the Rule of 78's Receivables,
under the Rule of 78's method of accounting only upon written request to the
Trustee, and payment of the costs of producing such information. In the event
that a Grantor Trust Certificateholder reports taxable income based on the
Rule of 78's method, such Grantor Trust Certificateholder should consult his
or her tax advisor as to the application of the original issue and market
discount rules with respect to the Rule of 78's Receivables.
If a Rule of 78's Receivable is prepaid in full, any amount collected from
the Obligor pursuant to the Rule of 78's Receivable in excess of the principal
balance thereof and accrued interest thereon, computed using an actuarial
method, will be paid to the Servicer. Such amount may be treated as additional
income in the nature of a prepayment penalty to a Grantor Trust
Certificateholder who had reported income with respect to the Rule of 78's
Receivables on the actuarial method, and would be deductible only to the
extent described above. Alternatively, such amount might be treated as an
interest in the Rule of 78's Receivables retained by the Servicer, in which
event it would not be included in a Grantor Trust Certificateholder's income.
STRIPPED BONDS AND STRIPPED COUPONS
Original Issue Discount. Although the tax treatment of stripped bonds is not
entirely clear, based on guidance by the IRS, it appears that each purchaser
of a Grantor Trust Certificate will be treated as the purchaser of a stripped
bond, which generally should be treated as a single debt instrument issued on
the day it is purchased for purposes of calculating any original issue
discount. Generally, under applicable Treasury regulations (the "Section 1286
Treasury Regulations"), if the discount on a stripped bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code) such
stripped bond will be considered to have been issued with OID. For these
purposes, OID is the excess of the "stated redemption price at maturity"
(generally, principal and any interest which is not "qualified stated
interest") of a debt instrument over its issue price. Based on the preamble to
the Section 1286 Treasury Regulations, although the matter is not entirely
clear, the interest income on the Certificates at the sum of the Pass-Through
Rate and the portion of the Servicing Fee Rate that does not constitute excess
servicing should be treated as "qualified stated interest" within the meaning
of the Section 1286 Treasury Regulations and such income will be so treated in
the Trustee's tax information reporting. It is possible that the treatment
described in this paragraph will apply only to that portion of the Receivables
in a particular trust as to which there is "excess servicing" and that the
remainder of such Receivables will not be treated as stripped bonds, but as
undivided interests as described above.
If the allocable purchase price paid by a Grantor Trust Certificateholder
who purchases a Grantor Trust Certificate in its original public offering
equals the portion of the principal balance of the Receivables that is
allocable to its Grantor Trust Certificate, or is less than such principal
balance by a statutorily defined de minimis amount, then there would be no
original issue discount with respect to its interest in the Receivables.
Furthermore, the allocation of a portion of the purchase price of a Grantor
Trust Certificate to a Grantor Trust Certificateholder's undivided interest in
the Yield Supplement Agreement will result in the Grantor Trust
Certificateholder's acquisition of the related Receivables at a greater
discount, and the purchase price so allocated may not be recovered at the same
time or over the same period than if it had been allocated to such
Receivables. See "--The Yield Supplement Agreement" below. Although the
Service could assert that a Grantor Trust Certificateholder's basis in the
Receivables should be determined on a Receivable-by-Receivable basis, a
Grantor Trust Certificateholder will not have sufficient information with
respect to the Receivables to allocate its basis in this manner. In addition,
although the Service could assert that the income derived by a Grantor Trust
Certificateholder from the Receivables should be determined on a Receivable-
by-Receivable basis, income will be reported to Grantor Trust
Certificateholders on an aggregate basis. If the Service were to require
reporting on a Receivable-by-Receivable basis, a Grantor Trust
Certificateholder's recognition of income could be accelerated or decelerated.
Moreover, because the interest rates of the Receivables vary significantly,
the allocation of basis
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and computation of income on a Receivable-by-Receivable basis could have a
more significant effect on the income of a Grantor Trust Certificateholder
than it would if the Receivables had more uniform characteristics. It is not
anticipated that Grantor Trust Certificates will be issued with greater than
de minimis OID.
To the extent the rules of the Code relating to OID (Sections 1271 though
1273 and 1275) are applicable to a person comparable to a Grantor Trust
Certificateholder that acquires an undivided interest in a stripped bond
issued or acquired with OID, such person must include in gross income the sum
of the "daily portions," as defined below, of the OID on such stripped bond
for each day on which it owns a Certificate, including the date of purchase
but excluding the date of disposition. It is not clear whether such OID will
be determined under Code Section 1272(a)(6), applicable to debt instruments
whose payments may be accelerated by prepayments on underlying obligations. It
is anticipated that such approach will be used, with OID accruals based on a
constant interest method and a prepayment assumption indicated in such
Prospectus Supplement. In the case of an original Grantor Trust
Certificateholder, the daily portions of OID generally would be determined as
follows. A calculation will be made of the portion of OID that accrues on the
stripped bond during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (i)
the present value of all remaining payments to be received on the stripped
bond under the prepayment assumption used in respect of the Grantor Trust
Certificates and (ii) any payments received during such accrual period, and
subtracting from the total the "adjusted issue price" of the stripped bond at
the beginning of such accrual period. No representation is made that the
Grantor Trust Certificates will prepay at any prepayment assumption. The
"adjusted issue price" of a stripped bond at the beginning of the first
accrual period is its issue price (as determined for purposes of the OID rules
of the Code) and the "adjusted issue price" of a stripped bond at the
beginning of a subsequent accrual period is the "adjusted issue price" at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period and reduced by the amount of any payment
(other than "qualified stated interest") made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. A subsequent Grantor Trust Certificateholder
will be required to adjust its OID accrual to reflect its purchase price, the
remaining period to maturity and, possibly, a new prepayment assumption. The
Servicer will report to all Grantor Trust Certificateholders as if they were
original holders.
With respect to the Receivables, the method of calculating OID as described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments
are occurring at a faster or slower rate than the prepayment assumption used
in respect of the Receivables. Subsequent purchasers that purchase Grantor
Trust Certificates at more than a de minimis discount should consult their tax
advisors with respect to the proper method to accrue such OID.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules
of Sections 1276 though 1278 to the extent an undivided interest in a
Receivable or stripped bond is considered to have been purchased at a "market
discount". Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of such Receivable or stripped bond
allocable to such holder's undivided interest over such holder's tax basis in
such interest. Market discount with respect to a Grantor Trust Certificate
will be considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate's stated
redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and
the advisability of making any of the elections allowed under Code Section
1276 and 1278.
The Code provides that any principal payment (whether a scheduled payment or
a prepayment) or any gain or disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes
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of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis
of a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount
that accrues during any accrual period would be equal to the product of (i)
the total remaining market discount and (ii) a fraction, the numerator of
which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the secondary
market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or
carry such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the
year in which such market discount is includible in income. If such holder
elects to include market discount in income currently as it accrues on all
market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. To the extent a Grantor Trust Certificateholder is considered to
have purchased an undivided interest in a Receivable or stripped bond for an
amount that is greater than its stated redemption price at maturity of such
Receivable or stripped bond, such Grantor Trust Certificateholder will be
considered to have purchased the Receivable with "amortizable bond premium"
equal in amount to such excess. A Grantor Trust Certificateholder (who does
not hold the Certificate for sale to customers or in inventory) may elect
under Section 171 of the Code to amortize such premium. Under the Code, the
premium is allocated among the interest payments on the Receivables or
stripped bonds to which it relates and is considered as an offset against (and
thus a reduction of) such interest payments. With certain exceptions, such an
election would apply to all debt instruments held or subsequently acquired by
the electing holder. Absent such an election, the premium will be deductible
as an ordinary loss only upon disposition of the Certificate or pro rata as
principal is paid on the Receivables or stripped bonds.
Election to Treat All Interest as OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including
de minimis market discount or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificate Owner would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such Grantor Trust Certificateholder acquires
during the year of the election or thereafter. Similarly, a Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Grantor Trust Certificateholder owns or acquires. See
"--Premium" herein. The election to accrue interest, discount and premium on a
constant yield method with respect to a Grantor Trust Certificate is
irrevocable.
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THE YIELD SUPPLEMENT AGREEMENT
The manner in which income with respect to the Yield Supplement Agreement
should be accrued is not clear. Moreover, the sum of the income and deductions
properly reportable by a Grantor Trust Certificateholder in any taxable year
may not equal the amounts that would be reportable if a Grantor Trust
Certificateholder held, instead of an interest in the Receivables and in the
Yield Supplement Agreement, either (i) a debt instrument bearing interest at
the related Pass-Through Rate or (ii) an interest in a trust holding
Receivables each of which bears interest at a rate at least equal to the sum
of the related Pass-Through Rate plus the rate equivalent to the Monthly
Servicing Fee. It is possible that a Grantor Trust Certificateholder will be
required to report as income on a current basis its pro rata share of all
amounts received by the Trust pursuant to the Yield Supplement Agreement. In
such event, the Grantor Trust Certificateholder should be entitled to amortize
in some manner the portion of the purchase price paid for its Grantor Trust
Certificate that is allocable to its pro rate interest in the Yield Supplement
Agreement. It is not clear whether such amortization deduction would be
computed in a manner reflecting a constant yield method, pro rata method,
straight-line method, or some other method of amortization. It is not clear
whether, and to what extent, the amounts includable in income or amortizable
under any of these methods would be adjusted to take account of prepayments on
the Receivables. In addition, to the extent that the amounts payable pursuant
to the Yield Supplement Agreement in respect of Receivables for which the Note
Rate is less than the sum of the initial weighted average of the applicable
Pass-Through Rates and the per annum rate used to calculate the Monthly
Servicing Fee decline during any period as a result of prepayments on such
Receivables, it is possible that a portion of the amount amortizable by the
Grantor Trust Certificateholder during such period would be treated as a
capital loss (which would not offset ordinary income) rather than as an
ordinary deduction. It is anticipated that the Servicer will employ an
amortization method in reporting to Grantor Trust Certificateholders that
results in net income with respect to the related Receivable at the applicable
Pass-Through Rate. Grantor Trust Certificateholders are advised to consult
their own tax advisors regarding the appropriate method of accounting for
income attributable to the Yield Supplement Agreement.
TREATMENT OF LOSSES
Grantor Trust Certificateholders on the accrual method of accounting will be
required to report income with respect to the Grantor Trust Certificates
without giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Receivables, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
Grantor Trust Certificate, particularly a subordinate Grantor Trust
Certificate, may have income or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. To the extent the rules of Code Section 166 regarding
bad debts are applicable, it appears that Grantor Trust Certificateholders
that are corporations or that hold the Grantor Trust Certificates in
connection with a trade or business should in general be allowed to deduct as
an ordinary loss such loss with respect to principal sustained during the
taxable year on account of any such Grantor Trust Certificates becoming wholly
or partially worthless, and that, in general, Grantor Trust Certificateholders
that are not corporations and do not hold the Grantor Trust Certificates in
connection with a trade or business will be allowed to deduct as a short-term
capital loss any loss sustained during the taxable year on account of a
portion of any such Grantor Trust Certificates becoming wholly worthless.
Although the matter is not free from doubt, such non-corporate Grantor Trust
Certificateholders should be allowed a bad debt deduction at such time as the
principal balance of such Grantor Trust Certificates is reduced to reflect
losses resulting from any liquidated Receivables. The Service, however, could
take the position that if the "stripped bond" rules of the Code are
applicable, non-corporate holders will be allowed a bad debt deduction to
reflect such losses only after all the affected Receivables remaining in the
Trust have been liquidated or the applicable class of Grantor Trust
Certificates has been otherwise retired Grantor Trust Certificateholders are
urged to consult their own tax advisors regarding the appropriate timing,
amount and character of any loss sustained with respect to such Grantor Trust
Certificates. Losses attributable to interest previously reported as income
should be deductible as ordinary losses by both corporate and non-corporate
holders. Special loss rules are applicable to banks and thrift institutions,
including rules regarding reserves for bad debts. Such taxpayers are advised
to consult their tax advisors regarding the treatment of losses on Grantor
Trust Certificates.
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SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the
Grantor Trust Certificate, increased by the OID and any market discount
included in the seller's gross income with respect to the Grantor Trust
Certificate, and reduced by any market premium amortized by the Depositor and
by principal payments on the Grantor Trust Certificate previously received by
the seller. Such gain or loss will be capital gain or loss to an owner for
which a Grantor Trust Certificate is a "capital asset" within the meaning of
Section 1221 (except in the case of gain attributable to accrued market
discount, as noted above under "--Stripped Bonds and Stripped Coupons--Market
Discount"), and will be long-term or short-term depending on whether the
Grantor Trust Certificate has been owned for the long-term capital gain
holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of
a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
FOREIGN GRANTOR TRUST CERTIFICATES
Non-U.S. Persons. Interest or OID paid to non-U.S. Owners of Grantor Trust
Certificates will be treated as "portfolio interest" for purposes of United
States withholding tax. Such interest (including OID, if any) attributable to
the underlying Receivables will not be subject to the normal 30% (or such
lower rate provided for by an applicable tax treaty) withholding tax imposed
on such amounts provided that (i) the Non-U.S. Certificate Owner is not a "10%
shareholder" (within the definition of Section 871(h)(3)) of any obligor on
the Receivables; and is not a controlled foreign corporation (within the
definition of Section 957) related to any Obligor on the Receivables and (ii)
such Certificate Owner fulfills certain certification requirements. Under
these requirements, the Certificate Owner must certify, under penalty of
perjury, that it is not a "United States person" and must provide its name and
address. For this purpose "United States person" means a citizen or resident
of the United States, a corporation, partnership other entity created or
organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is includible in gross
income for United States federal income tax purposes, without regard to its
source or a trust if (i) for taxable years beginning after December 31, 1996
(or for taxable years ending after August 20, 1996, if the trustee has made an
applicable election), a court within the United States is able to exercise
primary supervision over the administration of such trust, and one or more
United States fiduciaries have the authority to control all substantial
decisions of such trust, or (ii) for all other taxable years, such trust is
subject to United States federal income tax regardless of the source of its
income. If, however, such interest or gain is effectively connected to the
conduct of a trade or business within the United States by such Certificate
Owner, such owner will be subject to United States federal income tax thereon
at graduated rates. Potential investors who are not United States persons
should consult their own tax advisors regarding the specific tax consequences
of owning a Certificate.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Servicer will furnish or make available, within a reasonable time after
the end of each calendar year, to each person who was a Grantor Trust
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Grantor Trust Certificateholders in
preparing their federal income tax returns, or to enable holders to make such
information available to beneficial owners or financial intermediaries that
hold Grantor Trust Certificates as nominees on behalf of beneficial owners. If
a holder, beneficial owner, financial intermediary or other recipient of a
payment on behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, a 31% backup withholding may be required
with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
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* * *
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CERTIFICATE
OWNER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS OF CERTIFICATES
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Sections 404 and 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), impose certain fiduciary and prohibited transaction
restrictions on employee pension and welfare benefit plans subject to ERISA
("ERISA Plans"). Section 4975 of the Code imposes essentially the same
prohibited transaction restrictions on tax-qualified retirement plans
described in Section 401(a) of the Code and on Individual Retirement Accounts
described in Section 408 of the Code (collectively, "Tax Favored Plan"). ERISA
and the Code prohibit a broad range of transactions involving assets of ERISA
Plans and Tax Favored Plans (collectively, "Plans") and persons who have
certain specified relationships to such Plans (so-called "parties in interest"
within the meaning of ERISA or "disqualified persons" within the meaning of
the Code) unless a statutory or administrative exemption is available. A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and the Code for such persons.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are
not subject to the ERISA requirements discussed herein. Accordingly, assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described herein, subject to the provisions of other applicable
federal, state and local law, and, before purchasing a Certificate, a
fiduciary of such a plan should itself confirm the compliance with such laws.
Any such plan that is qualified and exempt from taxation under Section 401(a)
and 501(a) of the Code, however, is subject to the prohibited transaction
rules set forth in Section 503 of the Code. Certain parties in interest or
disqualified persons that participate in a prohibited transaction may be
subject to a penalty or excise taxes, unless a statutory or administrative
exemption is available.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan that
purchased Certificates if assets of the Trust were deemed to be assets of the
Plan. Under a regulation issued by the United States Department of Labor (the
"Plan Assets Regulation"), the assets of a Trust would be treated as plan
assets of a Plan for the purposes of ERISA and the Code only if the 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 that is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment in this context
of Certificates of a given Series will be discussed in the related Prospectus
Supplement.
A plan fiduciary considering the purchase of Certificates of a given Series
should consult its legal advisors regarding whether the assets of the related
Trust would be considered plan assets, the possibility of exemptive relief
from the prohibited transaction rules and other issues and their potential
consequences.
The United States Department of Labor has granted to the underwriter (or in
the case of series offered by more than one underwriter, the lead underwriter)
named in each Prospectus Supplement an exemption (the "Exemption") from
certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of
49
<PAGE>
the Exemption. The receivables covered by the Exemption include motor vehicle
installment sales contracts such as the Receivables. The Exemption might apply
to the acquisition, holding and resale of nonsubordinated Certificates
(referred to herein as "Senior Certificates") by a Plan, provided that certain
conditions and requirements set forth therein (certain of which are described
below) are met.
Among the conditions that must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The Trust is considered to consist solely of obligations which bear
interest or are purchased at a discount and which are secured by motor
vehicles or equipment, or "qualified motor vehicle leases" (as defined in
the Exemption), property that had secured such obligations or qualified
motor vehicle leases, cash or temporary investments maturing no later than
the next date on which distributions are to be made to the Senior
Certificate Owners, and rights of the Trustee under the Pooling and
Servicing Agreement and under credit support arrangements with respect to
such obligations or qualified motor vehicle leases.
(2) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party;
(3) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(4) The Senior Certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's Ratings Group, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Service, L.P.;
(5) The related Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(6) The sum of all payments made to the underwriters in connection with
the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior Certificates; the sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Contracts to the related Trust represents not more than the fair
market value of such Contracts; and the sum of all payments made to and
retained by the Servicer represents not more than reasonable compensation
for the Servicer's services under the related Pooling and Servicing
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith; and
(7) The Plan investing in the Senior Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act of 1933, as amended.
Moreover, the Exemption would provide relief from certain self-
dealing/conflict of interest or prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least 50% of the Senior Certificates
are acquired by persons independent of the Restricted Group (as defined
below), (ii) the Benefit Plan's investment in Senior Certificates does not
exceed 25% of all of the Senior Certificates outstanding at the time of the
acquisition and (iii) immediately after the acquisition, no more than 25% of
the assets of the benefit Plan are invested in certificates representing an
interest in one or more trusts containing assets sold or serviced by the same
entity. The Exemption does not apply to Plans sponsored by the Depositor, any
underwriter, the related Trustee, the Servicer, any obligor with respect to
Contracts included in the related Trust constituting more than 5% of the
aggregate unamortized principal balance of the assets in the Trust, or any
affiliate of such parties (the "Restricted Group").
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm that (i) the Trust constitutes a "trust" for purposes of the
Exemption, (ii) the Senior Certificates constitute "certificates" for purposes
of the Exemption and (iii) the conditions and the other requirements set forth
in the Exemption would be satisfied. A fiduciary of an ERISA Plan should also
determine whether the purchase of Senior Certificates is consistent with
certain general fiduciary requirements imposed under Section 404 of ERISA,
including those of investment prudence and diversification and the requirement
that an ERISA Plan's investments be made in
50
<PAGE>
accordance with the documents governing the ERISA Plan. The sale of Senior
Certificates to a Plan is in no way a representation by the Depositor or
underwriter that this investment meets all relevant legal requirements with
respect to investments by Plans generally or any particular Plan, or that this
investment is appropriate for Plans generally or any particular Plan.
Under current law, the purchase and holding of Certificates other than
Senior Certificates by or on behalf of a Plan may constitute or result in
prohibited transactions within the meaning of ERISA and the Code. Such
Certificates may not be acquired by Plans or by persons acting on behalf of or
investing the assets of Plans.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to a given Series (the "Underwriting Agreement"), the Depositor will
agree to cause the related Trust to sell to the underwriters named therein and
in the related Prospectus Supplement, and each of such underwriters will
severally agree to purchase, the principal amount of each class of
Certificates of the related Series set forth therein and in the related
Prospectus Supplement.
In each Underwriting Agreement, the underwriter or several underwriters will
agree, subject to the terms and conditions set forth therein, to purchase all
of the Certificates described therein that are offered hereby and by the
related Prospectus Supplement if any of such Certificates are purchased.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Certificates being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Certificates or (ii) specify that the related Certificates
are to be resold by the underwriters in negotiated transactions at varying
prices to be determined at the time of such sale.
Each Underwriting Agreement will provide that CTL, the Depositor and Bay
View will indemnify the related underwriters against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the several underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in the related Accounts in
Eligible Investments acquired from such underwriters. Pursuant to each
Underwriting Agreement, the closing of the sale of any class of Certificates
subject thereto will be conditioned on the closing of the sale of all other
classes of Certificates of such Series. The place and time of delivery for the
Certificates in respect of which this Prospectus is delivered will be set
forth in the related Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the Certificates of any Series will be
passed upon for the related Trust, the Depositor and the Servicer by Silver,
Freedman & Taff, L.L.P., Washington, D.C., and for the underwriters by
Cadwalader, Wickersham & Taft, New York, New York or such other firm as shall
be identified in the related Prospectus Supplement. Certain federal income tax
and other matters will be passed upon for each Trust by Silver, Freedman &
Taff, L.L.P. or such other firm as shall be identified in the related
Prospectus Supplement.
51
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of certain of the more significant terms used in
this Prospectus and the pages on which the definitions of such terms may be
found herein.
<TABLE>
<CAPTION>
TERM PAGE
---- ------------
<S> <C>
Actuarial Receivables.............................................. 18
Additional Vehicle Costs........................................... 17
Advance............................................................ 7
Approved Rating.................................................... 27
Bay View........................................................... 12
Cash Collateral Account............................................ 30
Cede............................................................... 15
Certificate Account................................................ 26
Certificate Balance................................................ 5
Certificate Owners................................................. 22
Certificate Pool Factor............................................ 20
Certificateholders................................................. 6
Certificates....................................................... Prosp. Cover
Class Certificate Balance.......................................... 3
Closing Date....................................................... 5
Code............................................................... 10
Collection Period.................................................. 9
Commission......................................................... 2
Contracts.......................................................... 5
Contract Rate...................................................... 8
CTL................................................................ 3
Cutoff Date........................................................ 5
Cutoff Date Actuarial Balance...................................... 43
Cutoff Date Scheduled Balance...................................... 43
Dealers............................................................ 5
Definitive Certificates............................................ 23
Depositor.......................................................... 3
Distribution Date.................................................. 21
DTC................................................................ 15
Eligible Deposit Account........................................... 27
Eligible Institution............................................... 27
Eligible Investments............................................... 27
ERISA.............................................................. 10
ERISA Plans........................................................ 49
Events of Default.................................................. 31
Exchange Act....................................................... 2
Exemption.......................................................... 49
FDIC............................................................... 12
Final Scheduled Distribution Date..................................
Final Scheduled Maturity Date...................................... 8
Financed Vehicles.................................................. 5
FTC Rule........................................................... 36
Funding Period..................................................... 6
Grantor Trust Certificates......................................... 42
Grantor Trust Certificateholders................................... 42
Indirect Participants.............................................. 22
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
---- ------------
<S> <C>
Insolvency Laws.................................................... 20
Interest Shortfall................................................. 7
Investment Income.................................................. 27
IRS................................................................ 37
Moody's............................................................ 28
Obligor............................................................ 8
OID................................................................ 39
Participants....................................................... 22
Pass-Through Rate.................................................. 3
Payaheads.......................................................... 18
Payahead Account................................................... 26
Plans.............................................................. 49
Plan Assets Regulations............................................ 49
Pooling and Servicing Agreement.................................... 3
Pool Balance....................................................... 8
Precomputed Receivables............................................ 18
Pre-Funded Amount.................................................. 5
Pre-Funding Account................................................ 5
Prospectus Supplement.............................................. Prosp. Cover
Purchase Agreement................................................. 5
Purchase Amount.................................................... 25
Purchased Receivable............................................... 25
Rating Agency...................................................... 10
Receivables........................................................ Prosp. Cover
Receivables Pool................................................... 15
Registration Statement............................................. 2
Restricted Group................................................... 50
Rules.............................................................. 22
Rule of 78's Receivables........................................... 18
Section 1286 Treasury Regulations.................................. 44
Senior Certificates................................................ 50
Series............................................................. Prosp. Cover
Servicer........................................................... Prosp. Cover
Servicing Fee...................................................... 29
Servicing Fee Rate................................................. 29
Simple Interest Receivables........................................ 18
Standard & Poor's.................................................. 28
Strip Certificates................................................. 3
Subsequent Receivables............................................. 6
Subsequent Transfer Date........................................... 25
Tax Favored Plans.................................................. 49
Transfer and Servicing Agreements.................................. 24
Trust.............................................................. Prosp. Cover
Trust Accounts..................................................... 27
Trustee............................................................ 3
UCC................................................................ 12
Underwriting Agreement............................................. 51
Yield Supplement Agreement......................................... 43
</TABLE>
53
<PAGE>
================================================================================
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR, THE SERVICER OR THE UN-
DERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OF-
FERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPEC-
TUS SUPPLEMENT AND THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMA-
TION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Prospectus Supplement
Summary of Terms........................................................ S-1
Risk Factors............................................................ S-9
Formation of the Trust.................................................. S-10
The Receivables Pool.................................................... S-11
Yield and Prepayment Considerations..................................... S-16
The Depositor and CTL................................................... S-16
The Surety Bond Issuer.................................................. S-17
The Offered Certificates................................................ S-18
ERISA Considerations.................................................... S-27
Underwriting............................................................ S-27
Legal Opinions.......................................................... S-28
Experts................................................................. S-28
Index of Principal Terms................................................ S-29
Financial Statements of the Surety Bond Issuer.......................... F-1
Book-Entry Registration................................................. Annex A
Prospectus
Available Information................................................... 2
Incorporation of Certain Documents by Reference......................... 2
Summary of Terms........................................................ 3
Risk Factors............................................................ 11
The Trusts.............................................................. 15
The Receivables Pools................................................... 17
Weighted Average Life of the Certificates............................... 19
Pool Factors and Other Certificate Information.......................... 20
Use of Proceeds......................................................... 20
California Thrift & Loan and Affiliates................................. 20
Description of the Certificates......................................... 21
Description of the Transfer and Servicing Agreements.................... 24
Certain Legal Aspects of the Receivables................................ 34
Federal Income Tax Consequences......................................... 37
Trusts for which a Partnership Election is Made......................... 38
Trusts Treated as Grantor Trusts........................................ 42
ERISA Considerations.................................................... 49
Plan of Distribution.................................................... 51
Legal Matters........................................................... 51
Index of Principal Terms................................................ 52
</TABLE>
================================================================================
================================================================================
$253,224,989
BAY VIEW 1997-RA-1
AUTO TRUST
$200,979,000
6.29% CLASS A-1 AUTOMOBILE
RECEIVABLE BACKED CERTIFICATES
$52,245,989
6.59% CLASS A-2 AUTOMOBILE
RECEIVABLE BACKED CERTIFICATES
CLASS I INTEREST ONLY AUTOMOBILE RECEIVABLE BACKED CERTIFICATES
[LOGO OF BAYVIEW APPEARS HERE]
DEPOSITOR
---------------
PROSPECTUS SUPPLEMENT
---------------
PAINEWEBBER INCORPORATED
JANUARY 24, 1997
================================================================================
