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FILED PURSUANT TO RULE 424(B)(5)
REGISTRATION NO. 333-41949
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 9, 1998)
HYUNDAI AUTO RECEIVABLES TRUST 1998-A
$220,000,000 5.90% ASSET BACKED NOTES, CLASS A-1
$80,150,000 6.05% ASSET BACKED NOTES, CLASS A-2
SSB VEHICLE SECURITIES INC.
DEPOSITOR
HYUNDAI MOTOR FINANCE COMPANY
SELLER AND SERVICER
--------------------------
Hyundai Auto Receivables Trust 1998-A (the "Trust") will be formed pursuant
to an Amended and Restated Trust Agreement to be dated as of April 1, 1998 (the
"Trust Agreement"), between SSB Vehicle Securities Inc. (the "Depositor") and
Wilmington Trust Company, as owner trustee (the "Owner Trustee"). The Trust will
issue $220,000,000 aggregate principal amount of 5.90% Asset Backed Notes, Class
A-1 (the "Class A-1 Notes") and $80,150,000 aggregate principal amount of 6.05%
Asset Backed Notes, Class A-2 (the "Class A-2 Notes" and, together with the
Class A-1 Notes, the "Notes") pursuant to an Indenture dated as of April 1, 1998
(the "Indenture"), between the Trust and The Chase Manhattan Bank, as indenture
trustee (the "Indenture Trustee"). The Trust also will issue Asset Backed
Certificates (the "Certificates" and, together with the Notes, the "Securities")
pursuant to the Trust Agreement which will be entitled to the extent provided
herein to amounts remaining after payments on the Notes, Trust expenses and
other required amounts. Payments on the Certificates will be subordinated to
payments of principal of and interest on the Notes to the extent described
herein. Only the Notes are being offered hereby.
(COVER CONTINUED ON FOLLOWING PAGE)
The full and timely payment of interest on and full and ultimate payment of
principal of the Notes is unconditionally and irrevocably guaranteed pursuant to
a financial guaranty insurance policy to be issued by MBIA Insurance Corporation
(the "Note Insurer").
[LOGO]
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-19 HEREOF AND ON PAGE 11 OF THE PROSPECTUS.
THE NOTES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES WILL REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN SSB VEHICLE SECURITIES INC., HYUNDAI MOTOR FINANCE COMPANY OR ANY
OF THEIR RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
Salomon Brothers Inc, ABN AMRO Incorporated and BancAmerica Robertson
Stephens (each an "Underwriter" and together, the "Underwriters") have agreed to
purchase the Notes and the Notes will be offered by the Underwriters from time
to time as provided herein in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. The aggregate proceeds to the
Depositor from the sale of the Notes are expected to be $299,188,029.50 before
deducting expenses payable by the Depositor of approximately $650,000.
The Notes are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any offer in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made in book-entry form through the
facilities of The Depository Trust Company ("DTC"), Cedel Bank, societe anonyme
("CEDEL") and the Euroclear System ("Euroclear") on or about April 16, 1998.
--------------------------
SALOMON SMITH BARNEY
ABN AMRO INCORPORATED
<PAGE>
BANCAMERICA ROBERTSON STEPHENS
The date of this Prospectus Supplement is April 9, 1998.
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(CONTINUED FROM PRIOR PAGE)
The assets of the Trust will include a pool of motor vehicle retail
installment sale contracts (the "Initial Receivables") and any additional motor
vehicle retail installment sale contracts conveyed to the Trust during the
Funding Period, as described herein (the "Subsequent Receivables" and, together
with the Initial Receivables, the "Receivables"), in each case secured by
security interests in the motor vehicles financed thereby, including the right
to receive payments collected thereon on or after the applicable cutoff date;
proceeds from certain insurance policies relating to the Receivables; certain
rights with respect to funds on deposit in the Reserve Account, the Collection
Account and in the Yield Maintenance Account; funds on deposit in an account of
the Trust to be used to purchase the Subsequent Receivables (the "Pre-Funding
Account"); funds on deposit in an account of the Trust established in connection
with the Pre-Funding Account (the "Capitalized Interest Account"), as described
herein; and certain other property, as more fully described herein. Holders of
the Notes also will have the benefit of a financial guaranty insurance policy to
be issued by MBIA Insurance Corporation.
Principal of and interest on the Notes generally will be distributable on
the fifteenth day of each month (or if such fifteenth day is not a business day,
the next succeeding business day), commencing May 15, 1998; however, no
principal payments will be made to holders of the Class A-2 Notes until the
Class A-1 Notes have been paid in full. The Class A-1 Final Scheduled
Distribution Date will be April 15, 2001 and the Class A-2 Final Scheduled
Distribution Date will be July 15, 2004; however, payment in full of the Class
A-1 Notes or Class A-2 Notes could occur earlier than the applicable Final
Scheduled Distribution Date, as described herein. The Notes are subject to
partial mandatory redemption to the extent of funds remaining in the Pre-Funding
Account at the end of the Funding Period (as defined herein).
THE NOTES ARE BEING OFFERED FROM TIME TO TIME PURSUANT TO THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS ACCOMPANYING THIS PROSPECTUS SUPPLEMENT. THIS
PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING
OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS, AND
PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
IN FULL. SALES OF THE NOTES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS
RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT THAT
ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT MODIFY STATEMENTS CONTAINED IN THE
PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
There currently is no secondary market for the Notes and there is no
assurance that one will develop. The Underwriters expect, but are not obligated,
to make a market in the Notes. There is no assurance that any such market will
develop, or if one does develop, that it will continue or provide sufficient
liquidity.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Notes. Such
transactions may include stabilizing and the purchase of Notes to cover
syndicate short positions. For a description of these activities, see
"Underwriting" herein.
Upon receipt of a request by a purchaser who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
purchaser's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Depositor or the related
Underwriter will promptly deliver, or cause to be delivered, without charge, a
paper copy of the Prospectus Supplement and Prospectus.
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
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REPORTS TO NOTEHOLDERS
Unless and until the Notes are issued in definitive certificated form,
monthly and annual unaudited reports containing information concerning the
Receivables will be prepared by the Servicer and sent on behalf of the Trust
only to Cede & Co., as nominee of DTC and registered holder of the Notes. See
"Certain Information Regarding the Securities--Book-Entry Registration" and
"--Reports to Securityholders" in the accompanying Prospectus. Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Depositor will file with the Securities and
Exchange Commission (the "Commission") such periodic reports with respect to the
Trust as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of the Note Insurer, a wholly-owned subsidiary of MBIA Inc., and its
subsidiaries as of December 31, 1997 and December 31, 1996 and for the three
years ended December 31, 1997, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of MBIA Inc.
for the year ended December 31, 1997 are hereby incorporated by reference in
this Prospectus Supplement and shall be deemed to be a part hereof. Any
statement contained in a document incorporated by reference herein shall be
modified or superseded for purposes of this Prospectus Supplement to the extent
that a statement contained herein or in any other subsequently filed document
which is also incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Note Insurer and its subsidiaries included
in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference into this Prospectus Supplement
and to be a part hereof from the respective dates of filing such documents.
The Depositor on behalf of the Trust hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Trust's annual report pursuant to section 13(a) or section 15(d) of the Exchange
Act and each filing of the financial statements of the Note Insurer included in
or as an exhibit to the annual report of MBIA Inc. filed pursuant to section
13(a) or section 15(d) of the Exchange Act that is incorporated by reference in
the Registration Statement (as defined in the accompanying Prospectus) shall be
deemed to be a new registration statement relating to the Notes offered hereby,
and the offering of such Notes at that time shall be deemed to be the initial
bona fide offering thereof.
S-3
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED BY REFERENCE TO THE DETAILED INFORMATION APPEARING
ELSEWHERE HEREIN AND IN THE PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS
SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT ON THE PAGES
INDICATED IN THE "INDEX OF DEFINED TERMS" OR, TO THE EXTENT NOT DEFINED HEREIN,
HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE PROSPECTUS.
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Issuer............................ Hyundai Auto Receivables Trust 1998-A (the "Trust"), a
Delaware business trust to be formed pursuant to the
Trust Agreement.
Seller............................ Hyundai Motor Finance Company ("HMFC" or, as seller of
the Receivables to the Depositor, the "Seller"), a
California corporation.
Servicer.......................... Hyundai Motor Finance Company (in its capacity as
servicer, the "Servicer").
Depositor......................... SSB Vehicle Securities Inc. (the "Depositor"), a
bankruptcy-remote, special-purpose Delaware corporation.
Note Insurer...................... MBIA Insurance Corporation, a New York stock insurance
company (the "Note Insurer"). See "MBIA Insurance
Corporation".
Indenture Trustee and Backup
Servicer........................ The Chase Manhattan Bank, a New York banking
corporation, as trustee under the Indenture (in such
capacity, the "Indenture Trustee"). The Chase Manhattan
Bank will agree in the Sale and Servicing Agreement to
act as backup servicer (in such capacity, the "Backup
Servicer") and to service the Receivables in the event
HMFC resigns or is removed as Servicer and the Note
Insurer consents thereto.
Owner Trustee..................... Wilmington Trust Company, a Delaware banking
corporation, acting not in its individual capacity but
solely as trustee under the Trust Agreement (the "Owner
Trustee").
Securities Issued by the Trust.... The Trust will issue its 5.90% Asset Backed Notes, Class
A-1 (the "Class A-1 Notes") in an aggregate initial
principal amount of $220,000,000 (the "Initial Class A-1
Note Balance") and its 6.05% Asset Backed Notes, Class
A-2 (the "Class A-2 Notes" and, together with the Class
A-1 Notes, the "Notes") in an aggregate initial
principal amount of $80,150,000 (the "Initial Class A-2
Note Balance") pursuant to an Indenture dated as of
April 1, 1998 (the "Indenture"), between the Trust and
the Indenture Trustee. Payments of interest on and
principal of the Notes will be secured by the assets of
the Trust pursuant to the Indenture. The "Note Balance"
as of any date of determination will equal the sum of
(i) the Initial Class A-1 Note Balance and (ii) the
Initial Class A-2 Note Balance, less all amounts
distributed to Noteholders on or prior to such date and
allocable to principal.
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The Trust will issue the Asset Backed Certificates (the
"Certificates" and together with the Notes, the
"Securities") pursuant to the Trust Agreement. The
Certificates, which will be issued to the Certificate
Trust on the Closing Date and are not being offered
hereby, will be entitled to the extent provided herein
to amounts remaining after payments on the Notes, Trust
expenses and other required amounts, and will be
subordinate to the Notes to the extent described herein.
The beneficial ownership interest in the Certificate
Trust (the "Beneficial Interest") will initially be held
by HMFC or an affiliate thereof.
The Notes will be issued in fully registered form in
minimum denominations of $1,000 and integral multiples
of $1,000 in excess thereof.
Assets of the Trust............... The assets of the Trust will include (i) a pool of motor
vehicle retail installment sale contracts (the "Initial
Receivables") having an aggregate principal balance as
of March 16, 1998 (the "Cutoff Date") of $298,454,560.93
(the "Cutoff Date Pool Balance") and any additional
motor vehicle retail installment sale contracts (the
"Subsequent Receivables" and, together with the Initial
Receivables, the "Receivables") purchased by the Trust
from the Depositor during the Funding Period (as defined
herein) from funds on deposit in an account (the
"Pre-Funding Account") established for that purpose,
(ii) all rights, benefits, obligations and proceeds
arising from or in connection with the Receivables,
including, in the case of each Initial Receivable, the
right to receive payments collected thereon on or after
the Cutoff Date, and, in the case of each Subsequent
Receivable, the right to receive payments collected
thereon on or after the day of the month in which such
Subsequent Receivable is conveyed to the Trust (the
"Subsequent Cutoff Date"), (iii) security interests in
the new and used automobiles, light duty trucks, vans
and minivans (the "Financed Vehicles") securing each
Receivable, (iv) the related Receivable files, (v) all
rights to insurance proceeds and liquidation proceeds
with respect to the Receivables, (vi) certain rights
under the Receivables Purchase Agreement dated as of
April 1, 1998 (the "Receivables Purchase Agreement") and
the Subsequent Purchase Agreement, between the Depositor
and the Seller, (vii) funds on deposit from time to time
in the Reserve Account; (viii) funds on deposit in the
Yield Maintenance Account; (ix) funds on deposit in the
Pre-Funding Account; (x) funds on deposit in the
Capitalized Interest Account, (xi) any proceeds from any
Receivable repurchased by a Dealer pursuant to a Dealer
Agreement; and (xii) funds on deposit in the Collection
Account. Holders of the Notes also will have the benefit
of a financial guaranty insurance policy to be issued by
the Note Insurer (the "Policy").
The Notes......................... The principal terms of the Notes will be as follows:
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S-5
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DISTRIBUTION DATES. Payments of interest on and
principal of the Notes will be made on the 15th day of
each month or, if such 15th day is not a Business Day,
the next succeeding Business Day, commencing May 15,
1998 (each such date, a "Distribution Date"). Payments
on the Notes will be made on each Distribution Date to
holders of record of the Notes (the "Noteholders") as of
the close of business on the day immediately preceding
such Distribution Date (the "Record Date").
For purposes of this document, "Business Day" means any
day other than a Saturday, a Sunday, a legal holiday or
any other day on which the Note Insurer or commercial
banking institutions in New York or California are
authorized or required by law, executive order or
governmental decree to be closed.
INTEREST RATES. The Class A-1 Notes will bear interest
at the rate of 5.90% per annum (the "Class A-1 Rate").
The Class A-2 Notes will bear interest at the rate of
6.05% per annum (the "Class A-2 Rate").
PAYMENTS OF INTEREST. Interest with respect to each
Distribution Date will accrue on the outstanding
principal amount of the Class A-1 Notes (the "Class A-1
Monthly Interest Distributable Amount") at the Class A-1
Rate and on the outstanding principal amount of the
Class A-2 Notes (the "Class A-2 Monthly Interest
Distributable Amount") at the Class A-2 Rate, from and
including the 15th day of the preceding calendar month
(or, in the case of the first Distribution Date, from
and including the Closing Date) to and including the
14th day of the calendar month in which such
Distribution Date occurs. Interest on the Notes will be
calculated on the basis of a 360-day year consisting of
twelve 30-day months. Interest that is due but not paid
on any Distribution Date on the Class A-1 Notes or the
Class A-2 Notes will be payable on the following
Distribution Date, with interest on such overdue amount
(to the extent lawful) at the Class A-1 Rate or the
Class A-2 Rate, as applicable (the "Class A-1 Interest
Carryover Shortfall" and "Class A-2 Interest Carryover
Shortfall", respectively). The Class A-1 Monthly
Interest Distributable Amount and the Class A-1 Interest
Carryover Shortfall are referred to herein collectively
as the "Class A-1 Interest Distributable Amount"; and
the Class A-2 Monthly Interest Distributable Amount and
the Class A-2 Interest Carryover Shortfall are referred
to herein collectively as the "Class A-2 Interest
Distributable Amount." The Class A-1 Interest
Distributable Amount and the Class A-2 Interest
Distributable Amount are referred to herein collectively
as the "Noteholders' Interest Distributable Amount."
Interest payments to holders of the Class A-1 Notes and
the Class A-2 Notes will have the same priority. If the
amount available for distribution to Noteholders on any
Distribution
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Date is less than the amount of interest payable on the
Notes, Noteholders will receive their ratable share of
such amount, based on the aggregate amount of interest
due on such date on each class of the Notes. See
"Description of the Notes-- Payments of Interest."
PAYMENTS OF PRINCIPAL. Principal of the Class A-1 Notes
will be payable on each Distribution Date in an amount
equal to the Class A-1 Principal Distributable Amount
for the related Collection Period, to the extent of
funds available therefor. The "Collection Period" with
respect to any Distribution Date (other than the first
Distribution Date) will be the calendar month preceding
such Distribution Date and with respect to the first
Distribution Date will be the period from and including
March 16, 1998 to and including April 30, 1998. The
"Class A-1 Principal Distributable Amount" will equal
the sum of (i) the Class A-1 Monthly Principal
Distributable Amount and (ii) any portion of the Class
A-1 Principal Distributable Amount that was due but
unpaid on the immediately preceding Distribution Date
(the "Class A-1 Principal Carryover Shortfall"). The
"Class A-1 Monthly Principal Distributable Amount" for
any Distribution Date until the Class A-1 Notes are paid
in full will equal the Note Percentage of the Regular
Principal Distribution Amount. The "Note Percentage" on
any Distribution Date will be the percentage equal to
the Note Balance divided by the Pool Balance as of the
preceding Distribution Date; provided that the Note
Percentage may be increased to 100% upon the occurrence
of certain events set forth in the Sale and Servicing
Agreement. The initial Note Percentage will be 87%.
The "Regular Principal Distribution Amount" on any
Distribution Date will be the sum of the following
amounts, without duplication, with respect to the
related Collection Period: (i) that portion of all
collections on the Receivables allocable to principal;
(ii) the aggregate outstanding principal balance of all
Receivables that became Liquidated Receivables during
such Collection Period; (iii) that portion allocable to
principal of the aggregate amount of any losses caused
by the issuance during the related Collection Period of
an order by any court of appropriate jurisdiction in any
insolvency proceeding that reduces the amount owed under
a Receivable (each such reduction, a "Cram Down Loss");
and (iv) that portion allocable to principal of the
Purchase Amount of all Receivables that became Purchased
Receivables during or in respect of such Collection
Period.
No principal payments will be made on the Class A-2
Notes until the Class A-1 Notes have been paid in full.
On each Distribution Date, commencing on the
Distribution Date on which the Class A-1 Notes are paid
in full, principal of the Class A-2 Notes will be
payable in an amount equal to the Class A-2 Principal
Distributable Amount for the related Collection Period,
to the
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extent of funds available therefor. The "Class A-2
Principal Distributable Amount" will equal the sum of
(i) the Class A-2 Monthly Principal Distributable Amount
and (ii) any portion of the Class A-2 Principal
Distributable Amount that was due but unpaid on the
immediately preceding Distribution Date (the "Class A-2
Principal Carryover Shortfall"). The Class A-1 Principal
Distributable Amount and the Class A-2 Principal
Distributable Amount are referred to herein collectively
as the "Noteholders' Principal Distributable Amount."
The "Class A-2 Monthly Principal Distributable Amount"
for any Distribution Date on or after the Distribution
Date on which the Class A-1 Notes are paid in full will
equal the Note Percentage of the Regular Principal
Distribution Amount (or, on the Distribution Date on
which the Class A-1 Notes are paid in full, the Note
Percentage of the Regular Principal Distribution Amount
remaining after the Class A-1 Notes are paid in full).
The "Total Distribution Amount" with respect to each
Distribution Date will equal the sum of the Regular
Principal Distribution Amount (other than the portion
thereof attributable to Realized Losses or Cram Down
Losses) and an amount (the "Interest Distribution
Amount") equal to the sum of the following amounts,
without duplication, with respect to the related
Collection Period: (i) that portion of all collections
on the Receivables allocable to interest; (ii) that
portion of all net liquidation proceeds allocable to
interest; (iii) that portion allocable to interest of
the Purchase Amount of each Receivable that became a
Purchased Receivable during or in respect of the related
Collection Period; (iv) any Yield Maintenance Payments
and Capitalized Interest Payments; and (v) any
investment income from the investment of amounts on
deposit in the Collection Account. "Realized Losses" as
to any Distribution Date will equal the amount, if any,
by which the outstanding aggregate principal balance of
all Receivables that became Liquidated Receivables
during the related Collection Period exceeds that
portion allocable to principal of all net liquidation
proceeds received with respect to such Liquidated
Receivables.
The outstanding principal amount, if any, of the Class
A-1 Notes will be payable in full on the April 15, 2001
Distribution Date (the "Class A-1 Final Scheduled
Distribution Date") and the outstanding principal
amount, if any, of the Class A-2 Notes will be payable
in full on the July 15, 2004 Distribution Date (the
"Class A-2 Final Scheduled Distribution Date").
MANDATORY REDEMPTION. The Notes are subject to partial
mandatory redemption on the Mandatory Redemption Date if
any portion of the Pre-Funded Amount remains on deposit
in the Pre-Funding Account after giving effect to the
purchase of all Subsequent Receivables, including those
purchases, if any,
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made on the last day of the Funding Period. If the
amount on deposit in the Pre-Funding Account is $100,000
or less, then such amount will be applied in reduction
of the principal balance of the Class A-1 Notes. If the
amount on deposit in the Pre-Funding Account exceeds
$100,000, then such amount will be applied in reduction
of the principal balance of each Class of Notes, pro
rata, based on the respective principal balances thereof
as of the preceding Distribution Date. The "Mandatory
Redemption Date" is the Distribution Date immediately
following the last day of the Funding Period.
The Certificates.................. The Certificates will not accrue interest and no
payments of interest will be made on the Certificates.
Payments will be made on the Certificates to the extent
of available funds after payments on the Notes, Trust
expenses and other required amounts.
Optional Redemption; Optional
Prepayment...................... The Class A-2 Notes may be retired, in whole but not in
part, on any Distribution Date on which either the
Servicer or the Note Insurer exercises its option to
purchase the Receivables. Under the terms of the Sale
and Servicing Agreement, the Servicer or, in certain
events, the Note Insurer may purchase the Receivables
when the Pool Balance has been reduced to 10% or less of
the Initial Pool Balance. The "Pool Balance" on any
Distribution Date will equal the sum of (i) the
aggregate principal balance of the Receivables at the
end of the related Collection Period, after giving
effect to all payments of principal received from
Obligors and Purchase Amounts to be remitted by the
Servicer or HMFC, as the case may be, for such
Collection Period, and after adjustment for Cram Down
Losses and reduction to zero of the aggregate
outstanding principal balance of all Receivables that
became Liquidated Receivables during such Collection
Period and (ii) the Pre-Funded Amount, if any. The
"Initial Pool Balance" will equal the sum of (i) the
aggregate principal balance of the Initial Receivables
as of the Cutoff Date and (ii) the aggregate principal
balances of all Subsequent Receivables as of the
Subsequent Cutoff Date. Any such purchase of the
Receivables by the Servicer will result in the early
retirement of the Class A-2 Notes at a purchase price
equal to the outstanding principal amounts thereof plus
accrued and unpaid interest thereon plus all amounts due
to the Note Insurer. If the exercise of such option
would result in a draw on the Policy, the Note Insurer's
written consent shall be necessary for the Servicer to
exercise such option.
The Receivables................... The Receivables will consist of motor vehicle retail
installment sale contracts (the "Contracts") secured by
new or used automobiles, light duty trucks, vans and
minivans, including the right to receive certain
payments made with respect thereto, security interests
in the related Financed Vehicles and the proceeds
thereof. The Contracts were or will be originated by
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retail motor vehicle dealers ("Dealers") who participate
in HMFC's auto financing program and were or will be
acquired by HMFC from such Dealers. See "HMFC's
Automobile Financing Program."
The Trust will purchase the Initial Receivables from the
Depositor on April 16, 1998 (the "Closing Date")
pursuant to a Sale and Servicing Agreement dated as of
April 1, 1998 (the "Sale and Servicing Agreement"),
among the Trust, the Depositor, the Seller, the
Servicer, the Indenture Trustee, the Custodian, the
Administrator and the Backup Servicer.
The Depositor will have purchased the Initial
Receivables, and subject to the availability thereof,
will be obligated to purchase the Subsequent
Receivables, from the Seller pursuant to the Receivables
Purchase Agreement. In the Receivables Purchase
Agreement and the Subsequent Purchase Agreement, the
Seller will make certain representations and warranties
with respect to the Receivables and will agree to
repurchase any Receivable with respect to which there is
a breach of any such representation and warranty if such
breach has a material and adverse effect on the
interests of the Depositor, the Note Insurer or the
Trust in such Receivable. Under the Sale and Servicing
Agreement, the Depositor will assign all of its rights
under the Receivables Purchase Agreement and the
Subsequent Purchase Agreement, including its right to
enforce the Seller's repurchase obligation, to the
Trust.
The Initial Receivables have been selected from the
Seller's portfolio of Contracts based on the criteria
specified in the Receivables Purchase Agreement and the
Sale and Servicing Agreement and are described herein
under "The Receivables Pool." As of the Cutoff Date, the
weighted average annual percentage rate ("APR") of the
Initial Receivables was approximately 14.92%, the
weighted average remaining term to maturity of the
Initial Receivables was approximately 43.72 months, and
the weighted average original term to maturity of the
Initial Receivables was approximately 58.95 months. No
Initial Receivable has, and no Subsequent Receivable
will have, a scheduled maturity later than January 31,
2004.
After the Closing Date, the Trust will be obligated to
purchase from the Depositor from time to time before the
end of the Funding Period, from funds on deposit in the
Pre-Funding Account and subject to the availability
thereof, Subsequent Receivables satisfying the criteria
set forth in the Sale and Servicing Agreement. The
aggregate principal balance of the Subsequent
Receivables is anticipated by the Seller to be
approximately $46,545,439.07. Pursuant to the
Receivables Purchase Agreement and the Sale and
Servicing Agreement, the Depositor will purchase
Subsequent Receivables from the Seller
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and is obligated to sell the Subsequent Receivables to
the Trust, and the Trust may purchase Subsequent
Receivables only from the Depositor. During the Funding
Period, the Depositor will purchase the Subsequent
Receivables from the Seller pursuant to a subsequent
purchase agreement (the "Subsequent Purchase Agreement")
and will convey the Subsequent Receivables on a
designated date (the "Subsequent Transfer Date") to the
Trust pursuant to a subsequent transfer agreement (the
"Subsequent Transfer Agreement").
Subsequent Receivables conveyed to the Trust on the
Subsequent Transfer Date during the Funding Period will
be subject to certain criteria set forth in the Sale and
Servicing Agreement and are required to be originated by
the Seller using such criteria, however seasoning and
the proportion of certain other characteristics of the
pool of Receivables after the Pre-Funding Period may
vary from the pool of Initial Receivables. See "Risk
Factors" and "The Receivables Pool" herein.
The Receivables may be prepaid at any time without
penalty to the purchaser or co-purchasers of the
Financed Vehicle or any other person or persons who are
obligated to make payments thereunder (each, an
"Obligor").
Pre-Funding Account............... On the Closing Date, a cash amount equal to
approximately $46,545,439.07 will be deposited into an
account (the "Pre-Funding Account") which will be
established in the name of the Indenture Trustee. The
Pre-Funding Account will be an asset of the Trust and
will be pledged to the Indenture Trustee pursuant to the
Indenture. Such amount will be funded from the sale of
the Securities and is expected to be used to acquire
Subsequent Receivables. The "Funding Period" is the
period from and including the Closing Date until the
earliest of (i) the Determination Date on which the
amount on deposit in the Pre-Funding Account is $100,000
or less; (ii) the occurrence of a Servicer Termination
Event under the Sale and Servicing Agreement or an
Indenture Event of Default under the Indenture; (iii)
the Determination Date in July 1998; and (iv) the
Subsequent Transfer Date. The "Pre-Funded Amount" will
initially equal $46,545,439.07 and will be reduced
during the Funding Period by the amount thereof used to
purchase Subsequent Receivables in accordance with the
Sale and Servicing Agreement and by the amount thereof
deposited in the Reserve Account and the Yield
Maintenance Account in connection with the purchase of
such Subsequent Receivables. The Depositor expects that
the Pre-Funded Amount will be reduced to less than
$100,000 on or before the Determination Date in July
1998. Any Pre-Funding Amount remaining at the end of the
Funding Period will be payable as a principal
distribution to the Noteholders as a partial mandatory
redemption on the immediately following Distribution
Date.
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Capitalized Interest Account...... On the Closing Date, a cash amount will be deposited in
an account (the "Capitalized Interest Account") which
will be established in the name of the Indenture
Trustee. The Capitalized Interest Account will be an
asset of the Trust, and will be pledged to the Indenture
Trustee pursuant to the Indenture. The amount so
deposited in the Capitalized Interest Account, including
reinvestment income thereon, will be applied on each
Distribution Date up to and including the Mandatory
Redemption Date to the amount of interest accrued at the
Weighted Average Note Rate (as defined herein) on the
amount equal to 87% of the amount by which the sum of
the Certificate Balance and the Note Balance exceeds the
Cutoff Date Pool Balance. Any amounts remaining in the
Capitalized Interest Account not needed for such purpose
will be paid to the Trust at the end of the Funding
Period. The "Weighted Average Note Rate" shall be the
percentage equivalent of a fraction, the numerator of
which is the sum of (i) the product of the Class A-1
Rate times the Initial Class A-1 Note Balance plus (ii)
the product of the Class A-2 Rate times the Initial
Class A-2 Note Balance, and the denominator of which is
the sum of the Initial Class A-1 Note Balance and the
Initial Class A-2 Note Balance.
Credit Enhancement
A. The Policy................. Concurrently with the issuance of the Notes, the Note
Insurer will issue the Policy to the Indenture Trustee
pursuant to an Insurance Agreement dated as of April 1,
1998 (the "Insurance Agreement"), among the Note
Insurer, the Trust, HMFC, the Indenture Trustee, the
Backup Servicer, the Administrator and the Depositor.
Under the Policy, the Note Insurer will unconditionally
and irrevocably guarantee (i) the full, complete and
timely payment of the Noteholders' Interest
Distributable Amount and the ultimate payment of the
Noteholders' Principal Distributable Amount as set forth
herein (collectively, the "Guaranteed Payments") and
(ii) the full and complete payment of any portion of the
interest or principal that is distributed to Noteholders
and subsequently recovered from any such holder pursuant
to a final, nonappealable order of a court of competent
jurisdiction under applicable bankruptcy or insolvency
laws in accordance with the terms of the Policy.
B. Reserve Account............ On the Closing Date, the Trust will establish an account
(the "Reserve Account") and will make an initial deposit
thereto of an amount to be agreed upon by the Trust and
the Note Insurer. In addition, on the Subsequent
Transfer Date, an additional amount will be deposited
into the Reserve Account from the amount withdrawn from
the Pre-Funding Account in connection with the sale of
Subsequent Receivables to the Trust. The amount
initially deposited in the Reserve Account, together
with the amount of any additional deposit referred to
above in connection with the Subsequent Transfer Date,
is referred to as the "Reserve Account Initial Deposit."
The Reserve Account
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will be an asset of the Trust and will be an Eligible
Account held by the Indenture Trustee, and will be
pledged to the Indenture Trustee for the benefit of the
Noteholders and the Note Insurer. Unless certain events
specified in the Sale and Servicing Agreement have
occurred, on each Distribution Date on which the amount
on deposit in the Reserve Account is less than the
Reserve Account Required Amount, the Total Distribution
Amount remaining after the payment of clauses (i)
through (vi) under "Description of the Transfer and
Servicing Agreements -- Distributions -- Deposits to the
Distribution Accounts" herein, up to an amount equal to
such shortfall, will be deposited to the Reserve
Account.
The "Reserve Account Required Amount" with respect to
any Distribution Date will be determined in accordance
with the Sale and Servicing Agreement. The Reserve
Account Required Amount may be increased or decreased
over time as a result of certain floors, caps or
triggers as set forth in the Sale and Servicing
Agreement. Such floors, caps and triggers may be
changed, modified or waived by the Note Insurer as
provided in the Sale and Servicing Agreement. Generally,
the Sale and Servicing Agreement provides that such
changes, modifications or waivers are at the sole
discretion of the Note Insurer.
All amounts on deposit in the Reserve Account on any
Distribution Date will be available to make up
shortfalls in the Noteholders' Distributable Amount to
the extent described herein and for certain other
purposes. On each Distribution Date, amounts on deposit
in the Reserve Account in excess of the Reserve Account
Required Amount may be released to the
Certificateholders or other entities, subject to certain
conditions set forth in the Sale and Servicing
Agreement. The Noteholders will have no further interest
in or rights with respect to any amounts so released
from the Reserve Account.
Any amounts held on deposit in the Reserve Account and
any investment earnings thereon will be the property of
the Trust.
C. Yield Maintenance
Account....................... On the Closing Date, the Trust will establish an account
(the "Yield Maintenance Account") for the benefit of the
Noteholders and the Note Insurer with respect to those
Receivables which have annual percentage rates of
interest which are less than the sum of (i) the Weighted
Average Note Rate, (ii) the Servicing Fee Rate (as
defined herein), (iii) the Note Insurer's premium rate
and (iv) the rate representing the sum of the fees of
the Indenture Trustee, the Owner Trustee, the Backup
Servicer and the Custodian are calculated (the sum of
such rates, the "Required Rate"). The Yield Maintenance
Account will be an asset of the Trust and will be an
Eligible Account held by the Indenture Trustee, and will
be pledged to the Indenture Trustee for the benefit of
Noteholders and the Note Insurer. The Trust will make an
initial deposit to the Yield
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Maintenance Account on the Closing Date in an amount
necessary to make payments ("Yield Maintenance
Payments") resulting from shortfalls on interest
collections with respect to the Initial Receivables
having an APR of less than the Required Rate. In
addition, on the Subsequent Transfer Date, an additional
amount will be deposited into the Yield Maintenance
Account from the amount withdrawn from the Pre-Funding
Account in connection with the sale of Subsequent
Receivables to the Trust. The amount initially deposited
in the Yield Maintenance Account, together with the
amount of any additional deposit referred to above in
connection with the Subsequent Transfer Date, is
referred to as the "Initial Yield Maintenance Amount."
The Initial Yield Maintenance Amount will be calculated
using a zero prepayment rate on the Receivables and a
constant Weighted Average Note Rate. On each
Determination Date, the Servicer is permitted to
recalculate the amount required to be on deposit in the
Yield Maintenance Account (the "Yield Maintenance
Amount"), which amount may decline as Receivables having
less than the Required Rate prepay, or are otherwise
removed from the Trust. Any amounts in excess of the
Yield Maintenance Amount will be released to the Trust.
Amounts may be withdrawn from the Yield Maintenance
Account only with respect to the interest shortfalls
described above.
D. Subordination of the
Certificates............... No distribution will be made to Certificateholders on
any Distribution Date until the holders of the Notes
have been paid the Noteholders' Distributable Amount for
such Distribution Date and the Note Insurer has been
paid in full. This subordination is intended to enhance
the likelihood of timely receipt by the Noteholders of
the full amount of interest and principal distributable
to them on each Distribution Date and to afford the
Noteholders limited protection against losses in respect
of the Receivables.
Certificate Trust................. On the Closing Date, the Certificates will be issued to
a Delaware business trust (the "Certificate Trust"). The
Certificate Trust will be created pursuant to an
agreement (the "Certificate Trust Agreement") to be
dated as of April 1, 1998, between the Depositor and the
Owner Trustee. The Certificate Trust will issue the
Beneficial Interest which will initially be held by HMFC
or an affiliate thereof.
Allocation of Collections......... On each Distribution Date, the Total Distribution Amount
(and, if applicable, amounts on deposit in the Reserve
Account and amounts payable by the Note Insurer pursuant
to the Policy) will be applied in the following order of
priority (subject to certain events set forth in the
Sale and Servicing Agreement): (i) fees currently due to
the Indenture Trustee, the Owner Trustee, the Custodian
and the Backup Servicer; (ii) the Senior Servicing Fee
(together with any portion of the Senior Servicing Fee
that
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remains unpaid from prior Collection Periods and certain
servicing transition costs in the event of a Successor
Servicer); (iii) the Noteholder's Interest Distributable
Amount; (iv) the Insurance Premium; (v) the Noteholders'
Principal Distributable Amount; (vi) any reimbursement
amounts owed to the Note Insurer pursuant to the
Insurance Agreement; (vii) any deficiency in the Reserve
Account Required Amount; (viii) any other accrued and
unpaid fees owed to the Indenture Trustee, Owner
Trustee, Custodian and the Backup Servicer, to the
extent such fees are not paid by the Servicer; (ix) the
Subordinated Servicing Fee and certain other servicing
costs; (x) any costs associated with the perfection of
security interests in the Financed Vehicles to the
extent not paid by the Servicer; and (xi) the remaining
balance, if any, to the Certificateholders.
If the Total Distribution Amount remaining on any
Distribution Date after payment of the amounts due
pursuant to clauses (i) and (ii) above is insufficient
to pay clauses (iii) and (v), such shortfall will be
paid, only to the extent specified herein from amounts
available, if any, in the Reserve Account and then, with
respect to clause (iii) from amounts payable under the
Policy and with respect to clause (v), amounts payable
under the Policy, only to the extent specified herein.
Upon the occurrence of certain events set forth in the
Sale and Servicing Agreement, any amounts remaining
after the payment of clause (v) and any amounts in the
Reserve Account, in the sole discretion of the Note
Insurer, may be applied to reduce the then outstanding
principal balance of the Notes and for certain other
purposes.
Transfer and Servicing
Agreements...................... The Seller will sell the Receivables to the Depositor
and will make certain representations and warranties
with respect to the Receivables pursuant to the
Receivables Purchase Agreement and Subsequent Purchase
Agreement. Pursuant to the Sale and Servicing Agreement
and Subsequent Transfer Agreement, the Depositor will
sell the Receivables and will assign its rights under
the Receivables Purchase Agreement and Subsequent
Purchase Agreement, including its right to cause the
Seller to repurchase Receivables with respect to which
it is in breach of a representation and warranty if such
breach has a material and adverse effect on the
interests of the Depositor, the Note Insurer or the
Trust. The rights and benefits of the Trust under the
Sale and Servicing Agreement will be assigned to the
Indenture Trustee as collateral for the Notes pursuant
to the Indenture. The Servicer will agree with the
Trust, for the benefit of the Noteholders and the Note
Insurer, to be responsible for servicing, managing and
making collections on the Receivables. The Chase
Manhattan Bank will undertake certain administrative
duties pursuant to an Administration Agreement
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dated as of April 1, 1998, among the Trust, the
Indenture Trustee and the Administrator.
Consistent with its normal procedures, the Servicer may,
in its discretion and in compliance with the
requirements set forth in the Sale and Servicing
Agreement, arrange with an Obligor to extend the payment
due date under the related Receivable. No such
arrangement will extend the final payment date on any
Receivable beyond the last day of the Collection Period
ending three months prior to the Final Scheduled
Maturity Date. If the Servicer grants an extension with
respect to a Receivable other than in accordance with
the aforementioned limitations, the Servicer will be
required to purchase the Receivable for the Purchase
Amount.
The Servicer will be entitled to receive a fee for
servicing the Receivables on each Distribution Date (the
"Senior Servicing Fee" and the "Subordinate Servicing
Fee", together, the "Servicing Fee") equal to 3% per
annum of the Pool Balance as of the first day of the
related Collection Period (the "Servicing Fee Rate"),
plus certain late fees, prepayment charges and other
administrative fees or similar charges received from the
Obligors.
Collections; Local Remittance
Account......................... The Servicer will be responsible for servicing, managing
and making collections on the Receivables. Each Obligor
makes payments with respect to the Receivables directly
to one of several post office boxes at Citibank N.A. On
each Business Day, Citibank N.A., as the remittance
processor will transfer any such payments received by it
to an account or accounts held by HMFC (the "Local
Remittance Account"). Within two Business Days of
receipt of funds into the Local Remittance Account, the
Servicer is required to effect a transfer of such funds
from the Local Remittance Account to the Collection
Account established with the Trustee.
Backup Servicer................... If a Servicer Termination Event occurs under the Sale
and Servicing Agreement, the rights and obligations of
the Servicer may be terminated (x) if no Note Insurer
Default shall have occurred and be continuing, by the
Note Insurer in its sole and absolute discretion or (y)
if a Note Insurer Default shall have occurred and be
continuing, by the Indenture Trustee or the holders of
Notes evidencing 25% or more of the aggregate
outstanding principal amount of the Notes. If the rights
and obligations of the Servicer are so terminated while
HMFC is the Servicer, or if HMFC resigns as Servicer,
and with the prior written consent of the Note Insurer,
the Backup Servicer or another entity acceptable to the
Note Insurer shall act as successor Servicer. The Backup
Servicer will receive a portion of the Servicing Fee for
each Collection Period as compensation
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for agreeing to stand by as successor Servicer and for
performing certain other functions.
Certain Legal Aspects of the
Receivables; Repurchase
Obligations..................... In connection with the sale of the Receivables, security
interests in the Financed Vehicles securing the
Receivables will be assigned by the Seller to the
Depositor pursuant to the Receivables Purchase Agreement
and Subsequent Purchase Agreement and by the Depositor
to the Trust pursuant to the Sale and Servicing
Agreement and Subsequent Transfer Agreement and will be
pledged by the Trust to the Indenture Trustee pursuant
to the Indenture as security for the Notes. Due to the
administrative burden and expense, however, the
certificates of title to the Financed Vehicles will not
be amended or reissued to reflect the assignment of such
security interests to either the Depositor or the Trust
or the pledge pursuant to the Indenture. In the absence
of such amendments, either the Trust, the Indenture
Trustee or both may not have a perfected security
interest in the Financed Vehicles securing the
Receivables in some states. The Seller will be obligated
to repurchase any Receivables sold to the Depositor (and
subsequently sold by the Depositor to the Trust) as to
which there did not exist on the Closing Date a
perfected first priority security interest in the name
of the Seller in the related Financed Vehicle if such
failure materially and adversely affects the interest of
any of the Trust, the Indenture Trustee or the Note
Insurer in such Receivable and if such failure is not
cured in a timely manner.
To the extent their respective security interests in a
Financed Vehicle are perfected, the Trust and the
Indenture Trustee will have a prior claim over
subsequent purchasers of such Financed Vehicle and
holders of subsequently perfected security interests
therein. However, as against liens for repairs or
storage of a Financed Vehicle or for taxes unpaid by the
related Obligor, or through fraud or negligence, the
Trust and the Indenture Trustee could lose their
respective security interests or the priority of such
security interests in a Financed Vehicle. The Seller
will not have any obligation to repurchase a Receivable
with respect to which the Trust or the Indenture Trustee
loses its security interest or the priority of its
security interest in the related Financed Vehicle after
the Closing Date due to any such lien for repairs,
storage or taxes or due to the negligence or fraud of a
third party.
Tax Status........................ In the opinion of Brown & Wood LLP, special federal tax
counsel to the Trust, for federal income tax purposes,
the Notes will be characterized as debt, and the Trust
will not be characterized as an association (or a
publicly traded partnership) that is taxable as a
corporation. Each Noteholder, by the acceptance of a
Note, will agree to treat the Notes as indebtedness.
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ERISA Considerations.............. Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Notes
are eligible for purchase by employee benefit plans.
Rating of the Notes............... It is a condition to the issuance of the Notes that the
Notes be rated "Aaa" by Moody's Investors Service, Inc.
("Moody's") and "AAA" by Standard & Poor's Ratings
Services ("Standard & Poor's" and, together with
Moody's, the "Rating Agencies"). The ratings of the
Notes will be based primarily on the issuance of the
Policy by the Note Insurer and the claims paying ability
of the Note Insurer.
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RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement, and the accompanying Prospectus, prospective investors in the Notes
should consider the following risk factors and the risk factors in the
Prospectus before investing in the Notes. See "Risk Factors" in the Prospectus.
LIMITED LIQUIDITY; ABSENCE OF A SECONDARY MARKET MAY LIMIT THE ABILITY OF A
NOTEHOLDER TO SELL NOTES
There is currently no secondary market for the Notes offered hereby. The
Underwriters currently intend to make a market in the Notes, but are under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the
Noteholders with liquidity of investment or that it will continue for the life
of the Notes.
CHANGING SERVICERS MAY CAUSE DISRUPTIONS IN COLLECTIONS
If a Servicer Termination Event occurs and HMFC is removed as Servicer, or
if HMFC resigns or is terminated as Servicer by the Note Insurer, the Backup
Servicer, with the prior written consent of the Note Insurer, has agreed to
assume the obligations of successor Servicer under the Sale and Servicing
Agreement. There can be no assurance, however, that collections with respect to
the Receivables would not be adversely affected by a change in Servicer. See
"Description of the Transfer and Servicing Agreements--Rights Upon Servicer
Termination Event" and "--Backup Servicer."
AN INDENTURE EVENT OF DEFAULT MAY ACCELERATE LIQUIDATION OF THE RECEIVABLES
If an event of default occurs under the Indenture (an "Indenture Event of
Default") at a time when no Note Insurer Default has occurred and is continuing,
neither the Indenture Trustee nor the Noteholders may declare the Notes to be
immediately due and payable. Upon the occurrence of any such Indenture Event of
Default, so long as a Note Insurer Default shall not have occurred and be
continuing, the Note Insurer will have the right, but not the obligation, to
cause the liquidation, in whole or in part, of the Receivables, which may result
in the redemption, in whole or in part, of the Notes. Following the occurrence
of such an Indenture Event of Default, the Note Insurer will be obligated, upon
receipt of a claim under the Policy, to make payments on the Noteholders'
Interest Distributable Amount on each Distribution Date and make payments as set
forth herein and in the Policy on the Noteholders' Principal Distributable
Amount; however, the Note Insurer also may determine in its sole discretion to
pay, from time to time after any such Indenture Event of Default, all or any
portion of the outstanding amount of the Notes plus accrued interest thereon.
See "Description of the Notes--Certain Provisions of the Indenture-- Indenture
Events of Default; Rights upon Indenture Event of Default."
PREPAYMENT FROM THE PRE-FUNDING ACCOUNT; ABILITY TO ORIGINATE SUBSEQUENT
RECEIVABLES MAY BE LIMITED
The conveyance of Subsequent Receivables to the Trust during the Funding
Period is subject to the conditions described in the Sale and Servicing
Agreement and herein under "The Receivables Pool." Each Subsequent Receivable
must satisfy the eligibility criteria specified herein and in the Sale and
Servicing Agreement. The ability of the Depositor to convey Subsequent
Receivables to the Trust is completely dependent upon the ability of HMFC to
originate through Dealers a sufficient amount of motor vehicle retail
installment sales contracts that meet the requirements set forth herein and in
the Sale and Servicing Agreement for transfer on the Subsequent Transfer Date.
The ability of HMFC to originate sufficient Subsequent Receivables may be
affected by a variety of social and economic factors. Economic factors include
interest rates, unemployment levels, the rate of inflation and consumer
perception of economic conditions generally. Neither HMFC nor the Depositor has
any basis to predict the extent to which economic or social factors will affect
the availability of Subsequent Receivables. Although no assurances can be given,
HMFC presently expects that it will originate sufficient Subsequent Receivables
satisfying the
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criteria set forth herein and in the Sale and Servicing Agreement to deplete the
Pre-Funded Amount by the end of the Funding Period. See "The Receivables Pool"
herein.
The Notes are subject to partial mandatory redemption or prepayment on the
Mandatory Redemption Date if any portion of the Pre-Funded Amount remains on
deposit in the Pre-Funding Account after giving effect to the purchase of all
Subsequent Receivables, including those purchases, if any, made on the last day
of the Funding Period. If the amount on deposit in the Pre-Funding Account is
$100,000 or less, then such amount will be applied in reduction of the principal
balance of the Class A-1 Notes. If the amount on deposit in the Pre-Funding
Account exceeds $100,000, then such amount will be applied in reduction of the
principal balance of each Class of Notes based on the respective principal
balances thereof as of the preceding Distribution Date. The "Mandatory
Redemption Date" is the Distribution Date immediately following the last day of
the Funding Period. Any reinvestment risk from the redemption or prepayment of
the Notes from the Pre-Funded Amount at the end of the Funding Period will be
borne by the Noteholders.
MATURITY AND PREPAYMENT ASSUMPTIONS ARE ESTIMATES
All of the Receivables may be prepaid at any time without penalty. 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 HMFC. For purposes of this Prospectus Supplement, the term prepayment
includes partial and full prepayments, liquidations due to defaults, losses
caused by the issuance of an order by a court in any insolvency proceeding
reducing the amount owed under a Receivable, as well as receipts of proceeds
from physical damage, loss upon repossession, credit life and credit accident
and health insurance policies and the Purchase Amounts. The rate of prepayment
on the Receivables may also be influenced by the structure of the related
contract, the nature of the Obligors and the Financed Vehicles and servicing
decisions as discussed above.
Under certain circumstances, the Seller or the Servicer may be obligated to
purchase Receivables with respect to which it is in breach of certain
representations, warranties or covenants under the Receivables Purchase
Agreement, the Subsequent Purchase Agreement or the Sale and Servicing
Agreement, as applicable. Subject to certain conditions, the Servicer, and if it
does not exercise such rights, the Note Insurer, has the right to purchase the
Receivables when the Pool Balance has been reduced to 10% or less of the Initial
Pool Balance. See "Description of the Notes--Optional Redemption." Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
the Receivables will be borne entirely by the Noteholders. HMFC is unable to
make a prediction as to the actual prepayment rates that will be experienced on
the Receivables.
LIMITED OBLIGATION OF HMFC; LIMITED ASSETS OF THE TRUST
The Seller generally is not obligated to make any payments in respect of the
Notes or the Receivables. In connection with its sale of the Receivables to the
Depositor, the Seller will make certain representations and warranties regarding
the characteristics of the Receivables and, in certain circumstances, the Seller
may be required to repurchase Receivables with respect to which such
representations or warranties are not true as of the date made. See "Description
of the Transfer and Servicing Agreements--Sale and Assignment of Receivables;
Subsequent Receivables." There is no assurance, however, that the Seller will
have the financial ability to effect any repurchase of Receivables. The Seller
is not otherwise obligated with respect to the Securities.
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and, to the
extent available, amounts on deposit in the Pre-Funding Account, the Capitalized
Interest Account, the Reserve Account and the Yield Maintenance Account.
Although funds in the Reserve Account and the Yield Maintenance Account
generally will be available on
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each Distribution Date to cover shortfalls in the Noteholders' Interest
Distributable Amount and, in the case of the Reserve Account, to make payments
as set forth herein on the Noteholders' Principal Distributable Amount, such
amounts are limited and may be applied for other purposes to the extent
described herein. The Pre-Funding Account and the Capitalized Interest Account
will be maintained only until the Distribution Date on or immediately following
the last day of the Funding Period. The Pre-Funded Amount will be used primarily
to purchase Subsequent Receivables and to make certain deposits into the Reserve
Account and the Yield Maintenance Account and is not available to cover losses
on the Receivables. The Capitalized Interest Account is designed to cover
obligations of the Trust relating to that portion of its assets not invested in
Receivables and the Yield Maintenance Account is only available to fund Yield
Maintenance Payments. Neither of these accounts are designed to provide
protection against losses or any other shortfalls on the Receivables. Holders of
the Notes will also have the benefit of a financial guaranty insurance policy to
be issued by MBIA Insurance Corporation. Although the Note Insurer will be
obligated under the Policy to cover shortfalls in distributions of the
Noteholders' Interest Distributable Amount on each Distribution Date and to make
payments as set forth herein and in the Policy on the Noteholders' Principal
Distributable Amount, if the Note Insurer defaults in its obligations under the
Policy, the Trust will depend solely on current distributions on the Receivables
and, to the limited extent described herein, amounts in the Reserve Account and
the Yield Maintenance Account to make payments on the Notes.
RATINGS OF THE NOTES ARE SUBJECT TO DOWNGRADES BY THE RATING AGENCIES
It is a condition to the issuance of the Notes that the Notes be rated "Aaa"
by Moody's and "AAA" by Standard & Poor's. A rating is not a recommendation to
purchase, hold or sell Notes, inasmuch as such rating does not comment as to
market price or suitability for a particular investor. The Rating Agencies do
not evaluate, and the ratings do not address, the possibility that Noteholders
may receive a lower than anticipated yield. There is no assurance that a rating
will remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if, in its judgment, circumstances in the
future so warrant.
The ratings of the Notes will be based primarily on the issuance of the
Policy and the rating of the claims paying ability of the Note Insurer. If a
Note Insurer Default should occur, the ratings on the Notes might be lowered or
withdrawn entirely. If any rating initially assigned to any Note is subsequently
lowered or withdrawn for any reason, including by reason of a downgrading of the
Note Insurer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to such Note. Any
reduction or withdrawal of a rating might have an adverse effect on the
liquidity and market price of such Note.
SIGNIFICANT GEOGRAPHIC CONCENTRATION MAY EXPOSE THE TRUST TO THE ECONOMIC
CONDITIONS
IN CERTAIN STATES
As of the Cutoff Date approximately 10.16%, 9.05%, 8.97%, 7.42% 6.99%,
6.74%, 6.09%, 5.93% and 5.89% of the Initial Receivables (based on principal
balance and location of the originating dealer) were located in Illinois, Texas,
Georgia, Maryland, Virginia, North Carolina, New Jersey, California and
Mississippi, respectively. Accordingly, adverse economic conditions or other
factors particularly affecting any of these states could adversely affect the
delinquency or loan loss experience with respect to the Initial Receivables. No
other state represented more than 5.00% of the Initial Receivables. See "The
Receivables Pool" herein.
S-21
<PAGE>
HYUNDAI MOTOR FINANCE COMPANY
HMFC is a wholly-owned subsidiary of Hyundai Motor America ("HMA") which, in
turn, is a wholly-owned subsidiary of Hyundai Motor Company ("HMC"). HMFC is
headquartered in Fountain Valley, California. HMFC was incorporated in the State
of California on September 6, 1989 and provides wholesale inventory financing to
authorized dealers and retail and lease financing for customers of such dealers.
Currently, HMFC has Dealer Agreements with over 95% of the dealers franchised by
HMA in the United States. Credit origination and servicing are processed on a
centralized basis from HMFC's Fountain Valley Service Center.
HMA was incorporated in California in April 1985 as the exclusive importer
and distributor of HMC automobiles, parts and accessories in the United States.
HMA began importing and distributing the Excel subcompact car in February 1986.
Currently, HMA is distributing the Accent, Elantra, Tiburon and Sonata models
through approximately 475 authorized dealers.
HMC was formed in 1967 as a member of the Hyundai Group of companies, one of
Korea's largest industrial and manufacturing groups. Since its formation, HMC
has grown to become Korea's largest automobile manufacturer, producing cars,
trucks, buses and special purpose vehicles for sale in Korea and overseas. HMC's
principal manufacturing facilities are in Ulsan and Ahsan, Korea. HMC exports
vehicles and parts to more than 160 countries. Sales in the United States and
Canada, are conducted through its subsidiary, HMA.
HMFC'S AUTOMOBILE FINANCING PROGRAM
GENERAL
HMFC purchases motor vehicle retail installment sales contracts directly
from franchised motor vehicle dealers ("Dealers") who regularly originate and
sell such contracts to HMFC and other finance sources. Contracts are purchased
by HMFC in accordance with its established underwriting procedures.
Contracts originated by a Dealer are acquired under an agreement (the
"Dealer Agreement") which obligates the Dealer to repurchase the contract for
the outstanding principal balance in the event of breach by the Dealer of
certain representations and warranties made therein. The representations and
warranties typically relate to the origination of the contract and the security
interest in the related motor vehicle (a "Financed Vehicle") and do not relate
to the creditworthiness of the obligor under the contract.
UNDERWRITING
The underwriting procedures of HMFC are intended to assess the applicant's
ability to repay the amounts due on the contract and the adequacy of the
Financed Vehicle as collateral. Each application for a contract must list the
applicant's liabilities, income, credit and employment history, and other
personal information. HMFC obtains and reviews a credit report on each applicant
from an independent credit bureau, reviews the applicant's current and past
credit relationships with HMFC as well as other creditors and, where necessary,
verifies the employment and income of an applicant.
The amount of a contract generally will not exceed (i) when secured by a new
Financed Vehicle 115% of the price paid by the Dealer for the Financed Vehicle,
or (ii) when secured by a used Financed Vehicle, 100% of the wholesale value of
the Financed Vehicle stated in the most recent edition of the National Auto
Dealers Association Used Car Guide or such other guides to used car prices as
the Seller reasonably believes appropriate for a given market area (the "Used
Car Guides"), plus in each case various taxes and fees incurred in connection
with the sale and, in some cases, insurance policies, extended service contracts
and other items financed with the purchase of the Financed Vehicle. HMFC
regularly reviews the quality of the contracts which it purchases and conducts
quality audits to ensure compliance with its established policies and
procedures.
S-22
<PAGE>
SERVICING
HMFC measures delinquency by the number of days elapsed from the date a
payment is due under the contract (the "Vehicle Due Date"). Collection
activities with respect to delinquent contracts generally begin 10 to 15 days
after the Vehicle Due Date if payment has not been received. HMFC uses an
automated system of monitoring delinquencies, which categorizes delinquent
accounts into different priorities of collection activity, based on the level of
delinquency of each account.
HMFC's collectors are assigned to specific delinquencies and attempt to
contact the delinquent obligor by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures will
typically begin no later than when a contract becomes 75 days delinquent but may
occur sooner if conditions warrant. Repossession is carried out pursuant to
specific procedures adopted by HMFC.
The current policy of HMFC is generally to charge off a contract on the date
on which the contract becomes 120 days delinquent or, if the Financed Vehicle
securing the delinquent contract is repossessed, to charge off the contract on
the earlier to occur of the date on which the contract becomes 150 days
delinquent or the date on which the Financed Vehicle is sold and the deficiency
is determined (in which case the amount of deficiency is charged off). A
charge-off extension may be approved by a management employee in accordance with
the collection policy. A rescheduling of a delinquent account is permitted only
under extenuating circumstances and with the approval of a senior management
employee of HMFC with the appropriate authority.
HMFC follows specific procedures with respect to extensions of contracts.
Generally, an extension requires the demonstration of temporary financial
difficulties based on extraordinary circumstances and the approval of a senior
collections or management employee of HMFC. The Sale and Servicing Agreement
will permit the Servicer to extend the payment on a Receivable only in
accordance with these standards and otherwise in accordance with the Sale and
Servicing Agreement. Other modifications of the Receivables will generally not
be permitted. See "Description of the Transfer and Servicing Agreements--
Servicing Procedures."
PHYSICAL DAMAGE INSURANCE
Each applicant for a contract is required to obtain insurance with respect
to the Financed Vehicle being financed, and information on such insurance must
be provided by the Dealer originating the contract before the contract is
purchased by HMFC. The Trust will be entitled to proceeds from any insurance
policies to the extent received by HMFC. There is no formal follow-up for
written evidence of insurance or for evidence of continued coverage. HMFC does
not maintain a back-up or blanket insurance policy which would take effect if
the insurance coverage maintained by a Financed Vehicle's owner is terminated,
nor does HMFC purchase insurance for the account of a Financed Vehicle owner
upon such a termination. HMFC self-insures for total loss and significant
partial loss physical damage and reserves an appropriate amount. Self-insurance
in this manner is viewed by HMFC to be a more economical procedure than
monitoring the maintenance of third party insurance. However, HMFC will not be
obligated to make payments to the Trust with respect to any loss as to which
third party insurance has not been maintained.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth the delinquency experience and net credit
loss and repossession experience of the portfolio of contracts. These figures
include data in respect of contracts which HMFC has previously sold and for
which HMFC has acted as servicer. There is no assurance that the behavior of the
Receivables will be comparable to HMFC's experience shown in the following
tables.
S-23
<PAGE>
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
02/28/98 02/28/97 02/29/96 1997 1996
----------- ----------- ----------- --------- ---------
Number of Contracts Outstanding at End of Period................ 53,798 51,334 55,177 54,617 51,541
Delinquencies as a Percent of Contracts Outstanding
30-59 Days.................................................... 5.9% 3.2% 6.3% 7.1% 7.6%
60-89 Days.................................................... 2.0 1.1 1.7 2.2 1.6
90 Days or More............................................... 1.6 0.8 0.9 1.7 0.8
----------- ----------- ----------- --------- ---------
Total......................................................... 9.5% 5.1% 8.9% 11.0% 10.0%
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
<CAPTION>
<S> <C>
1995
---------
Number of Contracts Outstanding at End of Period................ 58,688
Delinquencies as a Percent of Contracts Outstanding
30-59 Days.................................................... 8.3%
60-89 Days.................................................... 2.1
90 Days or More............................................... 0.8
---------
Total......................................................... 11.2%
---------
---------
</TABLE>
- ------------------------
(1) The information in the table includes contracts for new and used
automobiles, light-duty trucks and vans.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT OR FOR TWELVE MONTHS ENDED
AT OR FOR TWO MONTHS ENDED DECEMBER 31,
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
02/28/98 02/28/97 02/29/96 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Principal Amount Outstanding..................... $ 472,931 $ 425,371 $ 437,507 $ 487,724 $ 425,144 $ 475,035
Average Principal Amount Outstanding............. $ 480,781 $ 416,942 $ 456,250 $ 459,398 $ 420,199 $ 528,359
Number of Contracts Outstanding.................. 53,798 51,334 55,177 54,617 51,541 58,688
Average Number of Contracts Outstanding.......... 54,121 51,217 55,904 53,329 52,244 63,568
Charge-offs (2).................................. $ 8,048 $ 4,071 $ 6,188 $ 24,326 $ 26,525 $ 15,054
Recoveries (3)................................... $ 906 $ 981 $ 392 $ 6,421 $ 5,131 $ 4,253
---------- ---------- ---------- ---------- ---------- ----------
Net Losses....................................... $ 7,142 $ 3,090 $ 5,796 $ 17,905 $ 21,394 $ 10,801
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Number of Repossessions Sold as a Percent of the
Average Number of Contracts Outstanding (4).... 9.0% 8.3% 12.5% 7.3% 7.7% 6.4%
Net Losses as a Percent of Average Principal
Amount Outstanding............................. 9.2% 4.6% 7.7% 3.9% 5.1% 2.0%
</TABLE>
- ------------------------
(1) The information in the table includes contracts for new and used
automobiles, light-duty trucks and vans. All amounts and percentages, except
as indicated, are based on the principal balances of the contracts net of
unearned finance and other charges. Averages are computed by taking a simple
average of month end outstanding amounts for each period presented.
(2) Charge-offs represent the total aggregate net principal balance of contracts
determined to be uncollectible in the period less proceeds from disposition
of related vehicles, other than recoveries described in Note (3).
Charge-offs do not include expenses associated with collection, repossession
or disposition of the vehicles.
(3) Recoveries generally include amounts received on contracts following the
time at which the contract is charged off, including amounts for uninsured
losses to financed vehicles which were charged to HMFC's self-insurance
reserve.
(4) Number of Repossessions Sold means the number of repossessed financed
vehicles that have been sold by HMFC in a given period.
HMFC's retail loss experience is dependent upon receivables levels, the
number of repossessions, the amount outstanding at the time of repossession, and
the resale value of repossessed vehicles.
An important objective of HMFC is to provide assistance to HMA vehicle sales
by providing financing to purchasers of Hyundai vehicles. Typical Obligors are
lower middle to middle income borrowers who may not have established credit
histories or who have credit histories that may show some prior uneven
performance in regard to debt servicing.
The average interest rate charged by HMFC to such Obligors is generally
higher than rates charged by commercial banks which typically lend to borrowers
with stronger credit histories. As a result, such
S-24
<PAGE>
Obligors may be considered to have a higher risk for contract default. Such risk
may increase in times of economic downturn should Obligors reside in areas
affected by such a downturn. As a result of the credit profiles of Obligors and
the APRs of HMFC's contracts, the historical credit loss and delinquency rates
on HMFC's contracts have been higher than those generally experienced by banks.
Credit losses on defaulted contracts are also adversely affected by the
inability to realize full contract value on repossessed vehicles sold at auction
due to declining prices paid at auction for used vehicles which are affected by
such factors as seasonality and market/dealer demand.
HMFC's delinquencies and credit losses for the earlier part of the year are
typically higher on an annualized basis than for the entire calendar year due to
seasonal factors. Historically, delinquencies have increased in December and
this increase has continued into January and February of the following year. In
addition, HMFC's delinquency and credit loss data reflect the impact of the
relocation of the Service Center from Chesterfield, Missouri to Fountain Valley,
California in 1996.
THE TRUST
GENERAL
Hyundai Auto Receivables Trust 1998-A will be a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Securities, (iii) making payments on the Securities
and (iv) engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
The Trust initially will be capitalized with equity equal to $44,850,000,
excluding amounts deposited in the Reserve Account, the Yield Maintenance
Account and the Capitalized Interest Account. The "Certificate Balance" as of
any date of determination will equal the Pool Balance minus the Note Balance.
All of the Certificates will be issued to the Certificate Trust on the Closing
Date. The proceeds from the initial sale of the Securities will be used by the
Trust to purchase the Initial Receivables from the Depositor pursuant to the
Sale and Servicing Agreement, to fund the Pre-Funding Account and the
Capitalized Interest Account and to fund the initial deposit to the Reserve
Account and the Yield Maintenance Account. The Servicer will service the
Receivables pursuant to the Sale and Servicing Agreement and will be compensated
for acting as Servicer. See "Description of the Transfer and Servicing
Agreements-- Servicing Compensation" herein. Chase Bank Texas will be appointed
custodian of the Receivables by the Trust (the "Custodian"). The Sale and
Servicing Agreement will require that the Servicer deliver the Contracts and the
related certificates of title to the Custodian within 30 days of the Closing
Date. Within 45 days of the Closing Date, the Custodian will review and certify
the documents delivered to it, and, if any such documents are missing or
defective, the Seller will be obligated to repurchase the related Receivable.
The Custodian will stamp the Contract and certificates of title related to the
Receivables to reflect their sale and assignment to the Depositor and the Trust
and the pledge to the Indenture Trustee, but will not cause the certificates of
title of the related Financed Vehicles to be amended or reissued. In the absence
of amendments to the certificates of title, the Trust may not have perfected
security interests in the Financed Vehicles securing the Receivables originated
in some states. See "Certain Legal Aspects of the Receivables" in the
Prospectus.
If the protection provided to the Noteholders by the Reserve Account and the
Policy is insufficient, 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 to fund distributions of principal and
interest on the Notes. In such event, certain factors, such as the Trust's not
having a first priority perfected security interest 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
Securityholders. See "Description of the Notes--Credit Enhancement",
"Description of the Transfer and Servicing Agreements--Distributions" herein and
"Certain Legal Aspects of the Receivables" in the Prospectus.
S-25
<PAGE>
The Trust's principal offices are located in Wilmington, Delaware, in care
of Wilmington Trust Company, as Owner Trustee, at the address listed below under
"--The Owner Trustee."
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
Wilmington Trust Company is a Delaware banking corporation and its principal
offices are located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. The
Owner Trustee's liability in connection with the issuance and sale of the Notes
is limited solely to the express obligations of the Owner Trustee set forth in
the Trust Agreement and the Sale and Servicing Agreement. HMFC and the Depositor
and their respective affiliates may maintain normal commercial banking relations
with the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
ELIGIBILITY CRITERIA
The Receivables were or will be selected from HMFC's portfolio of motor
vehicle retail installment sale contracts based on several criteria, including
the requirement that each Receivable: (i) have an original term of not more than
60 months, (ii) provide for level monthly payments that fully amortize the
amount financed over the original term of the related Contract (except for the
last payment, which may be different from the level payments) and at least one
of such monthly payments has been received by HMFC prior to the Cutoff Date or
Subsequent Cutoff Date, (iii) be not more than 30 days past due as of the Cutoff
Date or Subsequent Cutoff Date and (iv) not have a final scheduled payment date
later than three months prior to the Final Scheduled Maturity Date. In addition,
as of the Cutoff Date or the applicable Subsequent Cutoff Date, no Receivable
shall be noted in the Servicer's records as having an Obligor who is or has been
the subject of a bankruptcy proceeding. No selection procedures believed by HMFC
to be adverse to the Securityholders or the Note Insurer were or will be used in
selecting the Receivables.
During the Funding Period, pursuant to the Receivables Purchase Agreement,
the Depositor is obligated to purchase from the Seller and, pursuant to the Sale
and Servicing Agreement, sell to the Trust, Subsequent Receivables subject to
the availability thereof. The aggregate principal balance of the Subsequent
Receivables is anticipated by the Seller to equal approximately $46,545,439.07.
On the Subsequent Transfer Date, the Seller will convey the Subsequent
Receivables to the Depositor pursuant to the Subsequent Purchase Agreement
executed by the Seller and the Depositor on the Subsequent Transfer Date and
including as an exhibit a schedule identifying the Subsequent Receivables
transferred on such date. The Depositor will convey the Subsequent Receivables
to the Trust on the Subsequent Transfer Date pursuant to the Sale and Servicing
Agreement and the Subsequent Transfer Agreement executed by the Depositor and
the Owner Trustee on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date. The
purchase price for each Subsequent Receivable will be withdrawn from the
Pre-Funding Account, a portion of such amount will be deposited into the Reserve
Account and the Yield Maintenance Account, if necessary, and the remainder of
the purchase price will be paid to the Depositor by the Trust and then to the
Seller by the Depositor.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others: (i) as of the Subsequent Cutoff Date, each such
Subsequent Receivable must satisfy the eligibility criteria specified under "The
Receivables Pool--General" in the Prospectus and in the Sale and Servicing
Agreement; (ii) the Note Insurer, in its sole discretion (so long as no Note
Insurer Default shall have occurred and be continuing) shall have approved the
transfer of such Subsequent Receivables to the Trust; (iii) the Seller will not
have selected such Subsequent Receivables in a manner that it believes is
adverse to the interests of the Note Insurer or the Noteholders; (iv) the Seller
and the Depositor will deliver certain opinions of counsel to the Trust, the
Indenture Trustee, the Note Insurer and the Rating Agencies with respect to the
validity of the conveyance of such Subsequent Receivables; and (v) the Rating
Agencies shall confirm that the ratings on the Notes, without regard to the
Policy, have not been withdrawn or reduced as a result of the transfer of such
Subsequent Receivables to the Trust.
S-26
<PAGE>
In addition, the obligation of the Trust to purchase the Subsequent
Receivables on the Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust on the Subsequent Transfer Date, meet certain criteria set forth in
the Sale and Servicing Agreement and the Receivables Purchase Agreement. Because
the Subsequent Receivables may be originated after the Initial Receivables,
following the conveyance of the Subsequent Receivables to the Trust the
characteristics of the Receivables, including the Subsequent Receivables, are
likely to vary from those of the Initial Receivables.
COMPOSITION OF INITIAL RECEIVABLES
As of the Cutoff Date, approximately 22.14% of the Initial Receivables by
aggregate principal balance, constituting approximately 23.24% of the number of
Initial Receivables, represented financing of used vehicles. The remainder of
the Initial Receivables represented financing of new vehicles. The composition
and distribution by APR, geographic location, remaining term, and remaining
principal balance of the Initial Receivables as of the Cutoff Date are set forth
in the following tables.
COMPOSITION OF THE INITIAL RECEIVABLES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AGGREGATE AVERAGE AVERAGE AVERAGE
WEIGHTED PRINCIPAL NUMBER OF PRINCIPAL REMAINING ORIGINAL
AVERAGE APR BALANCE RECEIVABLES BALANCE TERM TERM
- ------------- ----------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
14.92% $ 298,454,560.93 32,558 $ 9,166.86 43.72 58.95
</TABLE>
DISTRIBUTION OF THE INITIAL RECEIVABLES BY APR
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
APR RANGE RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------------------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
7.00% - 7.99%....................... 1,209 $ 10,205,095.34 3.42%
8.00% - 8.99%....................... 1,704 12,634,170.69 4.23
9.00% - 9.99%....................... 1,906 13,850,135.03 4.64
10.00% - 10.99%...................... 2,654 20,120,458.59 6.74
11.00% - 11.99%...................... 2,479 19,280,191.96 6.46
12.00% - 12.99%...................... 2,835 22,202,381.42 7.44
13.00% - 13.99%...................... 2,327 20,355,929.34 6.82
14.00% - 14.99%...................... 2,216 20,052,771.61 6.72
15.00% - 15.99%...................... 2,395 24,281,508.41 8.14
16.00% - 16.99%...................... 2,391 24,720,709.64 8.28
17.00% - 17.99%...................... 2,487 26,444,018.30 8.86
18.00% - 18.99%...................... 3,976 44,626,149.59 14.95
19.00% - 19.99%...................... 1,685 16,828,112.83 5.64
20.00% - 20.99%...................... 1,185 11,927,927.17 4.00
21.00% - 21.99%...................... 544 5,423,092.60 1.82
22.00% - 22.99%...................... 352 3,653,668.04 1.22
23.00% - 23.99%...................... 114 987,805.58 0.33
24.00% - 24.99%...................... 71 643,912.55 0.22
25.00% - 39.95%...................... 28 216,522.24 0.07
----------- ----------------- ------
Totals............................... 32,558 $ 298,454,560.93 100.00%
----------- ----------------- ------
----------- ----------------- ------
</TABLE>
- ------------------------
(1) Percentages may not add to 100% because of rounding.
S-27
<PAGE>
DISTRIBUTION OF THE INITIAL RECEIVABLES BY GEOGRAPHIC LOCATION(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE RECEIVABLES BALANCE BALANCE(2)
- -------------------------------------------------------------------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Alabama............................................................. 681 $ 7,322,123.66 2.45%
Alaska.............................................................. 27 302,984.44 0.10
Arizona............................................................. 139 1,276,504.40 0.43
Arkansas............................................................ 177 1,180,911.45 0.40
California.......................................................... 2,259 17,694,817.95 5.93
Colorado............................................................ 15 155,655.66 0.05
Connecticut......................................................... 679 4,858,805.90 1.63
Delaware............................................................ 336 3,735,815.61 1.25
Florida............................................................. 863 6,749,378.92 2.26
Georgia............................................................. 2,745 26,759,044.09 8.97
Hawaii.............................................................. 50 608,239.18 0.20
Iowa................................................................ 208 2,498,365.86 0.84
Illinois............................................................ 3,226 30,319,747.41 10.16
Indiana............................................................. 137 1,266,321.19 0.42
Kansas.............................................................. 92 861,787.80 0.29
Kentucky............................................................ 42 394,210.42 0.13
Louisiana........................................................... 768 6,722,389.95 2.25
Maine............................................................... 35 304,809.72 0.10
Maryland............................................................ 2,530 22,142,778.67 7.42
Massachusetts....................................................... 1,521 13,996,073.16 4.69
Michigan............................................................ 69 719,148.47 0.24
Minnesota........................................................... 48 465,769.14 0.16
Mississippi......................................................... 1,664 17,579,718.36 5.89
Missouri............................................................ 194 1,777,508.29 0.60
Montana............................................................. 32 373,627.28 0.13
Nebraska............................................................ 3 33,842.81 0.01
Nevada.............................................................. 1,039 9,799,228.72 3.28
New Hampshire....................................................... 101 901,566.86 0.30
New Jersey.......................................................... 2,203 18,167,010.37 6.09
New Mexico.......................................................... 181 1,541,871.17 0.52
New York............................................................ 1,569 13,771,224.40 4.61
North Carolina...................................................... 2,211 20,104,999.12 6.74
North Dakota........................................................ 2 21,795.27 0.01
Ohio................................................................ 327 2,829,631.11 0.95
Oklahoma............................................................ 24 240,260.85 0.08
Oregon.............................................................. 32 300,566.94 0.10
Pennsylvania........................................................ 374 3,569,196.98 1.20
Rhode Island........................................................ 167 1,425,576.30 0.48
South Carolina...................................................... 318 2,807,435.61 0.94
Tennessee........................................................... 315 3,419,440.43 1.15
Texas............................................................... 2,582 27,014,013.46 9.05
Utah................................................................ 11 91,409.11 0.03
Vermont............................................................. 38 431,106.50 0.14
Virginia............................................................ 2,410 20,866,077.26 6.99
Washington.......................................................... 72 625,023.99 0.21
Wisconsin........................................................... 42 426,726.69 0.14
------ ---------------- ------
Totals........................................................ 32,558 $298,454,560.93 100.00%
------ ---------------- ------
------ ---------------- ------
</TABLE>
- ------------------------
(1) Based on the location of the Dealer office. In some instances, a Dealer may
have originated an Initial Receivable with an Obligor who resides in a
different state than the one in which the Dealer office is located.
(2) Percentages may not add to 100% because of rounding.
S-28
<PAGE>
DISTRIBUTION OF THE INITIAL RECEIVABLES BY REMAINING TERM TO SCHEDULED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
REMAINING TERM TO SCHEDULED MATURITY RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ----------------------------------------------------------------- ------------- ----------------- -------------
<S> <C> <C> <C>
Less than 12 months.............................................. 2,309 $ 4,899,635.86 1.64%
13 to 24 months.................................................. 5,267 24,487,672.46 8.20
25 to 36 months.................................................. 4,821 35,763,288.25 11.98
37 to 48 months.................................................. 8,972 94,051,899.53 31.51
49 to 60 months.................................................. 11,189 139,252,064.83 46.66
------ ----------------- ------
Totals..................................................... 32,558 $ 298,454,560.93 100.00%
------ ----------------- ------
------ ----------------- ------
</TABLE>
- ------------------------
(1) Percentages may not add to 100% because of rounding.
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
RANGE OF REMAINING PRINCIPAL BALANCES RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------------------------------------------------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
$ 100.01 - $1,000.00.............................................. 10 $ 6,383.02 0.00%
$ 1,000.01 - $2,000.00............................................. 1,287 1,944,286.54 0.65
$ 2,000.01 - $3,000.00............................................. 1,396 3,521,317.75 1.18
$ 3,000.01 - $4,000.00............................................. 1,684 5,919,536.14 1.98
$ 4,000.01 - $5,000.00............................................. 1,860 8,365,974.13 2.80
$ 5,000.01 - $6,000.00............................................. 1,870 10,303,828.58 3.45
$ 6,000.01 - $7,000.00............................................. 2,052 13,349,628.30 4.47
$ 7,000.01 - $8,000.00............................................. 2,401 18,040,817.29 6.04
$ 8,000.01 - $9,000.00............................................. 2,733 23,282,555.31 7.80
$ 9,000.01 - $10,000.00............................................ 2,891 27,451,315.52 9.20
$10,000.01 - $11,000.00............................................ 2,939 30,852,480.10 10.34
$11,000.01 - $12,000.00............................................ 2,822 32,431,540.66 10.87
$12,000.01 - $13,000.00............................................ 2,465 30,815,842.36 10.33
$13,000.01 - $14,000.00............................................ 2,129 28,709,461.15 9.62
$14,000.01 - $15,000.00............................................ 1,526 22,093,123.46 7.40
$15,000.01 - $17,500.00............................................ 1,902 30,454,036.66 10.20
$17,500.01 - $20,000.00............................................ 591 10,912,433.96 3.66
----------- ----------------- ------
Totals....................................................... 32,558 $ 298,454,560.93 100.00%
----------- ----------------- ------
----------- ----------------- ------
</TABLE>
- ------------------------
(1) Percentages may not add to 100% because of rounding.
All of the Receivables provide for the payment by the related Obligor of a
specific total amount of payments, payable in substantially equal monthly
installments on each scheduled payment date, which total represents the amount
financed plus interest charges on the amount financed for the term of such
Receivable. Each Receivable provides for allocation of payments according to (i)
the sum of periodic balances or sum of monthly payments method (a "Rule of 78's
Receivable") or (ii) the simple interest method (a "Simple Interest
Receivable").
S-29
<PAGE>
As of the Cutoff Date, approximately 95.78% of the Initial Receivables by
aggregate principal balance, constituting approximately 94.86% of the number of
Initial Receivables, represented Simple Interest Receivables.
Under a Rule of 78's Receivable, the rate at which the amount of finance
charges is earned and, correspondingly, the amount of each scheduled monthly
payment allocated to reduction of the outstanding principal balance of the
related Receivable are calculated in accordance with the Rule of 78's. Under the
Rule of 78's, the portion of a payment allocable to interest is determined by
multiplying the total amount of add-on interest payable over the term of the
Receivable by a fraction, the denominator of which is equal to the sum of a
series of numbers beginning with one and ending with the number of scheduled
monthly payments due under the related Contract, and the numerator of which, for
any given month, would be the number of payments remaining under such Contract
before giving effect to the payment to which the fraction is being applied. The
applicable fraction is then multiplied by the total add-on interest payable over
the term of the Contract to determine the amount of interest earned during that
month. The difference between the amount of the scheduled monthly payment made
by the Obligor and the amount of earned add-on interest calculated for the month
is applied to principal reduction. No adjustment will be made in the event of
early or late payments, although in the latter case the Obligor may be subject
to a late charge.
Payments on Simple Interest Receivables will be applied first to interest
accrued through the date immediately preceding the day of payment and then to
unpaid principal. Accordingly, if an Obligor pays an installment before its due
date, the portion of the payment allocated to interest for the payment period
will be less than if the payment had been made on the due date and the portion
of the payment applied to reduce the principal balance will be correspondingly
greater and the principal balance will be amortized more rapidly than scheduled.
Conversely, if an Obligor pays an installment after its due date, the portion of
the payment allocable to interest for the payment period will be greater than if
the payment had been made on the due date, the portion of the payment applied to
reduce the principal balance will be correspondingly less, and the principal
balance will be amortized more slowly than scheduled, in which case a larger
portion of the principal balance may be due on the final scheduled payment date.
In the event of a prepayment in full (voluntarily or by acceleration) of a
Rule of 78's Receivable, a "rebate" will be made to the Obligor of that portion
of the total amount of payments under such Receivable allocable to "unearned"
finance charges. In the event of the prepayment in full (voluntarily or by
acceleration) of a Simple Interest Receivable, a "rebate" will not be made to
the Obligor, but the Obligor will be required to pay interest only to the date
immediately preceding the date of prepayment. The amount of a rebate under a
Rule of 78's 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 remaining payments were made on schedule.
The amount of a rebate under a Rule of 78's Receivable calculated in
accordance with the Rule of 78's generally will be less than had such rebate
been calculated on an actuarial basis. However, Rule of 78's Receivables
originated in certain states require rebates based on the actuarial method.
Distributions to Securityholders will not be affected by Rule of 78's rebates
under the Rule of 78's Receivables because pursuant to the Sale and Servicing
Agreement such distributions will be determined using the actuarial method.
Amounts received upon prepayment in full of a Rule of 78's Receivable in excess
of the then outstanding principal balance of such Receivable and accrued
interest thereon will not be passed through to Securityholders, but will be paid
to the Servicer as additional servicing compensation or returned to the Obligors
as required by law.
S-30
<PAGE>
MBIA INSURANCE CORPORATION
The following information has been supplied by the Note Insurer for
inclusion in this Prospectus Supplement.
The Note Insurer is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company (the "Company"). The Company is not obligated
to pay the debts of or claims against the Note Insurer. The Note Insurer is
domiciled in the State of New York and licensed to do business in and is subject
to regulation under the laws of all 50 states, the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands,
the Virgin Islands of the United States and the Territory of Guam. The Note
Insurer has two European branches, one in the Republic of France and the other
in the Kingdom of Spain. New York has laws prescribing minimum capital
requirements, limiting classes and concentrations of investments and requiring
the approval of policy rates and forms. State laws also regulate the amount of
both the aggregate and individual risks that may be insured, the payment of
dividends by the Note Insurer, changes in control and transactions among
affiliates. Additionally, the Note Insurer is required to maintain contingency
reserves on its liabilities in certain amounts and for certain periods of time.
Effective February 17, 1998, the Company acquired all of the outstanding
stock of Capital Markets Assurance Corporation ("CMAC"), a New York domiciled
financial guarantee insurance company, through a merger with its parent CapMAC
Holdings Inc. The Company then contributed the common stock of CMAC to the Note
Insurer. Pursuant to a reinsurance agreement, CMAC has ceded all of its net
insured risks, as well as its unearned premiums and contingency reserves, to the
Note Insurer and the Note Insurer has reinsured CMAC's net outstanding exposure.
The Company is not obligated to pay the debts of or claims against CMAC.
The consolidated financial statements of the Note Insurer, a wholly owned
subsidiary of the Company, and its subsidiaries as of December 31, 1997 and
December 31, 1996 and for the three years ended December 31, 1997, prepared in
accordance with generally accepted accounting principles, included in the Annual
Report on Form 10-K of the Company for the year ended December 31, 1997 are
hereby incorporated by reference into this Prospectus Supplement and shall be
deemed to be a part hereof. Any statement contained in a document incorporated
by reference herein shall be modified or superseded for the purposes of this
Prospectus Supplement to the extent that a statement contained herein or in any
other subsequently filed document which is also incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
All financial statements of the Note Insurer and its subsidiaries included
in documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, subsequent to the date of
this Prospectus Supplement and prior to the termination of the offering of the
Notes shall be deemed to be incorporated by reference into this Prospectus
Supplement and to be a part hereof from the respective dates of filing such
documents.
S-31
<PAGE>
The tables below present selected financial information of the Note Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
------------------------------------
<S> <C> <C>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<CAPTION>
(AUDITED) (AUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets............................................................ $ 4,476 $ 5,256
Liabilities................................................................ 3,009 3,496
Capital and Surplus........................................................ 1,467 1,760
</TABLE>
<TABLE>
<CAPTION>
GAAP
------------------------------------
<S> <C> <C>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<CAPTION>
(AUDITED) (AUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets..................................................................... $ 5,066 $ 5,988
Liabilities................................................................ 2,262 2,624
Shareholder's Equity....................................................... 2,804 3,364
</TABLE>
Copies of the financial statements of the Note Insurer incorporated by
reference herein and copies of the Note Insurer's 1997 year-end audited
financial statements prepared in accordance with statutory accounting practices
are available, without charge, from the Note Insurer. The address of the Note
Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the
Note Insurer is (914) 273-4545.
The Note Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policy and the Note Insurer set forth under the
headings "THE POLICY" and "MBIA INSURANCE CORPORATION". Additionally, the Note
Insurer makes no representations regarding the Securities or the advisability of
investing in the Securities.
Moody's Investors Service, Inc. rates the claims paying ability of the Note
Insurer and CMAC "Aaa".
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc., rates the claims paying ability of the Note Insurer and CMAC "AAA".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
claims paying ability of the Note Insurer "AAA". (CMAC has not requested a
rating from Fitch IBCA, Inc.)
Each rating of the Note Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Note Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Securities, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Securities.
The Note Insurer does not guaranty the market price of the Securities nor does
it guaranty that the ratings on the Securities will not be revised or withdrawn.
S-32
<PAGE>
THE DEPOSITOR
The Depositor is a bankruptcy-remote, special purpose Delaware corporation.
The Depositor was incorporated in the State of Delaware on November 7, 1997. The
principal executive offices of the Depositor are located at Seven World Trade
Center, New York, New York 10048; telephone (212) 783-7000.
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by the
Trust to purchase the Initial Receivables from the Depositor and to fund the
Pre-Funding Account and the Capitalized Interest Account and to fund the initial
deposit to the Reserve Account and the Yield Maintenance Account. The Depositor
will apply the net proceeds to it to purchase the Initial Receivables from the
Seller.
WEIGHTED AVERAGE LIFE OF THE NOTES
Holders of the Class A-2 Notes will not receive any principal payments until
the Class A-1 Notes have been paid in full. See "Description of the
Notes--Payments of Principal" herein. As the rate of payment of principal of
each class of Notes will depend on the rate of payment (including prepayments)
of the principal balance of the Receivables, final payment of the Class A-1
Notes or the Class A-2 Notes could occur significantly earlier than the Class
A-1 Final Scheduled Distribution Date or Class A-2 Final Scheduled Distribution
Date, as applicable.
Payments on the Receivables may be in the form of scheduled amortization or
prepayments. Prepayments will include prepayments in full, partial prepayments,
liquidations due to defaults, losses caused by the issuance of an order by a
court in any insolvency proceeding reducing the amount owed under a Receivable,
as well as receipts of proceeds from physical damage, loss upon repossession,
credit life and credit accident and health insurance policies and the Purchase
Amounts of purchased receivables. The Receivables may be prepaid at any time
without penalty to the Obligors. The rate of prepayment of 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 HMFC. The rate of prepayments on
the Receivables also may be affected by the nature of the Obligors and the
Financed Vehicles and servicing decisions. In addition, under certain
circumstances, the Seller or the Servicer may be obligated to purchase
Receivables with respect to which it is in breach of certain representations,
warranties or covenants under the Receivables Purchase Agreement or Sale and
Servicing Agreement, as applicable. See also "Description of the Notes--Optional
Redemption" regarding the Servicer's or the Note Insurer's option to purchase
the Receivables when the Pool Balance is reduced to 10% or less of the Initial
Pool Balance.
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of the Receivables will be borne entirely by the Noteholders.
Given that the rate of payment of principal of each Class of Notes will
depend on the rate of payment (including prepayments) of the principal balance
of the Receivables, final payment of any Class of Notes could occur
significantly earlier than the Final Scheduled Distribution Date for such Class
of Notes. Reinvestment risk associated with early payment of the Notes will be
borne exclusively by the Noteholders.
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used herein, 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.
S-33
<PAGE>
The table captioned "Percent of Initial Note Principal Balance at Various
ABS Percentages" (the "ABS Table") has been prepared on the basis of the
following assumptions: (i) the Trust includes six pools of Receivables with the
characteristics set forth in the following table; (ii) the Receivables prepay in
full at the specified constant percentage of ABS monthly, (iii) each scheduled
monthly payment on the Receivables is made on the last day of each month and
each month has 30 days; (iv) the initial principal amount of each class of Notes
are as set forth on the cover page hereof; (v) interest accrues during each
Interest Period at the applicable Note Rate; (vi) payments on the Notes are made
on the 15th day of each month whether or not a Business Day; (vii) the Notes are
purchased on the Closing Date; (viii) the scheduled monthly payment for each
Receivable has been calculated on the basis of the assumed characteristics in
the following table such that each Receivable will amortize in amounts
sufficient to repay the principal balance of such Receivable by its indicated
remaining term to maturity; (ix) the first due date for each Receivable is in
the month after the assumed cutoff date for such Receivable as set forth in the
following table; (x) the entire Pre-Funded Amount is used to purchase Subsequent
Receivables on the third Distribution Date; and (xi) neither the Servicer nor
the Note Insurer exercises its option to purchase the Receivables.
<TABLE>
<CAPTION>
AGGREGATE REMAINING TERM TO
ASSUMED PRINCIPAL MATURITY SEASONING
POOL CUTOFF DATE BALANCE APR (IN MONTHS) (IN MONTHS)
- ------------------------------------------ ----------- ---------------- --------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
1......................................... 4/1/98 $ 4,899,635.86 12.015% 9 48
2......................................... 4/1/98 24,487,672.46 12.559 19 38
3......................................... 4/1/98 35,763,288.25 14.293 30 26
4......................................... 4/1/98 94,051,899.53 15.166 43 16
5......................................... 4/1/98 139,252,064.83 15.439 53 7
6......................................... 7/1/98 46,545,439.07 14.923 59 1
----------------
Total..................................... $ 345,000,000.00
----------------
----------------
</TABLE>
The ABS Table indicates, based on the assumptions set forth above, the
percentages of the initial principal amount of each Class of Notes that would be
outstanding after each of the Distribution Dates shown at various percentages of
ABS and the corresponding weighted average lives of such Notes. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables could produce
slower or faster principal distributions than indicated in the ABS Table at the
various constant percentages of ABS specified, even if the original and
remaining terms to maturity of the Receivables, or actual prepayment experience,
will affect the percentages of initial balances outstanding over time and the
weighted average lives of each Class of Notes.
S-34
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE
AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES(1) CLASS A-2 NOTES(1)
--------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0.50% 1.00% 1.50% 2.00% 2.50% 0.50% 1.00%
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Closing Date...................... 100% 100% 100% 100% 100% 100% 100%
5/15/1998......................... 97% 96% 95% 93% 87% 100% 100%
6/15/1998......................... 94% 92% 90% 86% 77% 100% 100%
7/15/1998......................... 91% 89% 86% 81% 71% 100% 100%
8/15/1998......................... 87% 84% 81% 75% 65% 100% 100%
9/15/1998......................... 84% 80% 76% 69% 59% 100% 100%
10/15/1998........................ 81% 76% 71% 63% 53% 100% 100%
11/15/1998........................ 77% 72% 66% 58% 47% 100% 100%
12/15/1998........................ 74% 68% 62% 52% 42% 100% 100%
1/15/1999......................... 70% 64% 57% 47% 36% 100% 100%
2/15/1999......................... 67% 61% 53% 42% 31% 100% 100%
3/15/1999......................... 64% 57% 49% 38% 26% 100% 100%
4/15/1999......................... 61% 54% 45% 33% 21% 100% 100%
5/15/1999......................... 58% 50% 41% 29% 16% 100% 100%
6/15/1999......................... 54% 46% 37% 25% 12% 100% 100%
7/15/1999......................... 51% 43% 33% 21% 8% 100% 100%
8/15/1999......................... 48% 40% 29% 17% 4% 100% 100%
9/15/1999......................... 45% 36% 26% 14% 1% 100% 100%
10/15/1999........................ 42% 33% 22% 10% 0% 100% 100%
11/15/1999........................ 39% 29% 19% 7% 0% 100% 100%
12/15/1999........................ 36% 27% 16% 4% 0% 100% 100%
1/15/2000......................... 33% 24% 13% 1% 0% 100% 100%
2/15/2000......................... 30% 21% 10% 0% 0% 100% 100%
3/15/2000......................... 28% 18% 7% 0% 0% 100% 100%
4/15/2000......................... 25% 15% 5% 0% 0% 100% 100%
5/15/2000......................... 22% 13% 2% 0% 0% 100% 100%
6/15/2000......................... 20% 10% 0% 0% 0% 100% 100%
7/15/2000......................... 17% 8% 0% 0% 0% 100% 100%
8/15/2000......................... 14% 5% 0% 0% 0% 100% 100%
9/15/2000......................... 12% 2% 0% 0% 0% 100% 100%
10/15/2000........................ 9% 0% 0% 0% 0% 100% 100%
11/15/2000........................ 7% 0% 0% 0% 0% 100% 94%
12/15/2000........................ 4% 0% 0% 0% 0% 100% 88%
1/15/2001......................... 2% 0% 0% 0% 0% 100% 83%
2/15/2001......................... 0% 0% 0% 0% 0% 100% 77%
3/15/2001......................... 0% 0% 0% 0% 0% 94% 72%
4/15/2001......................... 0% 0% 0% 0% 0% 88% 66%
5/15/2001......................... 0% 0% 0% 0% 0% 82% 61%
6/15/2001......................... 0% 0% 0% 0% 0% 76% 56%
7/15/2001......................... 0% 0% 0% 0% 0% 69% 51%
8/15/2001......................... 0% 0% 0% 0% 0% 63% 46%
9/15/2001......................... 0% 0% 0% 0% 0% 57% 41%
10/15/2001........................ 0% 0% 0% 0% 0% 51% 37%
11/15/2001........................ 0% 0% 0% 0% 0% 45% 32%
12/15/2001........................ 0% 0% 0% 0% 0% 41% 29%
1/15/2002......................... 0% 0% 0% 0% 0% 37% 26%
2/15/2002......................... 0% 0% 0% 0% 0% 34% 23%
3/15/2002......................... 0% 0% 0% 0% 0% 30% 20%
4/15/2002......................... 0% 0% 0% 0% 0% 26% 18%
5/15/2002......................... 0% 0% 0% 0% 0% 23% 15%
6/15/2002......................... 0% 0% 0% 0% 0% 19% 12%
7/15/2002......................... 0% 0% 0% 0% 0% 15% 10%
8/15/2002......................... 0% 0% 0% 0% 0% 11% 7%
9/15/2002......................... 0% 0% 0% 0% 0% 8% 5%
<CAPTION>
<S> <C> <C> <C>
DISTRIBUTION DATE 1.50% 2.00% 2.50%
- ---------------------------------- ----------- ----------- -----------
Closing Date...................... 100% 100% 100%
5/15/1998......................... 100% 100% 100%
6/15/1998......................... 100% 100% 100%
7/15/1998......................... 100% 100% 100%
8/15/1998......................... 100% 100% 100%
9/15/1998......................... 100% 100% 100%
10/15/1998........................ 100% 100% 100%
11/15/1998........................ 100% 100% 100%
12/15/1998........................ 100% 100% 100%
1/15/1999......................... 100% 100% 100%
2/15/1999......................... 100% 100% 100%
3/15/1999......................... 100% 100% 100%
4/15/1999......................... 100% 100% 100%
5/15/1999......................... 100% 100% 100%
6/15/1999......................... 100% 100% 100%
7/15/1999......................... 100% 100% 100%
8/15/1999......................... 100% 100% 100%
9/15/1999......................... 100% 100% 100%
10/15/1999........................ 100% 100% 92%
11/15/1999........................ 100% 100% 83%
12/15/1999........................ 100% 100% 74%
1/15/2000......................... 100% 100% 66%
2/15/2000......................... 100% 93% 58%
3/15/2000......................... 100% 86% 50%
4/15/2000......................... 100% 78% 43%
5/15/2000......................... 100% 72% 38%
6/15/2000......................... 98% 65% 33%
7/15/2000......................... 92% 59% 29%
8/15/2000......................... 85% 53% 25%
9/15/2000......................... 79% 48% 21%
10/15/2000........................ 73% 42% 17%
11/15/2000........................ 67% 37% 13%
12/15/2000........................ 62% 33% 10%
1/15/2001......................... 57% 28% 7%
2/15/2001......................... 52% 24% 6%
3/15/2001......................... 48% 21% 5%
4/15/2001......................... 43% 19% 4%
5/15/2001......................... 39% 16% 3%
6/15/2001......................... 35% 13% 3%
7/15/2001......................... 31% 11% 2%
8/15/2001......................... 28% 9% 1%
9/15/2001......................... 24% 7% 1%
10/15/2001........................ 21% 5% 0%
11/15/2001........................ 18% 4% 0%
12/15/2001........................ 16% 3% 0%
1/15/2002......................... 14% 3% 0%
2/15/2002......................... 12% 2% 0%
3/15/2002......................... 10% 2% 0%
4/15/2002......................... 9% 1% 0%
5/15/2002......................... 7% 1% 0%
6/15/2002......................... 6% 1% 0%
7/15/2002......................... 4% 0% 0%
8/15/2002......................... 3% 0% 0%
9/15/2002......................... 2% 0% 0%
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
CLASS A-1 NOTES(1) CLASS A-2 NOTES(1)
--------------------------------------------------------------- ------------------------
DISTRIBUTION DATE 0.50% 1.00% 1.50% 2.00% 2.50% 0.50% 1.00%
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
10/15/2002........................ 0% 0% 0% 0% 0% 7% 4%
11/15/2002........................ 0% 0% 0% 0% 0% 6% 4%
12/15/2002........................ 0% 0% 0% 0% 0% 5% 3%
1/15/2003......................... 0% 0% 0% 0% 0% 4% 3%
2/15/2003......................... 0% 0% 0% 0% 0% 3% 2%
3/15/2003......................... 0% 0% 0% 0% 0% 3% 2%
4/15/2003......................... 0% 0% 0% 0% 0% 2% 1%
5/15/2003......................... 0% 0% 0% 0% 0% 1% 0%
6/15/2003......................... 0% 0% 0% 0% 0% 0% 0%
Avg.Life (years)(2)
To Maturity..................... 1.37 1.18 0.99 0.80 0.63 3.67 3.41
To 10% Call..................... 1.37 1.18 0.99 0.80 0.63 3.50 3.20
<CAPTION>
DISTRIBUTION DATE 1.50% 2.00% 2.50%
- ---------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
10/15/2002........................ 2% 0% 0%
11/15/2002........................ 2% 0% 0%
12/15/2002........................ 1% 0% 0%
1/15/2003......................... 1% 0% 0%
2/15/2003......................... 1% 0% 0%
3/15/2003......................... 1% 0% 0%
4/15/2003......................... 0% 0% 0%
5/15/2003......................... 0% 0% 0%
6/15/2003......................... 0% 0% 0%
Avg.Life (years)(2)
To Maturity..................... 3.04 2.53 2.07
To 10% Call..................... 2.83 2.33 1.92
</TABLE>
- ------------------------
(1) The Class A-1 Final Scheduled Distribution Date is April 15, 2001 and the
Class A-2 Final Scheduled Distribution Date is July 15, 2004; payment in
full of the Class A-1 Notes and the Class A-2 Notes on such respective dates
is guaranteed by the Policy to the extent described herein.
(2) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment on a Note by the number of years from the
date of the issuance of the Note to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the related initial
principal amount of the Note.
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<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the Notes.
The following summary describes certain terms of the Notes and the Indenture.
The summary does not purport to be complete and is subject to, and is qualified
by reference to, all the provisions of the Notes and the Indenture. The
following summary supplements and, to the extent inconsistent therewith,
replaces the description of the general terms and provisions of the Notes of any
given series and the related Indenture set forth in the Prospectus, to which
description reference is hereby made.
PAYMENTS OF INTEREST
Interest with respect to each Distribution Date will accrue on the
outstanding principal amount of the Class A-1 Notes (the "Class A-1 Monthly
Interest Distributable Amount") at the Class A-1 Rate and the Class A-2 Notes
(the "Class A-2 Monthly Interest Distributable Amount") at the Class A-2 Rate,
from and including the 15th day of the preceding calendar month (or, in the case
of the first Distribution Date, from and including the Closing Date) to and
including the 14th day of the calendar month in which such Distribution Date
occurs. Interest on the Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest accrued as of any Distribution Date
but not paid on such Distribution Date will be due on the next Distribution
Date, together with interest on such overdue interest (to the extent lawful) at
the Class A-1 Rate or the Class A-2 Rate, as applicable.
Interest payments on the Notes will generally be made from the Total
Distribution Amount remaining after payment of the Senior Servicing Fee and fees
currently due to the Indenture Trustee, the Owner Trustee, the Custodian and the
Backup Servicer. In the event such remaining amount is insufficient to pay the
Noteholders' Interest Distributable Amount in full, such shortfall will be paid,
first, from amounts, if any, available in the Reserve Account and, second, by
the Note Insurer pursuant to the Policy. See "Description of the Transfer and
Servicing Agreements--Distributions." Interest payments to holders of the Class
A-1 Notes and the Class A-2 Notes will have the same priority. Under certain
limited circumstances, amounts available to make interest payments on the Notes
could be less than the full amount of interest payable on the Notes on a
Distribution Date, in which case the Noteholders will receive their ratable
share of such amount, based on the aggregate amount of interest due on such date
on each class of the Notes.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Class A-1 Noteholders on each
Distribution Date in an amount equal to the Class A-1 Principal Distributable
Amount for such date. After the Class A-1 Notes have been paid in full,
principal payments will be made to the Class A-2 Noteholders on each
Distribution Date in an amount equal to the Class A-2 Principal Distributable
Amount. Holders of Class A-2 Notes are also entitled to receive as principal
certain additional amounts under the circumstances and to the extent set forth
herein. Payment of the Noteholders' Principal Distributable Amount on each
Distribution Date will be made from the Total Distribution Amount remaining
after payment of the Senior Servicing Fee, the premium due to the Note Insurer,
fees to the Indenture Trustee, the Owner Trustee, the Backup Servicer and the
Custodian and the Noteholders' Interest Distributable Amount. In the event such
remaining amount is insufficient to pay the Noteholders' Principal Distributable
Amount, such shortfall will be paid, first, to the extent the Note Balance
exceeds the Pool Balance, or on the related Final Scheduled Distribution Date,
to the extent of the Note Balance, from amounts, if any, available in the
Reserve Account after payment of the Noteholders' Interest Distributable Amount
and second, to the extent the
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<PAGE>
Note Balance exceeds the Pool Balance, or on the related Final Scheduled
Distribution Date, to the extent of the Note Balance, by the Note Insurer
pursuant to the Policy.
The "Class A-1 Principal Distributable Amount" with respect to each
Distribution Date will equal the sum of (i) the Class A-1 Monthly Principal
Distributable Amount and (ii) the Class A-1 Principal Carryover Shortfall, if
any, for such Distribution Date. The "Class A-1 Monthly Principal Distributable
Amount" for any Distribution Date until the Class A-1 Notes are paid in full
will equal the Note Percentage of the Regular Principal Distribution Amount. The
"Regular Principal Distribution Amount" on any Distribution Date will be the sum
of the following amounts, without duplication, with respect to the related
Collection Period: (i) that portion of all collections on the Receivables
allocable to principal; (ii) the aggregate outstanding principal balance of all
Receivables that became Liquidated Receivables during such Collection Period;
(iii) that portion allocable to principal of the aggregate amount of Cram Down
Losses incurred during the related Collection Period; and (iv) that portion
allocable to principal of the Purchase Amount of all Receivables that became
Purchased Receivables during or in respect of such Collection Period.
No principal payments will be made on the Class A-2 Notes until the Class
A-1 Notes have been paid in full. On each Distribution Date, commencing on the
Distribution Date on which the Class A-1 Notes are paid in full, principal of
the Class A-2 Notes will be payable in an amount equal to the Class A-2
Principal Distributable Amount for the related Collection Period, to the extent
of funds available therefor. The "Class A-2 Principal Distributable Amount" with
respect to each Distribution Date will equal the sum of (i) the Class A-2
Monthly Principal Distributable Amount and (ii) the Class A-2 Principal
Carryover Shortfall, if any, for such Distribution Date. The "Class A-2 Monthly
Principal Distributable Amount" for any Distribution Date on or after the
Distribution Date on which the Class A-1 Notes are paid in full will equal the
Note Percentage of the Regular Principal Distribution Amount (or, on the
Distribution Date on which the Class A-1 Notes are paid in full, the Note
Percentage of the Regular Principal Distribution Amount remaining after the
Class A-1 Notes are paid in full).
"Liquidated Receivable" means a Receivable with respect to which the earlier
of the following shall have occurred: (i) the related Financed Vehicle has been
repossessed for 30 days or more or (ii) more than 20% of a payment due under the
related Contract is 120 days or more delinquent.
"Note Insurer Default" means any one of the following events shall have
occurred and be continuing: (i) the Note Insurer shall have failed to make a
required payment when due under the Policy; (ii) the Note Insurer shall have (A)
filed a petition or commenced any case or proceeding under any provision or
chapter of the United States Bankruptcy Code, the New York State Insurance Law
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation, or reorganization, (B) made a general assignment
for the benefit of its creditors or (C) had an order for relief entered against
it under the United States Bankruptcy Code, the New York State Insurance Law or
any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation, or reorganization that is final and nonappealable;
or (iii) a court of competent jurisdiction, the New York Department of Insurance
or any other competent regulatory authority shall have entered a final and
nonappealable order, judgment or decree (A) appointing a custodian, trustee,
agent, or receiver for the Note Insurer or for all or any material portion of
its property or (B) authorizing the taking of possession by a custodian,
trustee, agent, or receiver of the Note Insurer or of all or any material
portion of its property.
As used herein, "Class A-1 Principal Carryover Shortfall" means, with
respect to any Distribution Date, the amount, if any, of Class A-1 Principal
Distributable Amount that was due but unpaid on the immediately preceding
Distribution Date, and "Class A-2 Principal Carryover Shortfall" means, with
respect to any Distribution Date, the amount, if any, of Class A-2 Principal
Distributable Amount that was due but unpaid on the immediately preceding
Distribution Date.
The principal balance of the Class A-1 Notes, to the extent not previously
paid, will be due on the Class A-1 Final Scheduled Distribution Date and the
principal balance of the Class A-2 Notes, to the
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<PAGE>
extent not previously paid, will be due on the Class A-2 Final Scheduled
Distribution Date. The actual date on which the aggregate outstanding principal
amount of either the Class A-1 Notes or the Class A-2 Notes is paid in full may
be earlier than the applicable Final Scheduled Distribution Date due to a
variety of factors, including those described herein under "Weighted Average
Life of the Notes."
CREDIT ENHANCEMENT
THE POLICY. Concurrently with the issuance of the Notes, the Note Insurer
will issue the Policy to the Indenture Trustee for the benefit of the
Noteholders. Under the Policy, the Note Insurer will unconditionally and
irrevocably guarantee (i) the full, complete and timely payment of the
Noteholders' Interest Distributable Amount, (ii) the full, complete and ultimate
payment of principal due on the Notes on the related Final Scheduled
Distribution Date, and (iii) the full and complete payment of any interest or
principal amounts that are paid to Noteholders and subsequently recovered from
any such holder pursuant to a final, nonappealable order of a court of competent
jurisdiction under applicable bankruptcy or insolvency laws in accordance with
the terms of the Policy. In addition, the Policy will guarantee principal to be
paid on the Notes to the extent the Note Balance (after taking into account all
distributions to be made on such date) exceeds the Pool Balance as of the end of
the related Collection Period. See "The Policy."
THE RESERVE ACCOUNT. On the Closing Date, the Trust will establish a
separate account (the "Reserve Account") and will make an initial deposit
thereto of an amount to be agreed upon by the Trust and the Note Insurer. In
addition, on the Subsequent Transfer Date, an additional amount will be
deposited into the Reserve Account from the amount withdrawn from the
Pre-Funding Account in connection with the sale of Subsequent Receivables to the
Trust. The amount initially deposited in the Reserve Account, together with the
amount of any additional deposit referred to above in connection with the
Subsequent Transfer Date, is referred to as the "Reserve Account Initial
Deposit." The Reserve Account shall be an Eligible Account held by the Indenture
Trustee, and will be pledged to the Indenture Trustee for the benefit of the
Noteholders and the Note Insurer. Unless certain events specified in the Sale
and Servicing Agreement have occurred, on each Distribution Date on which the
amount on deposit in the Reserve Account is less than the Reserve Account
Required Amount, the Total Distribution Amount remaining after the payment of
clauses (i) through (vi) under "Description of the Transfer and Servicing
Agreements--Distributions --Deposits to the Distribution Accounts" herein, up to
an amount equal to such shortfall, will be deposited to the Reserve Account.
The "Reserve Account Required Amount" with respect to any Distribution Date
will be determined in accordance with the Sale and Servicing Agreement. The
Reserve Account Required Amount may be increased or decreased over time as a
result of certain floors, caps or triggers as set forth in the Sale and
Servicing Agreement. Such floors, caps and triggers may be changed, modified or
waived by the Note Insurer as provided in the Sale and Servicing Agreement.
Generally, the Sale and Servicing Agreement provides that such changes,
modifications or waivers are at the sole discretion of the Note Insurer.
All amounts on deposit in the Reserve Account on any Distribution Date will
be available to make up shortfalls in the Noteholders' Distributable Amount to
the extent described herein and for certain other purposes. Upon the occurrence
of certain events specified in the Sale and Servicing Agreement, all amounts in
the Reserve Account will be deposited into the Collection Account and, in the
sole discretion of the Note Insurer, used to make payments of principal on the
Notes. On each Distribution Date, amounts on deposit in the Reserve Account in
excess of the Reserve Account Required Amount may be released to the Trust,
subject to certain conditions set forth in the Sale and Servicing Agreement. The
Noteholders will have no further interest in or rights with respect to any
amounts so released from the Reserve Account.
YIELD MAINTENANCE ACCOUNT. On the Closing Date, the Trust will establish an
account (the "Yield Maintenance Account") for the benefit of the Noteholders and
the Note Insurer with respect to those
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<PAGE>
Receivables which have annual percentage rates of interest ("APRs") which are
less than the sum of (i) the Weighted Average Note Rate, (ii) the Servicing Fee
Rate, (iii) the Note Insurer's premium rate, and (iv) the rate representing the
sum of the fees of the Indenture Trustee, the Owner Trustee, the Backup Servicer
and the Custodian are calculated (the sum of such rates, the "Required Rate").
The Yield Maintenance Account will be an asset of the Trust and will be an
Eligible Account held by the Indenture Trustee, and will be pledged to the
Indenture Trustee for the benefit of Noteholders and the Note Insurer. The Trust
will make an initial deposit to the Yield Maintenance Account on the Closing
Date in an amount necessary to make payments ("Yield Maintenance Payments")
resulting from shortfalls on interest collections with respect to Initial
Receivables having an APR of less than the Required Rate. In addition, on each
Subsequent Transfer Date, an additional amount will be deposited into the Yield
Maintenance Account from the amount withdrawn from the Pre-Funding Account in
connection with the sale of Subsequent Receivables to the Trust. The amount
initially deposited in the Yield Maintenance Account, together with the amount
of any additional deposit referred to above in connection with a Subsequent
Transfer Date, is referred to as the "Initial Yield Maintenance Amount." The
Initial Yield Maintenance Amount will be calculated using a zero prepayment rate
on the Receivables and a constant Weighted Average Note Rate. On each
Determination Date, the Servicer is permitted to recalculate the amount required
to be on deposit in the Yield Maintenance Account (the "Yield Maintenance
Amount"), which amount may decline as Receivables having less than the Required
Rate prepay, or are otherwise removed from the Trust. Any amounts in excess of
the Yield Maintenance Amount will be released to the Certificateholders. Amounts
may be withdrawn from the Yield Maintenance Account only with respect to the
interest shortfalls described above.
SUBORDINATION OF THE CERTIFICATES. No distribution will be made to
Certificateholders on any Distribution Date until the holders of the Notes have
been paid the Noteholders' Distributable Amount for such Distribution Date and
the Note Insurer has been paid all amounts due to it and all other required
payments and deposits have been made. This subordination is intended to enhance
the likelihood of timely receipt by the Noteholders of the full amount of
interest and principal distributable to them on each Distribution Date and to
afford the Noteholders limited protection against losses in respect of the
Receivables.
MANDATORY REDEMPTION
The Notes are subject to partial mandatory redemption on the Mandatory
Redemption Date if any portion of the Pre-Funded Amount remains on deposit in
the Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including those purchases, if any, made on the last day of the
Funding Period. If the amount on deposit in the Pre-Funding Account is $100,000
or less, then such amount will be applied in reduction of the principal balance
of the Class A-1 Notes. If the amount on deposit in the Pre-Funding Account
exceeds $100,000, then such amount will be applied in reduction of the principal
balance of each Class of Notes based on the respective principal balances
thereof as of the preceding Distribution Date.
OPTIONAL REDEMPTION
The Class A-2 Notes will be subject to early retirement, in whole but not in
part, on any Distribution Date on which the Servicer, or if the Servicer does
not, the Note Insurer, exercises its option to purchase the Receivables. Under
the terms of the Sale and Servicing Agreement, the Servicer or, in certain
events, the Note Insurer may purchase the Receivables as of the last day of any
Collection Period on or after the date on which the Pool Balance has been
reduced to 10% or less of the Initial Pool Balance; however, the Servicer may
not exercise its option to purchase the Receivables without the prior written
consent of the Note Insurer if (i) an unreimbursed claim has previously been
made under the Policy, (ii) if such purchase of the Receivables by the Servicer
would result in a claim being made under the Policy or (iii) if such purchase of
the Receivables by the Servicer would result in any amount owed to the Note
Insurer
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<PAGE>
remaining unpaid. Any such purchase of the Receivables by the Servicer will
result in the early retirement of the Class A-2 Notes at a purchase price equal
to the outstanding principal amount thereof plus accrued and unpaid interest
thereon plus all amounts due to the Note Insurer. If the exercise of such option
would result in a draw on the Policy, the Note Insurer's written consent shall
be necessary for the Servicer to exercise such option.
CERTAIN PROVISIONS OF THE INDENTURE
INDENTURE EVENTS OF DEFAULT; RIGHTS UPON INDENTURE EVENT OF
DEFAULT. "Events of Default" under the Indenture ("Indenture Events of
Default") will consist of: (i) a default for five days or more in the payment of
any interest on any Note when the same becomes due and payable; (ii) a default
in the payment of principal of any Note when the same becomes due and payable;
(iii) a default in the observance or performance in any material respect of any
other covenant or agreement of the Trust made in the Indenture and the
continuation of any such default for a period of 30 days after notice thereof is
given to the Trust by the Indenture Trustee or to the Trust and the Indenture
Trustee by the Note Insurer or the holders of 25% of the aggregate outstanding
principal amount of the Notes; (iv) any representation or warranty made by the
Trust in the Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the time
made if such breach is not cured within 30 days after notice thereof is given to
the Trust by the Indenture Trustee or to the Trust and the Indenture Trustee by
the Note Insurer or the holders of 25% of the aggregate outstanding principal
amount of the Notes; (v) certain events of bankruptcy, insolvency, receivership
or liquidation with respect to the Trust; or (vi) certain other events set forth
in the Indenture. The amount of principal required to be paid to Noteholders
under the Indenture on any Distribution Date will generally be limited to
amounts available to be deposited in the Note Distribution Account; therefore,
the failure to pay principal on a class of Notes will generally not result in
the occurrence of an Event of Default under the Indenture until the applicable
Final Scheduled Distribution Date for such class of Notes.
If an Indenture Event of Default occurs, the right of the Indenture Trustee
or holders of a majority in principal amount of the Notes to declare the Notes
to be immediately due and payable will depend upon whether or not a Note Insurer
Default has also occurred and is continuing. If an Indenture Event of Default
occurs and a Note Insurer Default has not occurred or is not continuing, the
Note Insurer, and not the Indenture Trustee or the Noteholders, will have the
right, but not the obligation, to cause the Indenture Trustee to foreclose on
the Receivables and to deliver the proceeds of the liquidation thereof in
accordance with the terms of the Indenture. If the Note Insurer does not so
cause the Indenture Trustee to liquidate the Receivables and to prepay the
Notes, or if the proceeds of such liquidation of the Receivables are not
sufficient to reduce the outstanding principal amount of both the Class A-1
Notes and the Class A-2 Notes to zero, and the Note Insurer does not elect to
otherwise prepay the Notes in full, following the occurrence of an Indenture
Event of Default, the Indenture Trustee will continue to submit claims under the
Policy for any shortfalls in the Noteholders' Interest Distributable Amount or
the payment of principal on the Notes as set forth herein and in the Policy. The
Note Insurer may elect, upon receipt of a claim under the Policy following an
Indenture Event of Default, to pay all or any portion of the outstanding
principal amount of the Notes plus accrued interest thereon. See "The Policy"
herein.
If both an Indenture Event of Default and a Note Insurer Default occur and
are continuing, then the Indenture Trustee (or the holders of not less than a
majority of the outstanding principal amount of the Notes) may declare the Notes
to be immediately due and payable. Under such circumstances, the Indenture
Trustee may institute proceedings to foreclose on the Receivables, may exercise
any other remedies as a secured party, including selling the Receivables, or may
elect to maintain possession of the Receivables and continue to apply
collections on the Receivables as if there had been no declaration of
acceleration. The Indenture Trustee will be prohibited from selling the
Receivables following an Indenture Event of Default, however, unless (i) the
Note Insurer and the holders of all the outstanding Notes consent to such sale;
(ii) the proceeds of such sale are sufficient to pay in full the principal of
and accrued interest
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<PAGE>
on such outstanding Notes at the date of such sale plus all amounts due to the
Note Insurer; or (iii) the Indenture Trustee determines that the proceeds of the
Receivables would not be sufficient on an ongoing basis to make all payments on
the Notes as such payments would have become due if such obligations had not
been declared due and payable and the Indenture Trustee obtains the consent of
the Note Insurer and the holders of Notes representing a majority of the
aggregate outstanding principal amount of the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Indenture Event of Default occurs and is continuing
with respect to the Notes, the Indenture Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Noteholders if the Indenture Trustee reasonably believes
it will not be adequately indemnified against the costs, expenses and
liabilities that it might incur in complying with such request. Subject to the
provisions for indemnification and certain limitations contained in the
Indenture, including the prior written consent of the Note Insurer, the holders
of a majority of the aggregate outstanding principal amount of the Notes will
have the right to direct the time, method and place of conducting any proceeding
or exercising any remedy available to the Indenture Trustee; in addition, the
holders of Notes representing a majority of the aggregate outstanding principal
amount of the Notes may, in certain cases, with the prior written consent of the
Note Insurer, waive any Indenture Event of Default except a default in the
payment of principal of or interest on any Note or a default in respect of a
covenant or provision of the Indenture that cannot be modified or amended
without the waiver or consent of the holders of all the outstanding Notes.
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture unless (i) such holder previously has given to the
Indenture Trustee written notice of a continuing Indenture Event of Default;
(ii) the holders of not less than 25% of the outstanding principal amount of the
Notes have made written request to the Indenture Trustee to institute such
proceeding in its own name as Indenture Trustee; (iii) such holder or holders
have offered the Indenture Trustee reasonable indemnity; (iv) the Indenture
Trustee has for 60 days failed to institute such proceeding; (v) no direction
inconsistent with such written request has been given to the Indenture Trustee
during such 60-day period by the holders of a majority of the outstanding
principal amount of the Notes; and (vi) the Note Insurer has given its prior
written consent.
None of the Indenture Trustee or the Owner Trustee in its individual
capacity, any Certificateholder or any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors,
or assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of principal of or interest on the Notes or
for the agreements of the Trust contained in the Indenture.
Each Noteholder, by accepting a Note, and the Indenture Trustee will
covenant that they will not at any time institute against the Trust, the
Certificate Trust or the Depositor any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
The Trust may not engage in any activity other than as described herein. The
Trust may not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes and the Indenture.
CERTAIN COVENANTS. The Trust may not consolidate with or merge into any
other entity unless (i) the entity formed by or surviving such consolidation or
merger is organized under the laws of the United States, any state or the
District of Columbia; (ii) such entity expressly assumes the Trust's obligation
to make due and punctual payments on the Notes and to perform or observe every
agreement and covenant of the Trust under the Indenture; (iii) no Indenture
Event of Default shall have occurred immediately after such merger or
consolidation; (iv) the Trust has been advised by each Rating Agency that such
merger or consolidation will not result in the qualification, reduction or
withdrawal of such Rating Agency's then-current rating of either class of the
Notes without regard to the Policy; (v) the Trust and the Note Insurer shall
have received an opinion of counsel to the effect that such consolidation or
merger will have no
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material adverse tax consequence to the Trust or to any Noteholder; and (vi) the
Note Insurer consents to such merger or consolidation.
The Trust will not (i) except as expressly permitted by the Indenture or the
Transfer and Servicing Agreements, sell, transfer, exchange or otherwise dispose
of any of the assets of the Trust; (ii) claim any credit on or make any
deduction from the principal and interest payable in respect of the Notes (other
than amounts withheld under the Code or applicable state tax laws) or assert any
claim against any present or former holder of the Notes because of the payment
of taxes levied or assessed upon the Trust; (iii) dissolve or liquidate in whole
or in part; (iv) permit the validity or effectiveness of the Indenture to be
impaired or permit any person to be released from any covenants or obligations
with respect to the Notes under the Indenture except as may be expressly
permitted thereby; (v) permit any lien, charge, excise, claim, security
interest, mortgage, or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Trust or any part thereof, or
any interest therein or the proceeds thereof; or (vi) permit the lien of the
Indenture not to constitute a valid first priority security interest (other than
with respect to a tax, mechanics' or similar lien) in the assets of the Trust.
MODIFICATION OF INDENTURE. The Trust and the Indenture Trustee may, with
the consent of the Note Insurer and of the holders of a majority of the
aggregate outstanding principal amount of the Notes, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the Indenture, or modify (except as provided below) in any manner the rights
of the Noteholders. However, without the consent of the holder of each
outstanding Note affected thereby, no supplemental indenture may (i) change the
due date of any installment of principal of or interest on the Notes or reduce
the principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change any place of payment where or
the coin or currency in which the Notes or any interest thereon is payable; (ii)
impair the right to institute suit for the enforcement of certain provisions of
the Indenture regarding payment; (iii) reduce the percentage of the aggregate
outstanding amount of the Notes, the consent of the holders of which is required
for any such supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, any
other obligor on the Notes, the Depositor or an affiliate of any of them; (v)
reduce the percentage of the aggregate outstanding amount of the Notes, the
consent of the holders of which is required to direct the Indenture Trustee to
sell or liquidate the Receivables if the proceeds of such sale would be
insufficient to pay the principal amount and accrued and unpaid interest on the
outstanding Notes; (vi) decrease the percentage of the aggregate principal
amount of the Notes required to amend the sections of the Indenture that specify
the percentage of the aggregate principal amount of the Notes necessary to amend
the Indenture or certain other related agreements; or (vii) permit the creation
of any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise permitted
or contemplated in the Indenture, terminate the lien of the Indenture on the
collateral or deprive any holder of the Notes of the security afforded by the
lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, with the consent of the Note Insurer but without obtaining the
consent of the Noteholders, for the purpose of, among other things, adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the Noteholders;
provided that such action does not, as evidenced by an opinion of counsel,
materially and adversely affect the interests of any Noteholder.
SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture will be discharged
with respect to the collateral securing the Notes upon the delivery to the
Indenture Trustee for cancellation of all the Notes or, with certain
limitations, upon deposit with the Indenture Trustee of funds sufficient for the
payment in full of all the Notes.
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THE INDENTURE TRUSTEE
The Chase Manhattan Bank, a New York banking corporation, will be the
Indenture Trustee under the Indenture. The Indenture Trustee may resign at any
time in which event the Note Insurer may appoint a successor Indenture Trustee
and if it fails to do so, the Trust will be obligated to appoint a successor
Indenture Trustee acceptable to the Note Insurer. The Note Insurer or the Trust
with the prior written consent of the Note Insurer may also remove the Indenture
Trustee if the Indenture Trustee ceases to be eligible to continue as such under
the Indenture or if the Indenture Trustee breaches any of its representations,
warranties or covenants under the transaction documents or if the Indenture
Trustee becomes insolvent. In such circumstances, the Note Insurer may appoint a
successor Indenture Trustee and if it fails to do so, the Trust will be
obligated to appoint a successor Indenture Trustee acceptable to the Note
Insurer. No resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee will become effective until acceptance of the
appointment by a successor Indenture Trustee that is acceptable to the Note
Insurer.
FORM, EXCHANGE, REGISTRATION AND TITLE
The Notes will initially be registered in the name of Cede & Co. ("Cede"),
the nominee of The Depository Trust Company ("DTC"). Noteholders may hold their
Notes in the United States through DTC, or in Europe through CEDEL Bank, societe
anonyme ("CEDEL") or the Euroclear System ("Euroclear"), if they are
participants of such systems, or indirectly through organizations that are
participants in such systems.
Cede, as nominee for DTC, will hold the global Notes. CEDEL and Euroclear
will hold omnibus positions on behalf of the CEDEL Participants and the
Euroclear Participants, respectively, through customers' securities accounts in
CEDEL's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the 1934 Act.
DTC accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of securities. Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds
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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 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 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.
Noteholders who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Note may do so only through Participants
(unless and until Definitive Notes are issued). In addition, Noteholders will
receive all distributions of principal of and interest on the Note from the
Indenture Trustee through DTC and Participants. Noteholders will not receive or
be entitled to receive physical securities representing their respective
interests in the Note, except under the limited circumstances described below.
Unless and until Definitive Notes are issued, it is anticipated that the
only Noteholder will be Cede, as nominee of DTC. Beneficial owners of the Notes
will not be Noteholders as that term is used in the Indenture. Beneficial owners
are only permitted to exercise the rights of Noteholders indirectly through
Participants and DTC.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit distributions of principal of, and interest on,
the Notes. Unless and until Definitive Notes are issued, beneficial owners who
are not Participants may transfer ownerships of Notes only through Participants
by instructing such Participants to transfer the Notes by book-entry transfer
through DTC for the account of the purchasers of such Notes, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of the Note will be
executed through DTC and the accounts of the respective Participants at DTC will
be debited and credited.
Physical Notes will be issued in registered form to Noteholders, or their
nominees, rather than to DTC (such being referred to herein as "Definitive
Notes"), only if (i) DTC or the Depositor advises the Indenture Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to such Notes and the
Depositor or the Indenture Trustee is unable to locate a qualified successor,
(ii) the Depositor, at its sole option and with the consent of the Indenture
Trustee, elects to terminate the book-entry system through DTC or (iii) after
the occurrence of an Indenture Event of Default, DTC, at the direction of
Noteholders having a majority in interest of the Notes, advises the Indenture
Trustee in writing that the continuation of a book-entry system through DTC (or
a successor thereto) to the exclusion of any physical Notes being issued to
Noteholders is no longer in the best interest of Noteholders. Upon issuance of
Definitive Notes to Noteholders, such Notes will be transferable directly (and
not exclusively on a book-entry basis), and registered holders will deal
directly with the Indenture Trustee with respect to transfers, notices and
distributions.
DTC has advised the Depositor and the Indenture Trustee that, unless and
until Definitive Notes are issued, DTC will take any action permitted to be
taken by a Noteholder under the Indenture only at the direction of one or more
Participants to whose DTC account the Notes are credited. DTC has advised the
Depositor that DTC will take such action with respect to any Percentage
Interests of the Notes only at the direction of and on behalf of such
Participants with respect to such Percentage Interests of the Notes. DTC
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may take actions, at the direction of the related Participants, with respect to
some Notes that conflict with actions taken with respect to other Notes.
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. 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 underwriters of any class of Notes. 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
delivery against payment, thereby eliminating the need for physical movement of
securities and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 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. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Euroclear Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Euroclear Cooperative. The Euroclear Cooperative establishes policy for
the Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. 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 of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, 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 securities
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.
Distributions with respect to Notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Material Federal
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Income Tax Consequences" herein. CEDEL or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a Noteholder under
the Indenture on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of the Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
In the event that any of DTC, CEDEL or Euroclear should discontinue its
services, the Depositor would seek an alternative depositary (if available) or
cause the issuance of Definitive Notes to Noteholders or their nominees in the
manner described above.
Issuance of the Notes in book-entry form rather than as physical Notes may
adversely affect the liquidity of the Notes in the secondary market and the
ability of Noteholders to pledge them. In addition, since distributions on the
Notes will be made by the Indenture Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants, which will further credit
them to the accounts of indirect participants of Noteholders, Noteholders may
experience delays in the receipt of such distributions.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Receivables Purchase
Agreement, the Sale and Servicing Agreement, the Administration Agreement and
the Trust Agreement (collectively, the "Transfer and Servicing Agreements").
Forms of the Transfer and Servicing Agreements have been filed as exhibits to
the Registration Statement. A copy of the Sale and Servicing Agreement will be
filed with the Commission following the issuance of the Securities. The summary
does not purport to be complete and is subject to, and qualified by reference
to, all the provisions of the Transfer and Servicing Agreements. The following
summary supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Transfer and Servicing
Agreements set forth in the Prospectus, to which description reference is hereby
made.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
On the Closing Date, the Seller will sell and assign the Initial Receivables
to the Depositor, without recourse, pursuant to the Receivables Purchase
Agreement, and the Depositor will sell and assign the Initial Receivables to the
Trust, without recourse, pursuant to the Sale and Servicing Agreement. Each
Initial Receivable will be identified in a schedule to the Receivables Purchase
Agreement and the Sale and Servicing Agreement.
In the Receivables Purchase Agreement, the Seller will represent and warrant
to the Depositor that, among other things, (i) the information provided with
respect to the Initial Receivables is correct in all material respects as of the
Cutoff Date; (ii) the Obligor on each Initial Receivable is required to maintain
physical damage insurance covering the Financed Vehicle in accordance with
HMFC's normal requirements; (iii) upon the purchase of the Initial Receivables
by the Depositor, the Initial Receivables will be free and clear of all security
interests, liens, charges and encumbrances, and no offsets, defenses or
counterclaims will have been asserted or threatened under such Initial
Receivables; (iv) immediately prior to the sale of the Initial Receivables by
the Seller to the Depositor and by the Depositor to the Trust, each of the
Initial Receivables will be secured by a first priority perfected security
interest in the related Financed Vehicle in favor of the Seller; and (v) each
Initial Receivable, at the time it was originated, complied and, at the Closing
Date, will comply in all material respects with applicable federal and state
laws, including, without limitation, consumer credit, truth-in-lending, equal
credit opportunity and disclosure laws. The Seller will be obligated to
repurchase for the Purchase Amount any Receivable with respect to which it is in
breach of a representation or warranty unless such breach is cured in a timely
manner. "The Purchase Amount" with respect to any Receivable will equal the
unpaid principal balance owed by the Obligor thereof plus interest on such
amount at the applicable APR to the last day of the month of repurchase.
The right of the Depositor to enforce the Seller's repurchase obligation
under the Receivables Purchase Agreement will be assigned to the Trust in the
Sale and Servicing Agreement. The repurchase obligation will constitute the sole
remedy available to the Depositor, the Trust, the Indenture Trustee or the
Securityholders with respect to the Seller for any such uncured breach. There is
no assurance that the Seller will have the financial ability to effect any
repurchase of Receivables.
In addition, during the Funding Period, pursuant to the Sale and Servicing
Agreement, the Depositor will be obligated to sell to the Trust Subsequent
Receivables having an aggregate principal balance equal to approximately
$46,545,439.07 (such amount being equal to the initial Pre-Funded Amount) to the
extent that such Subsequent Receivables are available.
During the Funding Period, on the Subsequent Transfer Date, subject to the
conditions described under "The Receivables Pool" and in the Sale and Servicing
Agreement and the Receivables Purchase Agreement, the Depositor will sell and
assign to the Trust, without recourse, the Depositor's entire interest in the
Subsequent Receivables designated by the Depositor as of the Subsequent Cutoff
Date and identified in a schedule attached to the Subsequent Transfer Agreement.
Upon the conveyance of
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Subsequent Receivables to the Trust on the Subsequent Transfer Date, (i) the
Pool Balance will increase by an amount equal to the aggregate principal balance
of such Subsequent Receivables, and (ii) an amount equal to the aggregate
principal balance of such Subsequent Receivables will be withdrawn from the Pre-
Funding Account and used to purchase the Subsequent Receivables and fund any
applicable accounts.
SERVICING PROCEDURES
The Servicer will follow its currently employed standards, or such more
exacting standards as the Servicer may employ in the future, in servicing the
Receivables. The Servicer will make reasonable efforts to collect all payments
due with respect to the Receivables and, in a manner consistent with the Sale
and Servicing Agreement, will continue such collection procedures as it follows
with respect to automotive retail installment sale contracts it services for
itself and others. Consistent with its normal procedures, the Servicer may, in
its discretion and in compliance with the Sale and Servicing Agreement, arrange
with an Obligor to extend the payment due date under the related Receivable. No
such arrangement will modify the amount of the scheduled payments or extend the
final payment date on any Receivable beyond the last day of the Collection
Period ending three months prior to the Final Scheduled Maturity Date. If the
Servicer grants an extension with respect to a Receivable other than in
accordance with the aforementioned limitations, the Servicer will be required to
purchase the Receivable for the Purchase Amount.
On or before the earlier of (i) the eighth calendar day of each month (or if
such eighth day is not a Business Day, the next succeeding Business Day) and
(ii) the fifth Business Day preceding the related Distribution Date (each such
day, a "Determination Date"), the Servicer will prepare and deliver to the
Indenture Trustee, the Owner Trustee, the Backup Servicer, the Note Insurer and
the Rating Agencies a certificate (the "Servicer's Certificate") setting forth,
among other things, the amount collected on the Receivables during the related
Collection Period, including the Purchase Amounts for any Purchased Receivables
and the unpaid principal balance of any Receivables that became Liquidated
Receivables during such Collection Period, and any other information necessary
to enable the Indenture Trustee and the Owner Trustee to make all required
distributions and to deliver the Statement to Noteholders on the related
Distribution Date.
ACCOUNTS
On or before the Closing Date, the Trust will establish, or cause to be
established, the Collection Account, the Reserve Account, the Yield Maintenance
Account and any additional accounts described below, which will be used by the
Servicer and the Indenture Trustee or Owner Trustee, as applicable, in
connection with the servicing of the Receivables and making distributions
pursuant to the Sale and Servicing Agreement.
LOCAL REMITTANCE ACCOUNT, COLLECTION ACCOUNT AND NOTE DISTRIBUTION
ACCOUNT. The Servicer will be responsible for servicing, managing and making
collections on the Receivables. Each Obligor makes payments with respect to the
Receivables directly to one of several post office boxes at Citibank N.A. On
each Business Day, Citibank N.A., as the remittance processor, will transfer any
such payments received by it to an account or accounts held by HMFC (the "Local
Remittance Account"). Within two Business Days of receipt of funds into the
Local Remittance Account, the Servicer is required to effect a transfer of funds
from the Local Remittance Account to the account established with the Indenture
Trustee.
On or prior to the Closing Date, the Indenture Trustee will establish and
maintain initially with itself (a) an account, in the name of the Indenture
Trustee on behalf of the Noteholders and the Note Insurer, into which all
amounts previously deposited in the Local Remittance Account will be transferred
within two Business Days of the receipt of funds therein (the "Collection
Account") and (b) an account into which amounts released from the Collection
Account and the Reserve Account and payments made by the Note Insurer pursuant
to the Policy, in each such case, for payment to the Noteholders will be
deposited and from which all distributions to the Noteholders will be made (the
"Note Distribution Account").
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Funds in the Collection Account will be invested as provided in the Sale and
Servicing Agreement in Eligible Investments. "Eligible Investments" are
generally limited to investments approved by the Note Insurer and rated in the
highest investment category by each of the Rating Agencies. Any earnings on
amounts on deposit in the Collection Account will be included in the Interest
Distribution Amount and distributed on the next Distribution Date pursuant to
the Sale and Servicing Agreement.
The Collection Account and the Note Distribution Account (together, 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,
having corporate trust powers and acting as trustee for funds deposited in such
account, so long as any of the securities of such depository institution have a
credit rating from each Rating Agency in one of its generic rating categories
that signifies investment grade. "Eligible Institution" means (a) the corporate
trust department of the Indenture Trustee or the Owner 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, (i) which has
either (A) a long-term unsecured debt rating acceptable to each Rating Agency
and the Note Insurer or (B) a short-term unsecured debt rating or certificate of
deposit rating acceptable to each Rating Agency and the Note Insurer and (ii)
whose deposits are insured by the Federal Deposit Insurance Corporation.
CERTIFICATE DISTRIBUTION ACCOUNT. In addition to the Trust Accounts, the
Servicer will establish an account in the name of the Owner Trustee (the
"Certificate Distribution Account") into which amounts released from the
Collection Account for distribution to the Certificateholders will be deposited
and from which all distributions to the Certificateholders will be made.
PRE-FUNDING ACCOUNT. On the Closing Date, a cash amount equal to
approximately $46,545,439.07 will be deposited into an account (the "Pre-Funding
Account") which will be established in the name of the Indenture Trustee. The
Pre-Funding Account will be an asset of the Trust and will be pledged to the
Indenture Trustee pursuant to the Indenture. Such amount will be funded from the
sale of the Securities and is expected to be used to acquire Subsequent
Receivables. The "Funding Period" is the period from and including the Closing
Date until the earliest of (i) the Determination Date on which the amount on
deposit in the Pre-Funding Account is $100,000 or less; (ii) the occurrence of a
Servicer Termination Event (as defined in the Sale and Servicing Agreement) or
an Indenture Event of Default under the Indenture; (iii) the Determination Date
in July 1998; and (iv) the Subsequent Transfer Date. The Pre-Funded Amount will
initially equal $46,545,439.07 and will be reduced during the Funding Period by
the amount thereof used to purchase Subsequent Receivables in accordance with
the Sale and Servicing Agreement and by the amount thereof deposited in the
Reserve Account and the Yield Maintenance Account in connection with the
purchase of such Subsequent Receivables. The Depositor expects that the
Pre-Funded Amount will be reduced to less than $100,000 on or before the
Determination Date in July 1998. Any Pre-Funding Amount remaining at the end of
the Funding Period will be payable as a principal distribution to the
Noteholders as a partial mandatory redemption or prepayment on the immediately
following Distribution Date.
CAPITALIZED INTEREST ACCOUNT. On the Closing Date, a cash amount will be
deposited in an account (the "Capitalized Interest Account") which will be
established in the name of the Indenture Trustee. The Capitalized Interest
Account will be an asset of the Trust, and will be pledged to the Indenture
Trustee pursuant to the Indenture. The amount so deposited in the Capitalized
Interest Account, including reinvestment income thereon, will be applied on each
Distribution Date up to and including the Mandatory Redemption Date to the
amount of interest accrued at the Weighted Average Note Rate on the amount equal
to 87% of the amount by which the sum of the Certificate Balance and the Note
Balance exceeds the Cutoff Date Pool Balance (the "Capitalized Interest
Payments"). Any amounts remaining in the Capitalized Interest Account not needed
for such purpose will be paid to the Trust at the end of the Funding Period. The
"Weighted Average Note Rate" shall be the percentage equivalent of a fraction,
the
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numerator of which is the sum of (i) the product of the Class A-1 Rate times the
Initial Class A-1 Note Balance plus (ii) the product of the Class A-2 Rate times
the Initial Class A-2 Note Balance, and the denominator of which is the sum of
the Initial Class A-1 Note Balance and the Initial Class A-2 Note Balance.
DISTRIBUTIONS
DEPOSITS TO COLLECTION ACCOUNT. On or before each Determination Date, the
Servicer will provide the Indenture Trustee and the Owner Trustee with a
certificate (the "Servicer's Certificate") in which the Servicer will set forth
certain information with respect to the related Collection Period, including the
amount of aggregate collections on the Receivables and the aggregate Purchase
Amount of Receivables to be repurchased by the Seller or purchased by the
Servicer.
The "Total Distribution Amount" with respect to each Distribution Date will
equal the sum of the Regular Principal Distribution Amount (other than the
portion thereof attributable to Realized Losses or Cram Down Losses) and an
amount (the "Interest Distribution Amount") equal to the sum of the following
amounts with respect to the related Collection Period: (i) that portion of all
collections on the Receivables allocable to interest; (ii) that portion of all
net liquidation proceeds allocable to interest; (ii) that portion allocable to
interest of the Purchase Amount of each Receivable that became a Purchased
Receivable during or in respect of the related Collection Period; (iv) any Yield
Maintenance Payments and Capitalized Interest Payments; and (v) any investment
income from the investment of amounts on deposit in the Collection Account.
The Interest Distribution Amount and the Regular Principal Distribution
Amount on any Distribution Date shall exclude all payments and proceeds
(including net liquidation proceeds) of any Receivables, the Purchase Amount of
which has been included in the Total Distribution Amount in a prior Collection
Period.
The first Collection Period will begin on March 16, 1998 and will continue
through April 30, 1998. The first Distribution Date will occur on May 15, 1998,
on which date the Noteholders' Principal Distributable Amount will include those
collections received in respect of the Receivables for the Collection Period,
allocable to principal, as described herein. Each Collection Period thereafter
will consist of one calendar month. The following sets forth an example of a
hypothetical monthly distribution:
<TABLE>
<S> <C>
January 1--January 31 COLLECTION PERIOD. Scheduled payments, prepayments and
other proceeds on or with respect to the Receivables
are remitted to one of several post office boxes at
Citibank, N.A. and deposited into the Local Remittance
Account and then to the Collection Account.
February 8 DETERMINATION DATE. On or before this date the
Servicer will notify the Owner Trustee and the
Indenture Trustee of, among other things, the amounts
available in the Collection Account and the amounts
required to be distributed on the Distribution Date.
February 14 RECORD DATE. Distributions on the Distribution Date
will be made to Securityholders of record at the close
of business on this date.
February 15 DISTRIBUTION DATE. The Indenture Trustee will pay the
amounts specified, and in the priority described,
below.
</TABLE>
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DEPOSITS TO THE DISTRIBUTION ACCOUNTS. On each Distribution Date, the
Servicer will instruct the Indenture Trustee to make the following deposits and
distributions, to the extent of the Total Distribution Amount, in the following
order of priority (subject to certain events set forth in the Sale and Servicing
Agreement):
(i) to the Indenture Trustee, the Owner Trustee, the Custodian and the
Backup Servicer, any applicable fees due currently on such date, but only to
the extent not paid by the Servicer;
(ii) to the Servicer, from the Total Distribution Amount, remaining
after the application of clause (i), the Senior Servicing Fee and all unpaid
Senior Servicing Fees from prior Collection Periods and certain servicing
transition costs in the event of a transfer to a Successor Servicer;
(iii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) and (ii), the
Noteholders' Interest Distributable Amount;
(iv) to the Note Insurer, from the Total Distribution Amount remaining
after the application of clauses (i) through (iii), the Insurance Premium;
(v) to the Note Distribution Account, from the Total Distribution Amount
remaining after the application of clauses (i) through (iv), the
Noteholders' Principal Distributable Amount;
(vi) to the Note Insurer, from the Total Distribution Amount remaining
after the application of clauses (i) through (v), any amounts due to the
Note Insurer under the Insurance Agreement;
(vii) to the Reserve Account, from the Total Distribution Amount
remaining after the application of clauses (i) through (vi), amounts until
the Reserve Account contains the Reserve Account Required Amount;
(viii) to the Indenture Trustee, Owner Trustee, Custodian and the Backup
Servicer, from the Total Distribution Amount remaining after the application
of clauses (i) through (vii), any other accrued and unpaid fees owed to such
party, to the extent such fees are not paid by the Servicer or paid pursuant
to clause (ii);
(ix) to the Servicer, from the Total Distribution Amount remaining after
the application of clauses (i) through (viii), the Subordinated Servicing
Fee and certain other servicing costs;
(x) to the Custodian, from the Total Distribution Amount remaining after
the application of clauses (i) through (ix), any costs associated with the
perfection of security interests in the Financed Vehicles to the extent not
paid by the Servicer; and
(xi) the remaining balance, if any, to the Certificate Distribution
Account.
If the Total Distribution Amount remaining on any Distribution Date after
payment of the amounts due pursuant to clauses (i) and (ii) above is
insufficient to pay clauses (iii) and (v), such shortfall will be paid, only to
the extent specified herein from amounts available, if any, in the Reserve
Account and then, with respect to clause (iii) from amounts payable under the
Policy and with respect to clause (v), amounts payable under the Policy, only to
the extent specified herein. Upon the occurrence of certain events set forth in
the Sale and Servicing Agreement and to the extent directed by the Note Insurer,
any amounts remaining after the deposit pursuant to clause (v) from the Total
Distribution Amount and any amounts in the Reserve Account, may in the
discretion of the Note Insurer be applied to reduce the then outstanding balance
of the Notes.
On each Distribution Date, any amount on deposit in the Reserve Account on
the Determination Date in excess of the then applicable Reserve Account Required
Amount will be distributed to the Certificate Trust.
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For purposes hereof, the following terms shall have the following meanings:
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class A-1 Interest Distributable Amount for
such Distribution Date and the Class A-2 Interest Distributable Amount for such
Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class A-1 Principal Distributable Amount for
such Distribution Date and the Class A-2 Principal Distributable Amount for such
Distribution Date; PROVIDED, HOWEVER, that the Noteholders' Principal
Distributable Amount shall not exceed the outstanding principal balance of the
Notes; and PROVIDED, FURTHER, that (i) the Noteholders' Principal Distributable
Amount on the Class A-1 Final Scheduled Distribution Date shall not be less than
the amount that is necessary (after giving effect to other amounts to be
deposited in the Note Distribution Account on such Distribution Date and
allocable to principal) to reduce the outstanding principal balance of the Class
A-1 Notes to zero; and (ii) the Noteholders' Principal Distributable Amount on
the Class A-2 Final Scheduled Distribution Date shall not be less than the
amount that is necessary (after giving effect to other amounts to be deposited
in the Note Distribution Account on such Distribution Date and allocable to
principal) to reduce the outstanding principal balance of the Class A-2 Notes to
zero.
"Senior Servicing Fee" will equal 1.5% per annum, so long as HMFC is the
Servicer, of the Pool Balance as of the first day of the related Collection
Period, plus certain late fees, prepayment charges and other administrative fees
or similar charges received from Obligors. If HMFC is not the Servicer, the
Senior Servicing Fee will equal 3.0% per annum of the Pool Balance as of the
first day of the related Collection Period.
"Subordinated Servicing Fee" will equal 1.5% per annum, so long as HMFC is
the Servicer, of the Pool Balance as of the first day of the related Collection
Period. If HMFC is not the Servicer, the Subordinated Servicing Fee will equal
0% per annum.
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REPORTS TO NOTEHOLDERS
The Note Insurer and three or more Noteholders, or one or more Noteholders
evidencing not less than 25% of the Note Balance may by written request to the
Indenture Trustee obtain access to the list of like Noteholders maintained by
the Indenture Trustee for the purpose of communicating with other like
Noteholders with respect to their rights under the Indenture and Notes. The
Indenture Trustee may elect not to afford the requesting Noteholders access to
such list if it agrees to mail the desired communication or proxy, on behalf of
and at the expense of the requesting Noteholders, to all like Noteholders.
Prior to each Distribution Date, the Servicer will prepare and provide to
the Note Insurer and the Indenture Trustee a statement to be delivered to the
Noteholders (the "Statement to Noteholders") on such Distribution Date. Each
such Statement to Noteholders will include the following information with
respect to the Notes and the related Distribution Date or Collection Period, as
applicable:
(i) the amount of the distribution allocable to principal of each class
of Notes;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Notes;
(iii) the Pool Balance as of the close of business on the last day of the
related Collection Period;
(iv) the outstanding aggregate principal balance of, and the Note Pool
Factor for, each class of Notes after giving effect to all payments reported
under clause (i) above on such date;
(v) the amount, if any, of the distribution payable pursuant to claims
under the Policy;
(vi) the amount of the Servicing Fee and the amount of any fees payable
to the Owner Trustee, the Backup Servicer, the Custodian or the Indenture
Trustee from monies on deposit in the Collection Account;
(vii) the aggregate principal balance of all Receivables that became
Liquidated Receivables or Purchased Receivables during the related
Collection Period;
(viii) the amounts of the aggregate Realized Losses and aggregate Cram
Down Losses, if any, separately identified, for the related Collection
Period;
(ix) the aggregate principal balance and number of Receivables that are
30 to 59 days, 60 to 89 days or 90 days or more delinquent;
(x) the Class A-1 Interest Carryover Shortfall, the Class A-1 Principal
Carryover Shortfall, the Class A-2 Interest Carryover Shortfall and the
Class A-2 Principal Carryover Shortfall, if any, in each case after giving
effect to payments on such Distribution Date, and any change in such amounts
from the preceding statement;
(xi) the aggregate Purchase Amounts for Receivables, if any, that were
purchased during or with respect to such Collection Period;
(xii) for each such date during the Funding Period, the remaining
Pre-Funded Amount, the amount in the Pre-Funding Account and the amount
remaining in the Capitalized Interest Account;
(xiii) for the final Subsequent Transfer Date, the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on one or
both Classes of Notes;
(xiv) the aggregate principal balance and number of all Receivables with
respect to which the related Financial Vehicle was repossessed;
(xv) the aggregate principal balance and number of Receivables with
respect to which the Servicer granted an extension; and
(xvi) certain other calculations as set forth in the Sale and Servicing
Agreement.
Each amount set forth pursuant to clauses (i), (ii), (v) and (xi) will be
expressed as a dollar amount per $1,000 of the initial principal balance of the
applicable class of Notes.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Trust, the Indenture Trustee
will mail to each person who at any time during such
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calendar year has been a Noteholder and received any payment on the Notes, a
statement containing certain information for the purposes of such Noteholder's
preparation of federal income tax returns. See "Material Federal Income Tax
Consequences" herein.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee on each
Distribution Date in an amount equal to the product of the Servicing Fee Rate
and the Pool Balance as of the first day of the related Collection Period. As
long as HMFC is the Servicer, a portion of the Servicing Fee will be paid to the
Backup Servicer on each Distribution Date as compensation for its agreeing to
stand by as successor Servicer and for performing certain other functions. The
Servicer will also collect and retain any late fees, prepayment charges and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of automotive receivables, as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, paying
costs related to the disposition of defaulted accounts, and policing the
collateral. The Servicing Fee also will compensate the Servicer for
administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee, the Owner
Trustee and the Note Insurer and generating federal income tax information. 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 Receivables and for payment of the fees of the
Backup Servicer.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement will provide that a firm of independent
public accountants will furnish to the Indenture Trustee, the Owner Trustee, the
Note Insurer and the Rating Agencies within 120 days after the end of each
fiscal year, a statement as to compliance by the Servicer during the twelve
months that ended as of the end of such fiscal year (or in the case of the first
such certificate, the period from the Closing Date to the end of such fiscal
year) with certain standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for the delivery to the
Indenture Trustee, the Owner Trustee, the Note Insurer and the Rating Agencies,
within 120 days after the end of each fiscal year, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Sale and Servicing Agreement throughout the preceding fiscal year (or
in the case of the first such certificate, the period from the Closing Date to
the end of such fiscal year) or, if there has been a default in the fulfillment
of any such obligation, describing each such default and the status thereof. The
Servicer has agreed to give the Indenture Trustee, the Owner Trustee and the
Note Insurer notice of any Servicer Termination Event under the Sale and
Servicing Agreement.
Copies of such accountants' statements and officer's certificates may be
obtained by Securityholders on request in writing addressed to the Indenture
Trustee or Owner Trustee, as applicable.
CERTAIN MATTERS REGARDING THE SERVICER
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except with the
prior written approval of the Note Insurer or upon determination that its
performance of such duties is no longer permissible under applicable law as
evidenced by an opinion of counsel delivered to the Note Insurer. No such
resignation will become effective until a successor Servicer acceptable to the
Note Insurer has assumed the servicing obligations and duties under the Sale and
Servicing Agreement. In the event HMFC resigns as Servicer or is terminated as
Servicer, the Backup Servicer has agreed to assume the servicing obligations and
duties under the Sale and Servicing Agreement provided that the Note Insurer has
given its prior written consent of such assumption by the Backup Servicer.
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The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees or agents will be under
any liability to the Trust or the Securityholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement;
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 duties or by
reason of reckless disregard of obligations and duties thereunder.
Under the circumstances specified in the Sale and Servicing Agreement, any
entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer, which corporation or
other entity, in each of the foregoing cases, assumes the obligations of the
Servicer, will be the successor to the Servicer under the Sale and Servicing
Agreement.
SERVICER TERMINATION EVENT
A "Servicer Termination Event" under the Sale and Servicing Agreement will
mean the occurrence of any of the following: (i) any failure by the Servicer to
cause the deposit to the Local Remittance Account or to deposit to the
Collection Account any proceeds or payments required to be so delivered or any
failure to deliver the Servicer's Certificate by the applicable Determination
Date; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement under the Sale and Servicing
Agreement, which failure continues unremedied for 30 days after the giving of
written notice of such failure to the Servicer by (a) the Indenture Trustee or
(b) if a Note Insurer Default has not occurred or is not occurring, the Note
Insurer or (c) if a Note Insurer Default has occurred and is continuing, the
holders of Notes representing more than 25% of the Note Balance; (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings with respect to the Servicer or, so long as
HMFC is the Servicer, the Depositor; and (iv) the occurrence of any one of
certain other events set forth in the Sale and Servicing Agreement.
RIGHTS UPON SERVICER TERMINATION EVENT
If a Servicer Termination Event occurs (x) provided no Note Insurer Default
has occurred and is continuing, the Note Insurer in its sole and absolute
discretion or (y) if a Note Insurer Default has occurred and is continuing, then
the Indenture Trustee or holders of Notes evidencing 25% or more of the Note
Balance, may terminate all the rights and obligations of the Servicer under the
Sale and Servicing Agreement, whereupon the Backup Servicer or such other
successor Servicer as shall have been appointed by the Note Insurer (provided no
Note Insurer Default has occurred and is continuing) or the Indenture Trustee,
as the case may be, will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. There is no assurance that the
succession of a successor Servicer will not result in a material disruption in
the performance of the duties of the Servicer.
WAIVER OF PAST DEFAULTS
The Note Insurer and, if a Note Insurer Default shall have occurred and be
continuing, the holders of Notes evidencing not less than a majority of the
aggregate outstanding principal amount of the Notes may waive any default by the
Servicer in the performance of its obligations under the Sale and Servicing
Agreement and its consequences. No such waiver shall impair the Note Insurer's
or the Noteholders' rights with respect to subsequent defaults.
BACKUP SERVICER
If a Servicer Termination Event occurs under the Sale and Servicing
Agreement while HMFC is Servicer, or if HMFC is terminated as Servicer or
resigns as Servicer, the Backup Servicer has agreed to act as successor Servicer
provided that the Note Insurer has consented to such succession by the Backup
Servicer. The Backup Servicer will receive a fee on each Distribution Date for
agreeing to stand by as
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successor Servicer and for performing certain other functions. Such fee will be
payable to the Backup Servicer from the Servicing Fee payable to HMFC.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, with the consent of the Note Insurer but without the consent of the
Noteholders or Certificateholders, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of such Transfer
and Servicing Agreements or of modifying in any manner the rights of the
Securityholders thereunder; provided, that any such action will not, as
evidenced by an opinion of counsel, materially and adversely affect the
interests of any Securityholder.
The Transfer and Servicing Agreements may also be amended from time to time
by the parties thereto with the consent of the Note Insurer and of the
Noteholders evidencing at least a majority of the Note Balance, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Transfer and Servicing Agreements or of modifying in any
manner the rights of the Noteholders; provided, 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 Receivables or
distributions that are required to be made for the benefit of the Noteholders or
(ii) reduce the aforesaid percentage of the Notes that is required to consent to
any such amendment, without the consent of the holders of all of the outstanding
Notes.
TERMINATION
The obligations of the Servicer, the Depositor, the Administrator, the Owner
Trustee and the Indenture Trustee with respect to the Trust pursuant to the
Transfer and Servicing Agreements will terminate upon the earliest to occur of
(i) the maturity or other liquidation of the last Receivable in the Receivables
Pool and the disposition of any amounts received upon liquidation of any such
remaining Receivables, (ii) the payment to Noteholders and the Note Insurer of
all amounts required to be paid to them pursuant to the Transfer and Servicing
Agreements and (iii) the purchase by the Servicer or the Note Insurer, as the
case may be, of all of the Receivables as of the end of any Collection Period
after the Pool Balance is reduced to 10% or less of the Initial Pool Balance
pursuant to the terms of the Sale and Servicing Agreement.
ADMINISTRATION AGREEMENT
The Chase Manhattan Bank, in its capacity as the Administrator (the
"Administrator"), will enter into the Administration Agreement with the Trust
and the Indenture Trustee pursuant to which the Administrator will agree to
provide the notices and to perform other administrative obligations required by
the Indenture. As compensation for the performance of the Administrator's
obligations under the Administration Agreement and as reimbursement for its
expenses related thereto, the Administrator will be entitled to a monthly
administration fee, which fee will be paid by the Servicer.
THE POLICY
The following information has been supplied by MBIA Insurance Corporation
(the "Note Insurer") for inclusion in this Prospectus Supplement.
The Note Insurer, in consideration of the payment of the premium and subject
to the terms of the Policy, thereby unconditionally and irrevocably guarantees
to any Owner that an amount equal to each full and complete Insured Payment will
be received by the Indenture Trustee, or its successor, as indenture trustee for
the Owners, on behalf of the Owners from the Note Insurer, for distribution by
the Indenture Trustee to each Owner of each Owner's proportionate share of the
Insured Payment. The Note Insurer's obligations under the Policy with respect to
a particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Indenture Trustee, whether or
not such funds are properly applied by the Indenture Trustee. Insured Payments
shall be made only at the time set
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forth in the Policy and no accelerated Insured Payments shall be made regardless
of any acceleration of the Notes, unless such acceleration is at the sole option
of the Note Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust or the Indenture
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability).
The Note Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of a
preference payment, (ii) an opinion of counsel satisfactory to the Note Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Note Insurer, irrevocably assigning to the
Note Insurer all rights and claims of the Owner relating to or arising under the
Notes against the debtor which made such preference payment or otherwise with
respect to such preference payment and (iv) appropriate instruments to effect
the appointment of the Note Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Note Insurer, provided that if such documents are received
after 12:00 noon New York City time on such Business Day, they will be deemed to
be received on the following Business Day. Such payments shall be disbursed to
the receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Notes to such
receiver or trustee in bankruptcy, in which case such payment shall be disbursed
to such Owner.
The Note Insurer will pay any other amount payable under the Policy no later
than 12:00 noon New York City time on the later of the Distribution Date on
which the related Deficiency Amount is due or the third Business Day following
receipt in New York, New York on a Business Day by State Street Bank and Trust
Company, N.A., as Fiscal Agent for the Note Insurer or any successor fiscal
agent appointed by the Note Insurer (the "Fiscal Agent") of a Notice (as
described below); provided that if such Notice is received after 12:00 noon New
York City time on such Business Day, it will be deemed to be received on the
following Business Day. If such Notice received by the Fiscal Agent is not in
proper form or is otherwise insufficient for the purpose of making claim under
the Policy it shall be deemed not to have been received by the Fiscal Agent for
purposes of this paragraph, and the Note Insurer or the Fiscal Agent, as the
case may be, shall promptly so advise the Indenture Trustee and the Indenture
Trustee may submit an amended Notice.
Insured Payments due under the Policy unless otherwise stated therein will
be disbursed by the Fiscal Agent to the Indenture Trustee on behalf of the
Owners by wire transfer of immediately available funds in the amount of the
Insured Payment less, in respect of Insured Payments related to Preference
Amounts, any amount held by the Indenture Trustee for the payment of such
Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Note Insurer only and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Note Insurer to deposit or cause to be deposited, sufficient
funds to make payments due under the Policy.
Subject to the terms of the Agreement, the Note Insurer shall be subrogated
to the rights of each Owner to receive payments under the Notes to the extent of
any payment by the Note Insurer under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"AGREEMENT" means the Sale and Servicing Agreement dated as of April 1, 1998
among the Trust, the Depositor, the Servicer, the Backup Servicer and the
Indenture Trustee, without regard to any amendment or supplement thereto.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which the Note Insurer or banking institutions in New York City or in the city
in which the corporate trust office of the Indenture Trustee under the Indenture
is located are authorized or obligated by law or executive order to close.
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"DEFICIENCY AMOUNT" means on any Distribution Date, the sum of (a) the
amount by which the Noteholders' Interest Distributable Amount exceeds the sum
of (x) the Total Distribution Amount remaining after the payment of clauses (i)
and (ii) under "Description of the Transfer and Servicing
Agreements--Distributions--Deposits to the Distribution Accounts" above and (y)
the amounts on deposit in the Reserve Account and (b)(i) the amount by which the
Note Balance (after taking into account all distributions of principal to be
made on such Distribution Date) exceeds the Pool Balance as of the close of
business on the last day of the preceding Collection Period; or (ii) (a) on the
Class A-1 Final Scheduled Distribution Date, the amount by which the Class A-1
Note Balance exceeds the sum of (x) the Total Distribution Amount remaining
after the payment of (i) through (iv) under "Description of the Transfer and
Servicing Agreements--Distributions--Deposits to the Distribution Accounts"
above and (y) the amounts on deposit in the Reserve Account and (b) on the Class
A-2 Final Scheduled Distribution Date, the amount by which the Class A-2 Note
Balance exceeds the sum of (x) the Total Distribution Amount remaining after the
payment of (i) through (iv) under "Description of the Transfer and Servicing
Agreements--Distributions--Deposits to the Distribution Accounts" above and (y)
the amounts on deposit in the Reserve Account.
"INSURED PAYMENT" means (i) as of any Distribution Date any Deficiency
Amount and (ii) any Preference Amount.
"NOTICE" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Indenture Trustee specifying the Insured Payment which
shall be due and owing on the applicable Distribution Date. "Owner" means each
Holder (as defined in the Agreement) who, on the applicable Distribution Date,
is entitled under the terms of the applicable Notes to payment thereunder.
"PREFERENCE AMOUNT" means any amount previously distributed to an Owner on
the Notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Policy and not otherwise defined in the Policy
shall have the respective meanings set forth in the Agreement, as of the date of
execution of the Policy, without giving effect to any subsequent amendment or
modification to the Agreement unless such amendment or modification has been
approved in writing by the Note Insurer.
Any notice under the Policy or service of process on the Fiscal Agent may be
made at the address listed below for the Fiscal Agent or such other address as
the Note Insurer shall specify in writing to the Indenture Trustee.
The notice address of the Fiscal Agent is 15th floor, 61 Broadway, New York,
New York 10006 Attention: Municipal Registrar and Paying Agency or such other
address as the Fiscal Agent shall specify to the Indenture Trustee in writing.
The Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by the Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Notes.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Certificates and
the Trust Agreement. The summary does not purport to be complete and is subject
to, and qualified by reference to, all the provisions of the Certificates and
the Trust Agreement. The following summary supplements the general terms and
provisions of the Certificates of any given series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
DISTRIBUTIONS
The Certificates will not accrue interest and no payments of interest will
be made on the Certificates. Payments will be made on the Certificates to the
extent of available funds after payments on the Notes, Trust expenses and other
required amounts, as described herein.
CERTIFICATE TRUST
On the Closing Date, the Certificates will be issued to a Delaware business
trust (the "Certificate Trust"). The Certificate Trust will be created pursuant
to an agreement (the "Certificate Trust Agreement") to be dated as of April 1,
1998, between the Depositor and the Owner Trustee. The Certificate Trust will
issue the Beneficial Interest which will initially be held by HMFC or an
affiliate thereof.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, special federal tax counsel to the
Trust, for federal income tax purposes, the Notes will be characterized as debt,
and the Trust will not be characterized as an association (or a publicly traded
partnership) that is taxable as a corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat the Notes as indebtedness.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section 4975 of the Code. A fiduciary of a
Plan must determine that the purchase of a Note 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 Notes under ERISA, see "ERISA
Considerations" in the Prospectus.
The Notes may not be purchased with the assets of a Plan if the Depositor,
the Servicer, the Indenture Trustee, the Owner Trustee or any of their
affiliates (a) has investment or administrative discretion with respect to such
Plan assets; (b) has authority or responsibility to give, or regularly gives,
investment advice with respect to such Plan assets for a fee and pursuant to an
agreement or understanding that such advice (i) will serve as a primary basis
for investment decisions with respect to such Plan assets and (ii) will be based
on the particular investment needs for such Plan; or (c) is an employer
maintaining or contributing to such Plan.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
among the Depositor, HMFC and the several Underwriters (the "Underwriting
Agreement"), the Depositor has agreed to cause the Trust to sell to each of the
Underwriters named below, and the Underwriters have severally agreed to
purchase, the principal amount of the Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF OF
UNDERWRITER CLASS A-1 NOTES CLASS A-2 NOTES
- ------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Salomon Brothers Inc..................................................... $ 73,333,334 $ 26,716,668
ABN AMRO Incorporated.................................................... 73,333,333 26,716,666
BancAmerica Robertson Stephens........................................... 73,333,333 26,716,666
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes if any
Notes are purchased. In the event of default by any Underwriter, the
Underwriting Agreement provides that, in certain circumstances, the Underwriting
Agreement may be terminated.
Distribution of the Notes may be made by the Underwriters from time to time
in one or more negotiated transactions, or otherwise, at varying prices to be
determined at the time of sale. The Underwriters may effect such transactions by
selling the Notes to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriters. In connection with the sale of the Notes, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting compensation. The Underwriters and any dealers that
participate with the Underwriters in the distribution of the Notes may be deemed
to be underwriters and any commissions received by them and any profit on the
resale of the Notes positioned by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Securities Act").
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection with
the offering, I.E., if they sell more Notes than are set forth on the cover page
of this Prospectus Supplement, the Underwriters may reduce that short position
by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Seller nor any of the Underwriters make any representation or
predication as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Seller nor any of the Underwriters make any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and, prior to the expiration of the period of six months from the Closing
Date, will not offer or sell any Notes to persons in the United Kingdom, except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulation 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything
S-61
<PAGE>
done by it in relation to the Notes in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issue of the Notes to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995, or is a person to whom such document may otherwise lawfully be issued or
passed on.
The Underwriting Agreement provides that the Seller and the Depositor will
indemnify each of the Underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments that any of the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Brown & Wood
LLP and for HMFC by Latham & Watkins. Certain legal matters with respect to the
federal income tax matters discussed under "Material Federal Income Tax
Consequences" herein will be passed upon by Brown & Wood LLP, special federal
tax counsel to the Depositor. Certain legal matters will be passed upon for the
Underwriters by Brown & Wood LLP. Certain legal matters relating to the Policy
will be passed upon for the Note Insurer by Kutak Rock.
EXPERTS
The consolidated financial statements of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997, incorporated by reference in this Prospectus
Supplement, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon, incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
S-62
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
ABS................................................................................................ S-33
ABS Table.......................................................................................... S-33
Administrator...................................................................................... S-57
Agreement.......................................................................................... S-58
APR................................................................................................ S-10, S-39
Backup Servicer.................................................................................... S-4
Beneficial Interest................................................................................ S-5
Business Day....................................................................................... S-6, S-58
Capitalized Interest Account....................................................................... S-12, S-50,
S-50
Cede............................................................................................... S-44
CEDEL.............................................................................................. Cover, S-44
CEDEL Participants................................................................................. S-46
Certificate Balance................................................................................ S-25
Certificate Distribution Account................................................................... S-50
Certificate Trust.................................................................................. S-14, S-60
Certificate Trust Agreement........................................................................ S-14, S-60
Certificates....................................................................................... Cover, S-5
Class A-1 Final Scheduled Distribution Date........................................................ S-8
Class A-1 Interest Carryover Shortfall............................................................. S-6
Class A-1 Interest Distributable Amount............................................................ S-6
Class A-1 Monthly Interest Distributable Amount.................................................... S-6, S-37
Class A-1 Monthly Principal Distributable Amount................................................... S-7
Class A-1 Notes.................................................................................... Cover, S-4
Class A-1 Principal Carryover Shortfall............................................................ S-38
Class A-1 Principal Distributable Amount........................................................... S-7, S-38
Class A-1 Rate..................................................................................... S-6
Class A-2 Final Scheduled Distribution Date........................................................ S-8
Class A-2 Interest Carryover Shortfall............................................................. S-6
Class A-2 Interest Distributable Amount............................................................ S-6
Class A-2 Monthly Interest Distributable Amount.................................................... S-6, S-37
Class A-2 Monthly Principal Distributable Amount................................................... S-8, S-38
Class A-2 Notes.................................................................................... Cover, S-4
Class A-2 Principal Carryover Shortfall............................................................ S-8, S-38
Class A-2 Principal Distributable Amount........................................................... S-7, S-38
Class A-2 Rate..................................................................................... S-6
Closing Date....................................................................................... S-10
CMAC............................................................................................... S-31
Collection Account................................................................................. S-49
Collection Period.................................................................................. S-7
Commission......................................................................................... S-3
Company............................................................................................ S-31
Contracts.......................................................................................... S-9, S-22
Cram Down Loss..................................................................................... S-7
Custodian.......................................................................................... S-25
Cutoff Date........................................................................................ S-5
Cutoff Date Pool Balance........................................................................... S-5
Dealer Agreement................................................................................... S-22
</TABLE>
S-63
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
Dealers............................................................................................ S-9, S-22
Definitive Notes................................................................................... S-45
Deficiency Amount.................................................................................. S-59
Depositaries....................................................................................... S-44
Depositor.......................................................................................... Cover, S-4
Determination Date................................................................................. S-49
Distribution Date.................................................................................. S-5, S-6
DTC................................................................................................ Cover, S-44
Eligible Deposit Account........................................................................... S-50
Eligible Institution............................................................................... S-50
Eligible Investments............................................................................... S-50
ERISA.............................................................................................. S-60
ERISA Considerations............................................................................... S-18
Euroclear.......................................................................................... Cover, S-44
Euroclear Cooperative.............................................................................. S-46
Euroclear Operator................................................................................. S-46
Euroclear Participants............................................................................. S-46
Exchange Act....................................................................................... S-3
Financed Vehicles.................................................................................. S-5
Financed Vehicles.................................................................................. S-22
Fiscal Agent....................................................................................... S-58
Funding Period..................................................................................... S-11, S-50
GAAP............................................................................................... S-32
Global Securities.................................................................................. A-1
Guaranteed Payments................................................................................ S-12
HMA................................................................................................ S-22
HMC................................................................................................ S-22
HMFC............................................................................................... S-4
Indenture.......................................................................................... Cover, S-4
Indenture Event(s) of Default...................................................................... S-19, S-41
Indenture Trustee.................................................................................. Cover, S-4
Index of Defined Terms............................................................................. S-4
Initial Class A-1 Note Balance..................................................................... S-4
Initial Class A-2 Note Balance..................................................................... S-4
Initial Pool Balance............................................................................... S-9
Initial Receivables................................................................................ S-2, S-5
Initial Yield Maintenance Amount................................................................... S-14, S-40
Insurance Agreement................................................................................ S-12
Insured Payment.................................................................................... S-59
Interest Distribution Amount....................................................................... S-8, S-51
Liquidated Receivable.............................................................................. S-38
Local Remittance Account........................................................................... S-16, S-49
Mandatory Redemption Date.......................................................................... S-20
Material Federal and State Income Tax Consequences................................................. S-62
Moody's............................................................................................ S-18
Note Balance....................................................................................... S-4
Note Distribution Account.......................................................................... S-50
Note Insurer....................................................................................... Cover,
S-4, S-57
Note Insurer Default............................................................................... S-38
Note Percentage.................................................................................... S-7
</TABLE>
S-64
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
Noteholders........................................................................................ S-6
Noteholders' Interest Distributable Amount......................................................... S-6, S-53
Noteholders' Principal Distributable Amount........................................................ S-8, S-53
Notes.............................................................................................. Cover, S-4
Notice............................................................................................. S-59
Obligor............................................................................................ S-11
Owner.............................................................................................. S-59
Owner Trustee...................................................................................... Cover, S-4
Participants....................................................................................... S-44
Percent of Initial Note Principal Balance at Various ABS Percentages............................... S-33
Plan............................................................................................... S-60
Policy............................................................................................. S-5
Pool Balance....................................................................................... S-9
Preference Amount.................................................................................. S-59
Pre-Funded Amount.................................................................................. S-11
Pre-Funding Account................................................................................ S-2, S-11
Pre-Funding Account................................................................................ S-50
Purchase Amount.................................................................................... S-48
Rating Agencies.................................................................................... S-18
Realized Losses.................................................................................... S-8
Receivables........................................................................................ S-2, S-5
Receivables Purchase Agreement..................................................................... S-5
Record Date........................................................................................ S-6
Regular Principal Distribution Amount.............................................................. S-7, S-38
Representative..................................................................................... Cover
Required Rate...................................................................................... S-13, S-40
Reserve Account.................................................................................... S-12, S-39
Reserve Account Initial Deposit.................................................................... S-13, S-39
Reserve Account Required Amount.................................................................... S-13, S-39
Rule of 78's Receivable............................................................................ S-29
Rules.............................................................................................. S-45
Sale and Servicing Agreement....................................................................... S-10
SAP................................................................................................ S-32
Securities......................................................................................... Cover,
S-5, S-61
Seller............................................................................................. S-4
Senior Servicing Fee............................................................................... S-16, S-53
Servicer........................................................................................... S-4
Servicer Termination Event......................................................................... S-56
Servicer's Certificate............................................................................. S-49, S-51
Servicing Fee...................................................................................... S-16
Simple Interest Receivable......................................................................... S-29
Standard & Poor's.................................................................................. S-18
Statement to Noteholders........................................................................... S-54
Subordinate Servicing Fee.......................................................................... S-16
Subsequent Cutoff Date............................................................................. S-5
Subsequent Purchase Agreement...................................................................... S-11
Subsequent Receivables............................................................................. S-2, S-5
Subsequent Transfer Agreement...................................................................... S-11
Subsequent Transfer Date........................................................................... S-11
</TABLE>
S-65
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
Terms and Conditions............................................................................... S-46
The Receivables Pool............................................................................... S-11
Total Distribution Amount.......................................................................... S-8, S-51
Transfer and Servicing Agreements.................................................................. S-46
Trust.............................................................................................. Cover, S-4
Trust Accounts..................................................................................... S-50
Trust Agreement.................................................................................... Cover
U.S. Person........................................................................................ A-4
Underwriters....................................................................................... Cover
Underwriting Agreement............................................................................. S-61
Used Car Guide..................................................................................... S-22
Vehicle Due Date................................................................................... S-23
Weighted Average Note Rate......................................................................... S-12, S-51
Yield Maintenance Account.......................................................................... S-13, S-39
Yield Maintenance Amount........................................................................... S-14, S-40
Yield Maintenance Payments......................................................................... S-14, S-40
</TABLE>
S-66
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through DTC and, in the
case of the Notes, CEDEL or Euroclear. The Global Securities will be tradeable
as home market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Capitalized terms used but not defined in this Annex I have the meanings
assigned to them in the Prospectus Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to similar issues of pass-through
certificates. Investors' 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 payments in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to similar issues
of pass-through certificates 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-1
<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. 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 Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account, would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
A-2
<PAGE>
the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to CEDEL Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Securities that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business
in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are Securityholders residing in
a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Securityholder 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 clearing agency, in the case of persons holding directly on the books
of the
A-3
<PAGE>
clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporate or partnership organized in or under the laws of the United
States or any political subdivision thereof, (iii) an estate the income of which
is includible in gross income for United States tax purposes, regardless of its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. This summary does not deal with all aspects of U.S. federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
A-4
<PAGE>
PROSPECTUS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(EACH ISSUABLE IN SERIES)
---------------------
SSB VEHICLE SECURITIES INC.
---------------------
The Asset Backed Notes (the "NOTES") and the Asset Backed Certificates (the
"CERTIFICATES" and, together with the Notes, the "SECURITIES") described herein
may be sold from time to time in one or more series, in amounts, at prices and
on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "PROSPECTUS SUPPLEMENT"). Each series of
Securities, which may include one or more classes of Notes and/or one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "TRUST"). Each Trust will be formed pursuant to either (i)
a Trust Agreement to be entered into between SSB Vehicle Securities Inc. (the
"COMPANY") or a limited purpose finance subsidiary of the Company organized and
established by the Company (each such limited purpose finance subsidiary, a
"TRANSFEROR"), as depositor (the "DEPOSITOR") and the Trustee specified in the
related Prospectus Supplement (the "TRUSTEE"), or (ii) a Pooling and Servicing
Agreement to be entered into among the Trustee, the Depositor and the servicer
specified in the related Prospectus Supplement (the "SERVICER"). If a series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture between the Trust and the Indenture Trustee specified in the related
Prospectus Supplement (the "INDENTURE TRUSTEE") and will represent indebtedness
of the related Trust. The Certificates of a series will represent fractional
undivided interests in the related Trust. The related Prospectus Supplement will
specify which class or classes of Notes, if any, and which class or classes of
Certificates, if any, of the related series are being offered thereby. The
property of each Trust will include a pool of retail installment sale contracts,
retail installment loans, purchase money notes or other notes (the
"RECEIVABLES") secured by new or used (i) automobiles, light-duty trucks and
motorcycles and/or (ii) recreational vehicles, certain monies due or received
thereunder on and after the applicable Cut-off Date set forth in the related
Prospectus Supplement, security interests in the items financed thereby and
certain other property, all as described herein and in the related Prospectus
Supplement. In addition, if so specified in the related Prospectus Supplement,
the property of the Trust will include monies on deposit in a trust account (the
"PRE-FUNDING ACCOUNT") to be established with the Indenture Trustee, which will
be used to purchase additional Receivables (the "SUBSEQUENT RECEIVABLES") from
the Depositor from time to time during the Funding Period specified in the
related Prospectus Supplement. For additional information, please see "Risks
Associated with Subsequent Receivables and the Pre-Funding Account" on Page 16
hereof.
Each class of Securities of any series will represent the right to receive a
specified amount of payments of principal and/or interest on the related
Receivables, at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. If a series includes multiple classes of
Securities, the rights of one or more classes of Securities to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of such series. Distributions on Certificates of a series may be subordinated in
priority to payments due on any related Notes to the extent described herein and
in the related Prospectus Supplement. A series may include one or more classes
of Notes and/or Certificates which differ as to the timing and priority of
payment, interest rate or amount of distributions in respect of principal or
interest or both. A series may include one or more classes of Notes or
Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions with disproportionate, nominal or no distributions in respect of
principal. The rate of payment in respect of principal of any class of Notes and
distributions in respect of the Certificate Balance of the Certificates of any
class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, defaults, liquidations and
repurchases of Receivables) on the related Receivables. A rate of payment lower
or higher than that anticipated may affect the weighted average life of each
class of Securities in the manner described herein and in the related Prospectus
Supplement.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 11 HEREOF AND IN THE RELATED PROSPECTUS SUPPLEMENT.
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES
REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, SSB
VEHICLE SECURITIES INC., THE SERVICER, THE SELLER(S) OR ANY OF THEIR RESPECTIVE
AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE RECEIVABLES IS GUARANTEED
OR INSURED BY ANY GOVERNMENT 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.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate
sales of Securities offered hereby unless accompanied by a Prospectus
Supplement.
April 9, 1998
<PAGE>
AVAILABLE INFORMATION
SSB Vehicle Securities Inc. (the "COMPANY") has filed with the Securities
and Exchange Commission (the "COMMISSION") a Registration Statement (together
with all amendments and exhibits thereto, referred to herein as the
"REGISTRATION STATEMENT") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to the Notes and the Certificates offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including SSB Vehicle Securities Inc., that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company on behalf of the Trust referred to in the
accompanying Prospectus Supplement, pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Securities offered by such Trust shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Chris Hawke, SSB Vehicle Securities Inc., Seven
World Trade Center, New York, New York 10048; telephone 212-783-7000.
------------------------
2
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED BY REFERENCE TO THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY REFERENCE TO THE INFORMATION WITH
RESPECT TO THE SECURITIES OF ANY SERIES CONTAINED IN THE RELATED PROSPECTUS
SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH THE OFFERING OF SUCH
SECURITIES. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE
IN THIS PROSPECTUS ON THE PAGES INDICATED IN THE "INDEX OF TERMS".
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Issuer....................... With respect to each series of Securities, the trust (the
"TRUST" or the "ISSUER") to be formed pursuant to either a
Trust Agreement (as amended and supplemented from time to
time, a "TRUST AGREEMENT") among the Depositor and the
trustee specified in the related Prospectus Supplement (the
"TRUSTEE") and, if so specified in the related Prospectus
Supplement, a limited purpose affiliate of the Seller (the
"SELLER AFFILIATE") or a Pooling and Servicing Agreement (as
amended and supplemented from time to time, a "POOLING AND
SERVICING AGREEMENT") among the Trustee, the Depositor and
the servicer specified in the related Prospectus Supplement
(the "SERVICER").
Company...................... SSB Vehicle Securities Inc. (the "COMPANY"). SEE "The
Company".
Depositor.................... With respect to each series of Securities, either the
Company or a limited purpose finance subsidiary of the
Company (each such limited purpose finance subsidiary, a
"TRANSFEROR").
Seller(s).................... With respect to each series of Securities, the Seller(s)
will be specified in the related Prospectus Supplement.
Servicer..................... With respect to each series of Securities, the Servicer will
be specified in the related Prospectus Supplement.
Trustee...................... With respect to each series of Securities, the Trustee will
be specified in the related Prospectus Supplement.
Indenture Trustee............ With respect to any applicable series of Securities, the
Indenture Trustee will be specified in the related
Prospectus Supplement.
The Notes.................... A series of Securities may include one or more classes of
Notes, which will be issued pursuant to an Indenture between
the Trust and the Indenture Trustee (as amended and
supplemented from time to time, an "INDENTURE"). The related
Prospectus Supplement will specify which class or classes,
if any, of Notes of the related series are being offered
thereby.
Unless otherwise specified in the related Prospectus
Supplement, Notes will be available for purchase in minimum
denominations of $1,000 and will be available in book-entry
form only. Unless otherwise specified in the related
Prospectus Supplement, Noteholders will be able to receive
Definitive Notes only in the limited circumstances described
herein or in the related Prospectus Supplement. SEE "Certain
Information Regarding the Securities--Definitive
Securities".
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Except in the case of any Strip Notes (as defined below),
each class of Notes will have a stated principal amount and
will bear interest at a specified rate or rates (with
respect to each class of Notes, the "INTEREST RATE"). Each
class of Notes may have a different Interest Rate, which may
be a fixed, variable or adjustable Interest Rate, or any
combination of the foregoing. The related Prospectus
Supplement will specify the Interest Rate, or the method for
determining the Interest Rate, for each class of Notes.
With respect to a series that includes two or more classes
of Notes, each class may differ as to the timing and
priority of payments, seniority, allocations of losses,
Interest Rate or amount of payments of principal or
interest, or payments of principal or interest in respect of
any such class or classes may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the Receivables
Pool.
In addition, a series may include one or more classes of
Notes ("STRIP NOTES") entitled to (i) principal payments
with disproportionate, nominal or no interest payments or
(ii) interest payments with disproportionate, nominal or no
principal payments.
If the Servicer exercises its option to purchase the
Receivables of a Trust (or, if not and, if and to the extent
provided in the related Prospectus Supplement, satisfactory
bids for the purchase of such Receivables are received), in
the manner and on the respective terms and conditions
described under "Description of the Transfer and Servicing
Agreements--Termination", the outstanding Notes will be
redeemed as set forth in the related Prospectus Supplement.
In addition, if the related Prospectus Supplement provides
that the property of a Trust will include a Pre-Funding
Account (as such term is defined in the related Prospectus
Supplement, the "PRE-FUNDING ACCOUNT"), one or more classes
of the outstanding Notes may be subject to partial
redemption on or immediately following the end of the
Funding Period (as such term is defined in the related
Prospectus Supplement, the "FUNDING PERIOD") in an amount
and manner specified in the related Prospectus Supplement.
In the event of such partial redemption, the Noteholders may
be entitled to receive a prepayment premium from the Trust,
in the amount and to the extent provided in the related
Prospectus Supplement.
The Certificates............. A series may include one or more classes of Certificates and
may not include any Notes. The related Prospectus Supplement
will specify which class or classes, if any, of the
Certificates are being offered thereby.
Unless otherwise specified in the related Prospectus
Supplement, Certificates will be available for purchase in a
minimum denomination of $1,000 and will be available in
book-entry form only. Unless otherwise specified in the
related Prospectus Supplement, Certificateholders will be
able to receive Definitive Certificates only in the limited
circumstances described herein or in the related
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Prospectus Supplement. SEE "Certain Information Regarding
the Securities--Definitive Securities".
Except in the case of any Strip Certificates (as defined
below), each class of Certificates will have a stated
Certificate Balance specified in the related Prospectus
Supplement (the "CERTIFICATE BALANCE") and will accrue
interest on such Certificate Balance at a specified rate
(with respect to each class of Certificates, the "PASS
THROUGH RATE"). 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
Pass Through Rate, for each class of Certificates.
With respect to a series that includes two or more classes
of Certificates, each class may differ as to timing and
priority of distributions, seniority, allocations of losses,
Pass Through Rate or amount of distributions in respect of
principal or interest, or distributions in respect of
principal or interest in respect of any such class or
classes may or may not be made upon the occurrence of
specified events or on the basis of collections from
designated portions of the Receivables Pool. In addition, a
series may include one or more classes of Certificates
("STRIP CERTIFICATES") entitled to (i) distributions in
respect of principal with disproportionate, nominal or no
interest distributions or (ii) interest distributions with
disproportionate, nominal or no distributions in respect of
principal.
If a series of securities includes classes of Notes,
distributions in respect of the Certificates may be
subordinated in priority of payment to payments on the Notes
to the extent specified in the related Prospectus
Supplement.
If the Servicer exercises its option to purchase the
Receivables of a Trust (or, if not, and if and to the extent
provided in the related Prospectus Supplement, satisfactory
bids for the purchase of such Receivables are received), in
the manner and on the respective terms and conditions
described under "Description of the Transfer and Servicing
Agreements--Termination", Certificateholders will receive as
a prepayment an amount in respect of the Certificates as
specified in the related Prospectus Supplement. In addition,
if the related Prospectus Supplement provides that the
property of a Trust will include a Pre-Funding Account,
Certificateholders may receive a partial prepayment of
principal on or immediately following the end of the Funding
Period in an amount and manner specified in the related
Prospectus Supplement. In the event of such partial
prepayment, the Certificateholders may be entitled to
receive a prepayment premium from the Trust, in the amount
and to the extent provided in the related Prospectus
Supplement.
The Trust Property........... The property of each Trust will include a pool of retail
installment sale contracts, retail installment loans,
purchase money notes or other notes (the "RECEIVABLES")
secured by new or used (i) automobiles, light-duty trucks
and motorcycles (the "FINANCED MOTOR VEHICLES")
</TABLE>
5
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<S> <C>
and/or (ii) recreational vehicles (the "FINANCED
RECREATIONAL VEHICLES"), including rights to receive certain
payments made with respect to such Receivables, security
interests in the Financed Motor Vehicles and Financed
Recreational Vehicles (collectively, the "FINANCED
VEHICLES") financed thereby, certain accounts and the
proceeds thereof and any proceeds from claims on certain
related insurance policies. On or prior to the Closing Date
specified in the related Prospectus Supplement with respect
to a Trust, the Seller(s) will sell or transfer Receivables
(the "INITIAL RECEIVABLES") having an aggregate principal
balance specified in the related Prospectus Supplement as of
the dates specified therein (the "INITIAL CUT-OFF DATE") to
the Depositor, and the Depositor will transfer the Initial
Receivables to such Trust on the Closing Date pursuant to
either a Sale and Servicing Agreement among the Depositor,
the Servicer and the Trustee (as amended and supplemented
from time to time, a "SALE AND SERVICING AGREEMENT") or, if
the Trust is to be treated as a grantor trust for federal
income tax purposes, the related Pooling and Servicing
Agreement among the Depositor, the Servicer and the Trustee.
The property of each Trust will also include amounts on
deposit in certain trust accounts, including the related
Collection Account, any Pre-Funding Account, any Reserve
Account and any other account identified in the applicable
Prospectus Supplement.
To the extent provided in the related Prospectus Supplement,
the Seller(s) will be obligated (subject only to the
availability thereof) to sell to the Depositor which will be
obligated to purchase and sell to the related Trust, and
such Trust will then be obligated to purchase (subject to
the satisfaction of certain conditions described in the
applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement), additional Receivables (the
"SUBSEQUENT RECEIVABLES") from time to time (as frequently
as daily) during the Funding Period specified in the related
Prospectus Supplement having an aggregate principal balance
approximately equal to the amount on deposit in the
Pre-Funding Account (the "PRE-FUNDED AMOUNT") on such
Closing Date. With respect to any Trust that is to be
treated as a grantor trust for federal income tax purposes,
the Funding Period, if any, will not exceed the period of 90
days after the Closing Date, and with respect to any other
Trust will not exceed the period of one year after the
Closing Date. With respect to each Trust, the Pre-Funded
Amount on the Closing Date will not exceed 25% of the
aggregate initial principal balance of the Securities.
The Receivables arise or will arise from loans originated by
motor vehicle and recreational vehicle dealers (the
"DEALERS") and purchased, directly or indirectly, by a
Seller(s) and sold to the Depositor. The Receivables will be
selected from the contracts and loans owned by a Seller(s)
or the Depositor based on the criteria specified in the Sale
and Servicing Agreement or the Pooling and Servicing
Agreement, as applicable, and described herein and in the
related Prospectus Supplement.
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6
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Credit and Cash Flow
Enhancement.................. If and to the extent specified in the related Prospectus
Supplement, credit and cash flow enhancement with respect to
a Trust or any class or classes of Securities may include
any one or more of the following: subordination of one or
more other classes of Securities, a Reserve Account,
overcollateralization, letters of credit, credit or
liquidity facilities, surety bonds, guaranteed investment
contracts, swaps or other interest rate protection
agreements, repurchase obligations, yield supplement
agreements or accounts, other agreements with respect to
third party payments or other support, cash deposits or
other arrangements. Unless otherwise specified in the
related Prospectus Supplement, any form of credit or cash
flow enhancement will have certain limitations and
exclusions from coverage thereunder, which will be described
in the related Prospectus Supplement.
Transfer and Servicing
Agreements................... With respect to each Trust, the Seller will sell the related
Receivables to the Depositor, which, in turn, will sell the
related Receivables to such Trust pursuant to a Sale and
Servicing Agreement or a Pooling and Servicing Agreement.
The rights and benefits of any Trust under a Sale and
Servicing Agreement will be assigned to the Indenture
Trustee as collateral for the Notes of the related series.
The Servicer will agree with such Trust to be responsible
for servicing, managing, maintaining custody of and making
collections on the Receivables. If so specified in the
related Prospectus Supplement, the person specified therein
as Administrator will undertake certain administrative
duties under an Administration Agreement with respect to any
Trust that has issued Notes, which duties, in the absence of
an Administrator, would be performed for such Trust by the
related Indenture Trustee or by the Depositor.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer will advance scheduled payments
under each Precomputed Receivable which shall not have been
timely made (a "PRECOMPUTED ADVANCE"), to the extent that
the Servicer, in its sole discretion, expects to recoup the
Precomputed Advance from subsequent payments on or with
respect to such Receivable or from other Precomputed
Receivables. With respect to Simple Interest Receivables,
the Servicer shall advance any interest shortfall (a "SIMPLE
INTEREST ADVANCE" and, together with a Precomputed Advance,
an "ADVANCE"). The Servicer shall be entitled to
reimbursement of Advances from subsequent payments on or
with respect to the Receivables to the extent described
herein and in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus
Supplement, the Depositor will be obligated to repurchase
any Receivable from the Trust, and the related Seller will
be obligated to simultaneously repurchase such Receivable
from the Depositor, if the interest of the applicable Trust
in such Receivable is materially adversely affected by a
breach of any representation or warranty made by such Seller
with respect to the Receivable, if the breach has not been
cured following
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7
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the discovery by or notice to such Seller and the Depositor
of the breach. If so specified in the related Prospectus
Supplement, the related Seller or the Depositor will be
permitted, in a circumstance where it would otherwise be
required to repurchase a Receivable as described in the
preceding sentence, to instead substitute a comparable
Receivable for the Receivable otherwise requiring
repurchase, subject to certain conditions and eligibility
criteria for the substitute to be summarized in the related
Prospectus Supplement.
Unless otherwise provided in the related Prospectus
Supplement, the Servicer will be obligated to purchase or
make Advances with respect to any Receivable if, among other
things, it extends the date for final payment by the Obligor
of such Receivable beyond the applicable Final Scheduled
Maturity Date (as defined in the related Prospectus
Supplement, the "FINAL SCHEDULED MATURITY DATE"), changes
the annual percentage rate ("APR") or amount of a scheduled
payment of such Receivable or fails to maintain a perfected
security interest in the related Financed Vehicle.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer will be entitled to receive a fee
for servicing the Receivables of each Trust equal to a
specified percentage of the aggregate principal balance of
the related Receivables Pool, as set forth in the related
Prospectus Supplement, plus certain late fees, prepayment
charges and other administrative fees or similar charges.
SEE "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses"
herein and in the related Prospectus Supplement.
Certain Legal Aspects of the
Receivables; Repurchase
Obligations.................. In connection with the sale of Receivables to a Trust,
security interests in the Financed Vehicles securing such
Receivables will be assigned, directly or indirectly, by the
related Dealer to the Seller(s) and by the Seller(s) to the
Depositor and by the Depositor to such Trust. Due to
administrative burden and expense, the certificates of title
to the Financed Motor Vehicles and those Financed
Recreational Vehicles financed in states where security
interests in recreational vehicles are subject to
certificate of title statutes will not be amended to reflect
any such assignments, the Uniform Commercial Code ("UCC")
financing statements in respect of those Financed
Recreational Vehicles financed in states where security
interests in recreational vehicles are perfected by filing a
UCC-1 financing statement will not be amended to reflect
such assignments. In the absence of such procedures, such
Trust may not have a perfected security interest in the
Financed Vehicles in some states. If such Trust does not
have a perfected security interest in a Financed Vehicle,
its ability to realize on such Financed Vehicle in the event
of a default may be adversely affected. To the extent the
security interest is perfected, such Trust will have a prior
claim over subsequent purchasers of such Financed Vehicle
and holders of subsequently perfected security interests.
However, as against liens for repairs of a Financed Vehicle
or for taxes unpaid by
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an Obligor under a Receivable, or because of fraud or
negligence, such Trust could lose the priority of its
security interest or its security interest in a Financed
Vehicle.
Federal and state consumer protection laws impose
requirements upon creditors in connection with extensions of
credit and collections of retail installment loans, and
certain of these laws make an assignee of such a loan liable
to the obligor thereon for any violation by the lender.
Unless otherwise specified in the related Prospectus
Supplement, the Depositor will be obligated to repurchase
from the Trust and the related Seller will be obligated to
simultaneously repurchase from the Depositor any Receivable
which fails to comply with such requirements. The
Depositor's obligation to make such repurchase is contingent
upon the related Seller performing its obligation to
repurchase such Receivable from the Depositor on account of
such failure.
Tax Status................... OWNER TRUST
Unless the Prospectus Supplement specifies that the related
Trust will be treated as a grantor trust, it is the opinion
of Tax Counsel to such Trust that for federal income tax
purposes: (i) all or certain specified classes of Notes of
such series will be characterized as debt and (ii) such
Trust will not be characterized as an association (or a
publicly traded partnership) taxable as a corporation. In
respect of any such series, each Noteholder, by the
acceptance of a Note of such series, will agree to treat
such Note as indebtedness, and each Certificateholder, by
the acceptance of a Certificate of such series, will agree
to treat such Trust as a partnership in which such
Certificateholder is a partner for federal income and state
income tax purposes. Alternative characterizations of such
Trust and such Certificates are possible, but would not
result in materially adverse tax consequences to
Certificateholders. SEE "Material Federal Income Tax
Consequences--Trusts for Which a Partnership Election is
Made" herein.
GRANTOR TRUST
If the Prospectus Supplement specifies that the related
Trust will be treated as a grantor trust, it is the opinion
of Tax Counsel to such Trust that such Trust will be treated
as a grantor trust for federal income tax purposes and will
not be subject to federal income tax. SEE "Material Federal
Income Tax Consequences--Trusts Treated as a Grantor Trust"
herein.
FASIT
If the Prospectus Supplement specifies that the related
Trust will be treated as a financial asset securitization
investment trust ("FASIT"), it is the opinion of Tax Counsel
that such Trust will on the startup date qualify as a FASIT
and its proposed method of operation will enable it to
continue to meet the requirements for qualification and
taxation as a FASIT under the Code assuming a timely FASIT
election is made. Based on the foregoing and assuming
compliance with the Transaction
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Documents, certain of the Securities will qualify as regular
interests in a FASIT ("REGULAR SECURITIES") which will
generally be treated as debt for U.S. federal income tax
purposes. The beneficial owners of FASIT Regular Securities
will be required to include the interest payable on such
FASIT Regular Securities in gross income as such interest
accrues, regardless of the regular method of tax accounting
and in advance of receipt of the cash attributable to such
interest income. SEE "Material Federal Income Tax
Consequences -- Trusts for which a FASIT Election is Made"
herein.
ERISA Considerations......... Subject to the considerations discussed under "ERISA
Considerations" herein and in the related Prospectus
Supplement, and unless otherwise specified therein, any
Notes of a series and any Certificates that are issued by a
Trust that is a grantor trust and are not subordinated to
any other class of Certificates are eligible for purchase by
employee benefit plans. Unless otherwise specified in the
related Prospectus Supplement, the Certificates of any
series that are subordinated to any other Security of that
series may not be acquired by any employee benefit plan
subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or by any individual retirement
account. SEE "ERISA Considerations" herein and in the
related Prospectus Supplement.
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RISK FACTORS
CERTAIN LEGAL ASPECTS--SECURITY INTERESTS IN FINANCED VEHICLES MAY BE
LIMITED.
TRUSTS MAY NOT HAVE A PERFECTED SECURITY INTEREST IN CERTAIN FINANCED
VEHICLES. In connection with the sale of Receivables to a Trust, security
interests in the Financed Vehicles securing such Receivables will be, or will
have been, assigned by the Seller(s) to the Depositor and by the Depositor to
such Trust simultaneously with the sale of such Receivables to such Trust. Due
to administrative burden and expense, (i) the certificates of title to the
Financed Motor Vehicles and those Financed Recreational Vehicles financed in
states where security interests in recreational vehicles, are subject to
certificate of title statutes will not be amended to reflect such assignments,
and (ii) UCC financing statements in respect of those Financed Recreational
Vehicles financed in states where security interests in recreational vehicles
are perfected by filing a UCC-1 financing statement will not be amended to
reflect such assignments. In the absence of such procedures, such Trust may not
have a perfected security interest in the Financed Vehicles in some states.
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will be obligated to repurchase from the related Trust and the related
Seller will be obligated simultaneously to repurchase from the Depositor any
Receivable sold to such Trust as to which a perfected security interest in the
name of the related Seller in the Financed Vehicle securing such Receivable
shall not exist as of the date such Receivable is transferred to such Trust, if
such failure shall materially adversely affect the interest of such Trust in
such Receivable and if such failure shall not have been cured by the last day of
the second month following the discovery by or notice to the Seller(s) of such
breach. The Depositor's obligation to make such repurchase is contingent upon
the related Seller performing its obligation to repurchase such Receivable from
the Depositor on account of such failure. Moreover, such repurchase obligations
will not address or remedy the circumstance where a perfected security interest
in the name of the related Seller in the Financed Vehicle securing a Receivable
has not been perfected in the related Trust as a result of the absence of the
procedures described in the preceding paragraph or for any other reason. If such
Trust does not have a perfected security interest in a Financed Vehicle, its
ability to realize on such Financed Vehicle in the event of a default may be
adversely affected and, as a result, the amount available for distribution to
the Securityholders may be adversely affected.
CERTAIN LIENS WILL HAVE PRIORITY OVER A PERFECTED SECURITY INTEREST. To the
extent the security interest is perfected, such Trust will have a prior claim
over subsequent purchasers of such Financed Vehicle and holders of subsequently
perfected security interests. However, as against liens for repairs of a
Financed Vehicle or for taxes unpaid by an Obligor under a Receivable, or
through fraud or negligence, such Trust could lose the priority of its security
interest or its security interest in a Financed Vehicle. None of the Seller(s),
the Servicer or the Depositor will have any obligation to repurchase a
Receivable as to which any of the aforementioned occurrences result in such
Trust's losing the priority of its security interest or its security interest in
such Financed Vehicle after the date such security interest was conveyed to such
Trust. SEE "Certain Legal Aspects of the Receivables--Security Interest in
Vehicles" herein.
CERTAIN LEGAL ASPECTS--SECURITY INTEREST IN RECEIVABLES MAY BE LIMITED. The
Receivables will be treated by each Trust as "chattel paper" as defined in the
UCC. Pursuant to the UCC, the sale of chattel paper is treated in a manner
similar to a security interest in chattel paper. Perfection of a security
interest in chattel paper may generally be made by filing UCC-1 financing
statements in respect thereof or by possession of the chattel paper. In order to
protect each Trust's ownership or security interest in its Receivables, the
Depositor will file UCC-1 financing statements with the appropriate authorities
in the States of New York and Delaware and any other states deemed advisable by
the Depositor to give notice of such Trust's ownership interest (and any related
Indenture Trustee's security interest) in the Receivables and proceeds thereof.
Under each Sale and Servicing Agreement and Pooling and Servicing Agreement, the
Servicer will be appointed Custodian of the Receivables by the Trustee and the
Servicer will otherwise be obligated to maintain the perfection of the interest
of each Trust and any related Indenture Trustee in
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the Receivables. The filing of UCC-1 financing statements as described above and
possession of the chattel paper by the Servicer will reduce but not eliminate
the risks involved in perfection. A trust could lose priority of its security
interest in the Receivables to certain liens arising by operation of law or in
certain cases by fraud or negligence. Moreover, if the Servicer should lose or
inadvertently give up possession of the chattel paper, a good faith purchaser of
the chattel paper without knowledge who gives new value and takes possession of
it in the ordinary course of such purchaser's business has priority over a
security interest (including an ownership interest) in the chattel paper that is
perfected by filing UCC-1 financing statements.
CERTAIN LEGAL ASPECTS--CONSUMER PROTECTION LAWS MAY REDUCE PAYMENTS TO
SECURITYHOLDERS. Federal and state consumer protection laws impose requirements
upon creditors in connection with extensions of credit and collections of retail
installment loans and certain of these laws make an assignee of such a loan
(such as a Trust) liable to the obligor thereon for any violation by the lender.
The application of such laws could render a Receivable unenforceable or
otherwise uncollectible. The inability of a Trust to realize amounts would in
respect of such Receivable could adversely affect the amount available for
distribution to the Securityholders. Unless otherwise specified in the related
Prospectus Supplement, the Depositor will be obligated to repurchase from the
Trust and the related Seller will be obligated to simultaneously repurchase from
the Depositor any Receivable which fails to comply with such requirements. The
Depositor's obligation to make such repurchase is contingent upon the related
Seller performing its obligation to repurchase such Receivable from the
Depositor on account of such failure. SEE "Certain Legal Aspects of the
Receivables--Consumer Protection Laws" herein.
CERTAIN LEGAL ASPECTS--INSOLVENCY MAY RESULT IN DELAYS OR REDUCTIONS OF
PAYMENTS TO SECURITYHOLDERS. Each Seller will represent and warrant that the
transfer of Receivables by it to the Depositor will constitute a sale. In
addition, the Depositor intends that the transfer of Receivables by it to the
Trust will constitute a sale.
CONSIDERATIONS RELATING TO THE INSOLVENCY OF A NONBANK SELLER OR THE
DEPOSITOR. If either a Seller other than a Bank Seller (a "NONBANK SELLER") or
the Depositor were to become a debtor in a bankruptcy case (or if the parent of
either were to become a debtor in a bankruptcy case and the assets of the
Nonbank Seller or Depositor, as applicable, were consolidated with those of its
parent) and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to take the position that the transfer of Receivables to the
Depositor or such Trust, as the case may be, should, notwithstanding the intent
of the parties that it be treated as a sale, instead be treated as a pledge of
such Receivables to secure a borrowing of such debtor, delays in payments of
collections of Receivables to the related Securityholders could occur or (should
the court rule in favor of any such trustee, debtor or creditor) reductions in
the amounts of such payments could result. If the transfer of Receivables by a
Nonbank Seller to the Depositor or by the Depositor to a Trust is treated as a
pledge instead of a sale, a tax or government lien on the property of the
Nonbank Seller or the Depositor, as applicable, arising before such Receivables
transfer may have priority over such Trust's interest in such Receivables. If
the transactions contemplated herein are treated as a sale, the Receivables
would not be part of the Nonbank Seller's or Depositor's bankruptcy estate and
would not be available to their respective creditors.
CONSIDERATIONS RELATING TO AN INSOLVENCY EVENT OF THE DEPOSITOR OR THE
SELLER AFFILIATE RELATED TO CERTAIN TRUSTS. With respect to each Trust that is
not a grantor trust, if the related Prospectus Supplement so provides, upon the
occurrence of an Insolvency Event of either the Depositor or the Seller
Affiliate identified therein, the Indenture Trustee or Trustee for such trust
will promptly sell, dispose of or otherwise liquidate the related Receivables in
a commercially reasonable manner on commercially reasonable terms, except under
certain limited circumstances. The proceeds from any such sale, disposition or
liquidation of Receivables will be treated as collections on the Receivables and
deposited in the Collection Account of such Trust. If the proceeds from the
liquidation of the Receivables and any amounts on deposit in the Reserve
Account, if any, the Note Distribution Account, if any, and the Certificate
Distribution Account
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with respect to any such Trust and any amounts available from any credit
enhancement are not sufficient to pay any Notes and the Certificates of the
related series in full, the amount of principal returned to any Noteholders or
Certificateholders will be reduced and such Noteholders and Certificateholders
will incur a loss.
OCTAGON GAS CASE. In OCTAGON GAS SYSTEMS, INC. v. RIMMER, 995 F.2d 948
(10th Cir. 1993), the U.S. Court of Appeals for the 10th Circuit determined that
"accounts," a defined term under the Uniform Commercial Code, would be included
in the bankruptcy estate of a transferor regardless of whether the transfer is
treated as a sale or a secured loan. Although the Receivables are likely to be
viewed as "chattel paper," as defined under the Uniform Commercial Code, rather
than as accounts, the OCTAGON holding is equally applicable to chattel paper.
The circumstances under which the OCTAGON holding would apply are not fully
known and the extent to which the OCTAGON decision will be followed in other
courts or outside of the Tenth Circuit is not certain. If the holding in OCTAGON
were applied in a bankruptcy of the Depositor or a Seller, however, even if the
transfer of Receivables to the Depositor and the transfer of the Receivables to
the Trust were treated as a sale, the Receivables would be part of the
Depositor's or Seller's bankruptcy estate (as applicable) and would be subject
to claims of certain creditors, and delays and reductions in payments to the
Securityholders could result.
RELIANCE ON REPRESENTATIONS AND WARRANTIES BY THE DEPOSITOR, THE SELLER(S)
AND THE SERVICER WHICH PROVES TO BE INADEQUATE MAY RESULT IN DELAYS OR
REDUCTIONS OF PAYMENT TO SECURITYHOLDERS. None of the Seller(s), the Servicer,
the Depositor or any of their respective affiliates will generally be obligated
to make any payments in respect of any Notes, the Certificates or the
Receivables of a Trust. However, in connection with the sale of Receivables by
the Seller(s) to the Depositor and the Depositor to a Trust, the Seller(s) will
make representations and warranties with respect to the characteristics of such
Receivables and, in certain circumstances, the Depositor may be required to
repurchase from the Trust and the related Seller would be required to
simultaneously repurchase from the Depositor Receivables with respect to which
such representations and warranties have been breached. Alternatively, if so
specified in the related Prospectus Supplement, the related Seller or the
Depositor will be permitted, in a circumstance where it would otherwise be
required to repurchase a Receivable as described in the preceding sentence, to
instead substitute a comparable Receivable for the Receivable otherwise
requiring repurchase, subject to certain conditions and eligibility criteria for
the substitute Receivable to be summarized in the related Prospectus Supplement.
The Depositor's obligation to make such repurchase or substitution is contingent
upon the related Seller performing its obligation to repurchase or substitute
for such Receivable from the Depositor. SEE "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables". In addition, under
certain circumstances, the Servicer may be required to purchase Receivables. SEE
"Description of the Transfer and Servicing Agreements--Servicing Procedures". If
collections on any Receivable should be reduced as a result of any matter giving
rise to a repurchase or purchase obligation on the part of the Depositor, the
Seller and/or the Servicer, as the case may be, and the Depositor, the Seller
and/or the Servicer should fail for any reason to perform in accordance with
that obligation, then delays in payments on the Securities and reductions in the
amount of those payments could occur. Moreover, if the Servicer were to cease
acting as Servicer, delays in processing payments on the Receivables and
information in respect thereof could occur and result in delays in payments to
the Securityholders.
SUBORDINATION OF CERTAIN CERTIFICATES MAY RESULT IN REDUCED PAYMENTS TO
THOSE CERTIFICATES. To the extent specified in the related Prospectus
Supplement, distributions of interest and principal on one or more classes of
Certificates of a series may be subordinated in priority of payment to interest
and principal due on the Notes, if any, of such series or one or more other
classes of Certificates of such series.
LIMITED ASSETS AND RISK THAT SUCH ASSETS WILL NOT BE SUFFICIENT TO PAY
SECURITIES IN FULL. Moreover, each Trust will not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Receivables and, to the extent provided in the related Prospectus Supplement, a
Pre-
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Funding Account, a Reserve Account and any other credit enhancement. The Notes
of any series will represent obligations solely of, and the Certificates of any
series will represent interests solely in, the related Trust and neither the
Notes nor the Certificates of any series will be insured or guaranteed by any of
the Seller(s), the Depositor, the applicable Trustee, any Indenture Trustee or
any other person or entity. Consequently, holders of the Securities of any
series must rely for repayment upon payments on the related Receivables and, if
and to the extent available, amounts on deposit in the Pre-Funding Account (if
any), the Reserve Account (if any) and any other credit enhancement, all as
specified in the related Prospectus Supplement. If such amounts and credit
enhancement are exhausted, the related Trust will depend solely on payments on
the Receivables to make distributions on the Securities, and the Securities will
bear the risk of delinquencies, loan losses and repossessions with respect to
the Receivables.
RISK THAT PREPAYMENTS WILL ADVERSELY AFFECT AVERAGE LIFE AND YIELDS OF
SECURITIES. All the Receivables are prepayable at any time. (For this purpose
the term "prepayments" includes prepayments in full, partial prepayments
(including those related to rebates of extended warranty contract costs and
insurance premiums) and liquidations due to default, as well as receipts of
proceeds from physical damage, credit life and disability insurance policies and
certain other Receivables repurchased for administrative reasons). The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
sell or transfer the Financed Vehicle securing a Receivable without causing the
related loan to become due and payable. The rate of prepayment on the
Receivables may also be influenced by the structure of the loan evidencing the
Receivable. In addition, under certain circumstances, the Depositor will be
obligated to repurchase from the Trust, and the related Seller will be obligated
to simultaneously repurchase from the Depositor (or in either case, if so
specified in the related Prospectus Supplement and subject to the conditions
summarized therein, substitute for) Receivables pursuant to a Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of certain breaches of
representations and warranties and, under certain circumstances, the Servicer
will be obligated to purchase Receivables pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of certain
covenants. SEE "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Receivables". Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables held by a given Trust will be
borne entirely by the Securityholders of the related series of Securities. SEE
also "Description of the Transfer and Servicing Agreements--Termination"
regarding the Servicer's option to purchase the Receivables of a given
Receivables Pool. In addition, as described above under the caption "Certain
Legal Aspects--Insolvency Considerations--Considerations Relating to an
Insolvency Event of the Depositor or the Seller Affiliate Related to Certain
Trust", in the case of a Trust that is not a grantor trust if so specified in
the related Prospectus Supplement, the sale of the Receivables owned by such
Trust will be required if an Insolvency Event with respect to the Depositor or
any Seller Affiliate occurs.
RISK OF COMMINGLING BY THE SERVICER MAY LEAD TO FUNDS NOT BEING AVAILABLE
FOR DISTRIBUTION. With respect to each Trust, the Servicer will deposit all
payments on the related Receivables (from whatever source) and all proceeds of
such Receivables collected during each Collection Period into the Collection
Account of such Trust within two business days of receipt thereof. However, in
the event that the Servicer satisfies certain requirements for monthly or less
frequent remittances and the Rating Agencies (as such term is defined in the
related Prospectus Supplement, the "RATING AGENCIES") affirm their ratings of
the related Securities at the initial level, then for so long as the servicer
specified in the related Prospectus Supplement is the Servicer and provided that
(i) there exists no Servicer Default and (ii) each other condition to making
such monthly or less frequent deposits as may be specified by the Rating
Agencies and described in the related Prospectus Supplement is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account of such Trust until on or before the business day preceding each
Distribution Date or Payment Date. The Servicer will deposit the aggregate
Purchase Amount of Receivables purchased by the Servicer into the applicable
Collection Account on or before the business day preceding each Distribution
Date or Payment Date. Pending deposit into such Collection Account, collections
may be invested by the Servicer at its own risk and for its own benefit and will
not be segregated
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from funds of the Servicer. If the Servicer should be unable to remit such
funds, such funds would not be available for distribution to the applicable
Securityholders and such Securityholders might incur a loss. To the extent set
forth in the related Prospectus Supplement, the Servicer may, in order to
satisfy the requirements described above, obtain a letter of credit or other
security for the benefit of the related Trust to secure timely remittances of
collections on the related Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by the Servicer.
RISKS ASSOCIATED WITH SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING
ACCOUNT. If so specified in the related Prospectus Supplement, the Seller(s)
will be obligated to sell, and the Depositor will be obligated to purchase and
then transfer to the related Trust which Trust will then be obligated to
purchase, Subsequent Receivables from time to time during the Funding Period
specified in the related Prospectus Supplement. With respect to any Trust that
is to be treated as a grantor trust for federal income tax purposes, the Funding
Period, if any, will not exceed the period of 90 days from and after the Closing
Date and, with respect to any other Trust, will not exceed the period of one
year from and after the Closing Date. With respect to each Trust, the Pre-Funded
Amount on the Closing Date will not exceed 25% of the aggregate initial
principal balance of the Securities.
CHANGES IN CHARACTERISTICS OF RECEIVABLES POOL DUE TO SUBSEQUENT
RECEIVABLES. Amounts on deposit in any Pre-Funding Account may be invested only
in Eligible Investments. Subsequent Receivables may be originated by the Dealers
at a later date using credit criteria different from those which were applied to
any Initial Receivables and may be of a different credit quality and seasoning.
Underwriting criteria, if any, applicable to Subsequent Receivables will be set
forth in the applicable Prospectus Supplement. In addition, following the
transfer of Subsequent Receivables to the applicable Trust, the characteristics
of the entire pool of Receivables included in such Trust may vary from those of
the Initial Receivables transferred to such Trust. However, except as otherwise
set forth in the applicable Prospectus Supplement and unless the applicable
underwriting criteria so permit, it is not expected that such variance in the
characteristics of the entire pool due to the inclusion of Subsequent
Receivables will be materially different from the characteristics of the pool of
Initial Receivables. Nevertheless, it is possible that the credit quality of the
Receivables in a Trust, as a whole, may decline as a result of the inclusion of
Subsequent Receivables and may result in a higher rate of payment to the
applicable Securityholders as a result of an increased level of defaults on such
Receivables.
SUBSEQUENT RECEIVABLES MAY AFFECT WEIGHTED AVERAGE MATURITY OF NOTES ISSUED
BY A FASIT. Subsequent Receivables could extend the weighted average life of
Notes in a particular FASIT. The outstanding principal amount of each Class of
Notes will be payable on their respective Final Scheduled Distribution Dates.
The Final Scheduled Distribution Date for each Class of Notes will not be
extended or shortened by the addition of Subsequent Receivables.
USE OF BALANCE IN PRE-FUNDING ACCOUNT TO PREPAY SECURITIES MAY ADVERSELY
AFFECT AVERAGE LIFE AND YIELDS OF SECURITIES. A higher than expected rate of
payment may result in a reduction in the yield to maturity of any class of
Securities to which such payments are distributed. To the extent that amounts on
deposit in the Pre-Funding Account have not been fully applied to the conveyance
of Subsequent Receivables to a Trust by the end of the Funding Period and such
amount exceeds the applicable amount described in the related Prospectus
Supplement, the holders of Securities issued by the related Trust will receive,
on the Distribution Date or Payment Date on or immediately following the last
day of the applicable Funding Period, a prepayment of principal in an amount
equal to the amount remaining in the Pre-Funding Account following the purchase
of any Subsequent Receivables on or immediately preceding such Distribution Date
or Payment Date. It is anticipated that the principal balance of Subsequent
Receivables sold to a Trust will not be exactly equal to the amount on deposit
in the Pre-Funding Account, and that therefore there will be at least a nominal
amount of principal prepaid to the holders of the Securities issued by such
Trust. Securityholders will bear all reinvestment risk associated with any such
distribution of amounts on deposit in the Pre-Funding Account after termination
of the applicable Funding Period. Any such distribution will
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have the effect of a prepayment on the related Receivables and may result in a
reduction in the yield to maturity of any class of Securities to which such
amounts are distributed.
RIGHTS OF THE NOTEHOLDERS TO DIRECT CERTAIN MATTERS MAY ADVERSELY AFFECT
CERTIFICATEHOLDERS. In general, with respect to any Trust issuing Notes, until
the Notes have been paid in full the right to direct the related Trust with
respect to certain actions permitted to be taken under the related Transfer and
Servicing Agreements rests with the related Indenture Trustee and the
Noteholders instead of the Certificateholders.
For example, with respect to a Trust issuing Notes, in the event a Servicer
Default occurs, the Indenture Trustee or the Noteholders with respect to such
series, as described under "Description of the Transfer and Servicing
Agreements--Rights upon Servicer Default", may remove the Servicer without the
consent of the Trustee or any of the Certificateholders with respect to such
series. The Trustee or the Certificateholders with respect to such series will
not have the ability to remove the Servicer if a Servicer Default occurs. In
addition, the Noteholders of such series have the ability, with certain
specified exceptions, to waive defaults by the Servicer, including defaults that
could materially adversely affect the Certificateholders of such series. SEE
"Description of the Transfer and Servicing Agreements--Waiver of Past Defaults".
BOOK-ENTRY REGISTRATION MAY REDUCE THE LIQUIDITY OF THE SECURITIES. Unless
otherwise specified in the related Prospectus Supplement, each class of
Securities of a given series will be initially represented by one or more
certificates registered in the name of Cede & Co. ("CEDE"), or any other nominee
for the Depository Trust Company ("DTC") set forth in the related Prospectus
Supplement (Cede, or such other nominee, "DTC'S NOMINEE"), and will not be
registered in the names of the holders of the Securities of such series or their
nominees. Because of this, unless and until Definitive Securities for such
series are issued, holders of such Securities will not be recognized by the
Trustee or any applicable Indenture Trustee as "Certificateholders",
"Noteholders" or "Securityholders", as the case may be (as such terms are used
herein or in the related Pooling and Servicing Agreement or related Indenture
and Trust Agreement, as applicable). Hence, until Definitive Securities are
issued, holders of such Securities will only be able to exercise the rights of
Securityholders indirectly through DTC and its participating organizations. SEE
"Certain Information Regarding the Securities--Book-Entry Registration" and
"--Definitive Securities".
THE TRUSTS
With respect to each series of Securities, the Depositor will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. The property of each Trust will include a
pool (a "RECEIVABLES POOL") of retail installment sales contracts, purchase
money notes or other notes between dealers (the "DEALERS") and purchasers (the
"OBLIGORS") of new and used (i) automobiles, light-duty trucks and motorcycles
("FINANCED MOTOR VEHICLES," and the Receivables with respect thereto, "MOTOR
VEHICLE RECEIVABLES") and/or (ii) recreational vehicles ("FINANCED RECREATIONAL
VEHICLES," and the Receivables with respect thereto, "RECREATIONAL VEHICLE
RECEIVABLES") or installment loans made to Obligors for such purchases and all
payments due thereunder on and after the applicable cutoff date (as such term is
defined in the related Prospectus Supplement, a "Cut-off Date") in the case of
Precomputed Receivables and all payments received thereunder on and after the
applicable Cut-off Date in the case of Simple Interest Receivables. A
Receivables Pool may consist solely of Motor Vehicle Receivables, Recreational
Vehicle Receivables or a combination of such Receivables, all as specified in
the related Prospectus Supplement. The Receivables of each Receivables Pool were
or will be originated by the Dealers or lenders, purchased by the Seller(s),
directly or indirectly, pursuant to agreements with Dealers ("DEALER
AGREEMENTS") or such lenders and sold to the Depositor. Such Receivables will be
serviced by the Servicer. On or prior to the applicable Closing Date, the
Seller(s) will sell the Receivables to the Depositor. On the applicable Closing
Date, the Depositor will sell the Initial Receivables of the applicable
Receivables Pool to the Trust to the extent, if any, specified in the related
Prospectus Supplement. To the extent so provided in the related Prospectus
Supplement, Subsequent Receivables will be conveyed to the Trust as frequently
as daily during
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the Funding Period. Any Subsequent Receivables so conveyed will also be assets
of the applicable Trust, subject to the prior rights of the related Indenture
Trustee and the Noteholders, if any, therein. The property of each Trust will
also include (i) such amounts as from time to time may be held in separate trust
accounts established and maintained pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement and the proceeds of such accounts,
as described herein and in the related Prospectus Supplement; (ii) security
interests in the Financed Vehicles and any other interest of the Depositor in
such Financed Vehicles; (iii) the rights to proceeds from claims on certain
physical damage, credit life and disability insurance policies covering the
Financed Vehicles or the Obligors, as the case may be; (iv) the interest of the
Depositor in any proceeds from recourse to Dealers on Receivables or Financed
Vehicles with respect to which the Servicer has determined that eventual
repayment in full is unlikely; (v) any property that shall have secured a
Receivable and that shall have been acquired by the applicable Trust; and (vi)
any and all proceeds of the foregoing. To the extent specified in the related
Prospectus Supplement, a Pre-Funding Account, a Reserve Account or other form of
credit enhancement may be a part of the property of any given Trust or may be
held by the Trustee or an Indenture Trustee for the benefit of holders of the
related Securities. Additionally, pursuant to the Dealer Agreements, the Dealers
have an obligation after origination to repurchase Receivables as to which
Dealers have made certain misrepresentations.
The Servicer will continue to service the Receivables held by each Trust and
will receive fees for such services. SEE "Description of the Transfer and
Servicing Agreements--Servicing Compensation and Payment of Expenses" herein and
in the related Prospectus Supplement. To facilitate the servicing of the
Receivables, each Trustee will authorize the Servicer to retain physical
possession of the Receivables held by each Trust and other documents relating
thereto as custodian for each such Trust. Due to the administrative burden and
expense, the certificates of title or UCC financing statements, as applicable,
to the Financed Vehicles will not be amended to reflect the sale and assignment
of the security interest in the Financed Vehicles to each Trust. SEE "Risk
Factors--Certain Legal Aspects--Security Interest in Financed Vehicles,"
"Certain Legal Aspects of the Receivables" and "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables" herein.
If the protection provided to any holders of a series of Notes by the
subordination of the related Certificates and by the Reserve Account, if any, or
other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, would
have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states or, if applicable, under federal law, may affect the
Servicer's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to the holders
of the Securities of such series. See "Description of the Transfer and Servicing
Agreements--Distributions", "--Credit and Cash Flow Enhancement" and "Certain
Legal Aspects of the Receivables" herein.
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
FASIT ELECTION
If specified in the related Prospectus Supplement, principal collections
received on the Receivables may be applied to purchase additional Receivables
which will become part of the Trust Fund for a series. Such additions may be
made in connection with a Trust Fund that is taxed as a partnership or with
respect to which a FASIT election has been made. The related Prospectus
Supplement will set forth the characteristics that such additional Receivables
will be required to meet. Such characteristics will be specified in terms of the
categories described in this section.
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THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement and the Sale and Servicing
Agreement or the related Pooling and Servicing Agreement, as applicable. A
Trustee may resign at any time, in which event the Servicer, or its successor,
will be obligated to appoint a successor trustee. The Administrator, if any, of
a Trust that is not a grantor trust and the Servicer in respect of a Trust that
is a grantor trust may also remove the Trustee if the Trustee ceases to be
eligible to continue as Trustee under the related Trust Agreement or Pooling and
Servicing Agreement, as applicable, or if the Trustee becomes insolvent. In such
circumstances, the Administrator or Servicer, as applicable, will be obligated
to appoint a successor trustee. Any resignation or removal of a Trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool are and will be retail installment
sales contracts, retail installment loans, purchase money orders or other notes
that have been or will be originated by a Dealer and purchased by a Seller
pursuant to a Dealer Agreement between the related seller (the "SELLER") and the
Dealer and will be Motor Vehicle Receivables and/or Recreational Vehicle
Receivables. Receivables held by any Seller may have been acquired from other
Sellers. The Sellers of each of the Motor Vehicle Receivables and/or
Recreational Vehicle Receivables may include banks, finance companies or other
financial institutions and will be entities involved in the financing of each of
the particular types of assets (I.E., new and used automobiles, light duty
trucks and motorcycles, and new and used recreational vehicles) securing the
Receivables being sold by such Seller and in the origination, secondary market
purchasing and/or servicing of retail installment sales contracts, retail
installment loans and other receivables secured by each of such asset types.
Each Seller with respect to a series of Securities will be identified in the
related Prospectus Supplement. A Receivables Pool may consist solely of Motor
Vehicle Receivables, Recreational Vehicle Receivables or a combination of such
Receivables, all as specified in the related Prospectus Supplement. In addition,
to the extent described in any Prospectus Supplement, the related Receivables
Pool may include Receivables acquired by an Affiliate through acquisitions.
Receivables of a Seller will be transferred to the Depositor pursuant to a
Receivables Purchase Agreement for sale by the Depositor to the applicable
Trust.
The Receivables to be held by each Trust will be purchased by the Depositor
from the portfolio of the Seller(s) for inclusion in a Receivables Pool in
accordance with several criteria, including that each Receivable (i) is secured
by a new or used motor vehicle or motorcycle recreational vehicle, (ii) was
originated in the United States, (iii) is a Simple Interest Receivable or a
Precomputed Receivable and (iv) as of the Cut-off Date (a) had an outstanding
principal balance of at least the amount set forth in the related Prospectus
Supplement, (b) was not more than 30 days (or such other number of days
specified in the related Prospectus Supplement) past due, (c) had a remaining
number of scheduled payments not more than the number set forth in the related
Prospectus Supplement, (d) had an original number of scheduled payments not more
than the number set forth in the related Prospectus Supplement and (e) had an
APR of not less than the rate per annum set forth in the related Prospectus
Supplement. No selection procedures believed by the Depositor to be adverse to
the Securityholders of any series were or will be used in selecting the related
Receivables. Terms of the retail installment sales contracts, retail installment
loans, purchase money orders or notes constituting such Receivables which are
material to investors are described herein or in the related Prospectus
Supplement.
"SIMPLE INTEREST RECEIVABLES" are receivables that provide for the
amortization of the amount financed under each receivable over a series of fixed
level payment monthly installments. However, unlike the monthly installment
under an Actuarial Receivable, each monthly installment consists of an amount of
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interest which is calculated on the basis of the outstanding principal balance
of the receivable multiplied by the stated Contract Rate and further multiplied
by the period elapsed (as a fraction of a calendar year) since the preceding
payment of interest was made. As payments are received under a Simple Interest
Receivable, the amount received is applied, first, to interest accrued to the
date of payment, second, to reduce the unpaid principal balance, and third, to
late fees and other fees and charges, if any. Accordingly, if an Obligor pays a
fixed monthly installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment was
made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if an Obligor pays a fixed
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance and unpaid accrued interest. If a Simple Interest
Receivable is prepaid, the Obligor is required to pay interest only to the date
of prepayment.
"PRECOMPUTED RECEIVABLES" consist of either (i) monthly actuarial
receivables ("ACTUARIAL RECEIVABLES") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("RULE OF 78'S
RECEIVABLES"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the APR of
the loan multiplied by the unpaid principal balance of the loan, and an amount
of principal equal to the remainder of the monthly payment. A Rule of 78's
Receivable provides for the payment by the Obligor of a specified total amount
of payments, payable in equal monthly installments on each due date, which total
represents the principal amount financed and add-on interest in an amount
calculated at the stated APR for the term of the receivable. The rate at which
such amount of add-on interest is earned and, correspondingly, the amount of
each fixed monthly payment allocated to reduction of the outstanding principal
are calculated in accordance with the "Rule of 78's".
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition, the geographic distribution and distribution by APR and the portion
of such Receivables Pool consisting of Precomputed Receivables and of Simple
Interest Receivables and the portion of such Receivables Pool made up by Motor
Vehicle Receivables and/or Recreational Vehicle Receivables and the portion of
each category secured by new Financed Vehicles and by used Financed Vehicles.
SUBSEQUENT RECEIVABLES
Subsequent Receivables may be originated by the Dealers at a later date
using credit criteria different from those which were applied to any Initial
Receivables and may be of a different credit quality and seasoning. In addition,
following the transfer of Subsequent Receivables to the applicable Trust, the
characteristics of the entire pool of Receivables included in such Trust may
vary significantly from those of the Initial Receivables transferred to such
Trust. Each Prospectus Supplement will describe the effects that including such
Subsequent Receivables may have on the Receivables Pool included in the Trust
Property of each Trust issuing Securities.
UNDERWRITING
The related Prospectus Supplement will describe the Seller(s)' underwriting
procedures and guidelines, including the type of information reviewed in respect
of an applicant.
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SERVICING AND COLLECTIONS
The related Prospectus Supplement will describe the Servicer's servicing
procedures, including the steps customarily taken in respect of delinquent
Receivables and the maintenance of physical damage insurance.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the Seller(s)' loss and delinquency
experience with respect to its portfolio of motor vehicle loans and/or
recreational vehicle loans (including previously sold contracts which a Seller
continues to service) will be set forth in each Prospectus Supplement. There can
be no assurance that the delinquency, repossession and net loss experience on
any Receivables Pool will be comparable to prior experience or to such
information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates, if
any, of any series will generally be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may be in
the form of scheduled amortization or prepayments. (For this purpose, the term
"prepayments" includes prepayments in full, partial prepayments (including those
related to rebates of extended warranty contract costs and insurance premiums),
liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and disability insurance policies and certain other
Receivables repurchased by the Depositor or the Servicer for administrative
reasons.) All of the Receivables are prepayable at any time without penalty to
the Obligor. The rates of prepayment of motor vehicle loans and recreational
vehicle loans are influenced by a variety of economic, social and other factors,
including the fact that an Obligor generally may not sell or transfer the
Financed Vehicle securing a Receivable without the consent of the Servicer. The
rate of prepayment on the Receivables may also be influenced by the structure of
the loan. In addition, under certain circumstances, the Depositor will be
obligated to repurchase from a Trust and the related Seller will be obligated
simultaneously to repurchase from the Depositor (or in either case, if so
specified in the related Prospectus Supplement and subject to the conditions
summarized therein, substitute for) Receivables pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of representations and warranties and the Servicer will be obligated to purchase
Receivables from such Trust pursuant to such Sale and Servicing Agreement or
Pooling and Servicing Agreement as a result of breaches of certain covenants. In
the case of any Security purchased at a discount to its principal amount, a
slower than anticipated rate of principal payments is likely to result in a
lower than anticipated yield. In the case of a Security purchased at a premium
to its principal amount, a faster than anticipated rate of principal payments is
likely to result in a lower than anticipated yield. SEE "Description of the
Transfer and Servicing Agreements--Sale and Assignment of Receivables" and
"--Servicing Procedures". SEE also "Description of the Transfer and Servicing
Agreements--Termination" regarding the Servicer's option to purchase the
Receivables from a given Trust. No prediction can be made as to the rate of
prepayment that the Receivables will experience.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes, if any, or the
Certificates, if any, of a given series on each Payment Date or Distribution
Date, as applicable, since such amount will depend, in part, on the amount of
principal collected on the related Receivables Pool during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given series. The related
Prospectus Supplement may set forth certain additional information with respect
to the maturity and prepayment considerations applicable to the particular
Receivables Pool and the related series of Securities.
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POOL FACTORS AND TRADING INFORMATION
The "NOTE POOL FACTOR" for each class of Notes will be a seven-digit decimal
which the Servicer will compute prior to each distribution with respect to such
class of Notes indicating the remaining outstanding principal balance of such
class of Notes, as of the applicable Payment Date (after giving effect to
payments to be made on such Payment Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "CERTIFICATE POOL
FACTOR" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be. A Noteholder's portion of
the aggregate outstanding principal balance of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and (ii) the
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (a) the original denomination of such Certificateholder's Certificate
and (b) the applicable Certificate Pool Factor.
Unless otherwise provided in the related Prospectus Supplement with respect
to a Trust, the Noteholders and the Certificateholders, as applicable, will
receive reports on or about each Payment Date concerning (i) with respect to the
Collection Period immediately preceding such Payment Date, payments received on
the Receivables, the Pool Balance (as such term is defined in the related
Prospectus Supplement, the "POOL BALANCE"), each Certificate Pool Factor or Note
Pool Factor, as applicable, and various other items of information, and (ii)
with respect to the Collection Period second preceding such Payment Date, as
applicable, amounts allocated or distributed on the preceding Payment Date and
any reconciliation of such amounts with information provided by the Servicer
prior to such current Payment Date. In addition, Securityholders of record
during any calendar year will be furnished information for tax reporting
purposes not later than the latest date permitted by law. SEE "Certain
Information Regarding the Securities--Reports to Securityholders".
USE OF PROCEEDS
Unless the related Prospectus Supplement provides for other applications,
the net proceeds from the sale of the Securities of a given series will be
applied by the applicable Trust (i) to the purchase of the Receivables from the
Depositor, (ii) to make the initial deposit into the Reserve Account, if any,
and (iii) to make the deposit of the Pre-Funded Amount into the Pre-Funding
Account, if any. The Depositor will use that portion of such net proceeds paid
to it with respect to any such Trust to purchase Receivables from the Seller(s)
and to pay for certain expenses incurred in connection with the purchase of
Receivables and sale of Securities.
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THE COMPANY
SSB Vehicle Securities Inc. (the "COMPANY") was incorporated in the State of
Delaware on November 7, 1997 as a wholly-owned subsidiary of Salomon Brothers
Holding Company Inc. The Depositor maintains its principal office at Seven World
Trade Center, New York, New York 10048. Its telephone number is (212) 783-7000.
The only obligations, if any, of the Company with respect to a series of
Certificates and/or Notes may be pursuant to certain limited representations and
warranties and limited undertakings to repurchase (or, if so specified in
related Prospectus Supplement, substitute for) Receivables under certain
circumstances, but only to the extent the related Seller simultaneously performs
its obligation to repurchase such Receivables. The Company will have no ongoing
servicing obligations or responsibilities with respect to any Financed Vehicle.
The Company does not have, is not required to have, and is not expected in the
future to have, any significant assets.
As specified in the related Prospectus Supplement, the Servicer with respect
to any series of Certificates and/or Notes may be an affiliate of the Company.
The Company anticipates that it will acquire Receivables in the open market or
in privately negotiated transactions, which may be through or from a Seller or
Transferor.
None of the Company, the Seller(s) or any of their respective affiliates
will insure or guarantee the Receivables or the Certificates and/or Notes of any
series.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of Notes
of the related series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary does not purport to be
complete and is subject to, and is qualified by reference to, all the provisions
of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by one or more Notes, in each case
registered in the name of the nominee of DTC (together with any successor
depository selected by the Trust, the "DEPOSITORY") except as set forth below.
Unless otherwise specified in the related Prospectus Supplement, the Notes will
be available for purchase in denominations of $1,000 and integral multiples
thereof in book-entry form only. The Depositor has been informed by DTC that
DTC's nominee will be Cede, unless another nominee is specified in the related
Prospectus Supplement. Accordingly, such nominee is expected to be the holder of
record of the Notes of each class. Unless and until Definitive Notes are issued
under the limited circumstances described herein or in the related Prospectus
Supplement, no Noteholder will be entitled to receive a physical certificate
representing a Note. All references herein and in the related Prospectus
Supplement to actions by Noteholders refer to actions taken by DTC upon
instructions from its participating organizations (the "PARTICIPANTS") and all
references herein and in the related Prospectus Supplement to distributions,
notices, reports and statements to Noteholders refer to distributions, notices,
reports and statements to DTC or its nominee, as the registered holder of the
Notes, for distribution to Noteholders in accordance with DTC's procedures with
respect thereto. SEE "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Securities".
PRINCIPAL OF AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive
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payments of principal and interest may be senior or subordinate to the rights of
holders of any other class or classes of Notes of such series, as described in
the related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, payments of interest on the Notes of such series will be
made prior to payments of principal thereon. To the extent provided in the
related Prospectus Supplement, a series may include one or more classes of Strip
Notes entitled to (i) principal payments with disproportionate, nominal or no
interest payments or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given series or the method for determining such Interest Rate. SEE
also "Certain Information Regarding the Securities--Fixed Rate Securities" and
"--Floating Rate Securities". One or more classes of Notes of a series may be
redeemable in whole or in part under the circumstances specified in the related
Prospectus Supplement, including at the end of the Funding Period (if any) or as
a result of the Servicer's exercising its option to purchase the related
Receivables Pool.
To the extent specified in any Prospectus Supplement, one or more classes of
Notes of a series may have fixed principal payment schedules, as set forth in
such Prospectus Supplement; Noteholders of such Notes would be entitled to
receive as payments of principal on any Payment Date the applicable amounts set
forth on such schedule with respect to such Notes, in the manner and to the
extent set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments to
Noteholders of all classes within a series in respect of interest will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "PAYMENT DATE"), in which case each class of Noteholders will receive its
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes of such series. SEE "Description of the Transfer and
Servicing Agreements-- Distributions" and "--Credit and Cash Flow Enhancement".
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a PRO RATA basis among all the Noteholders of
such class.
THE INDENTURE
MODIFICATION OF INDENTURE. With respect to each Trust that has issued Notes
pursuant to an Indenture, the Trust and the Indenture Trustee may, with the
consent of the holders of a majority of the outstanding Notes of the related
series, execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the related Indenture, or modify (except
as provided below) in any manner the rights of the related Noteholders.
Unless otherwise specified in the related Prospectus Supplement with respect
to a series of Notes, in the absence of the consent of the holder of each such
outstanding Note affected thereby, no supplemental indenture will: (i) change
the due date of any installment of principal of or interest on any such Note or
reduce the principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change any place of payment where or
the coin or currency in which any such Note or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the related Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such series, the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of
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compliance with certain provisions of the related Indenture or of certain
defaults thereunder and their consequences as provided for in such Indenture;
(iv) modify or alter the provisions of the related Indenture regarding the
voting of Notes held by the applicable Trust, any other obligor on such Notes,
the Depositor, the Seller(s) or an affiliate of any of them; (v) reduce the
percentage of the aggregate outstanding amount of such Notes, the consent of the
holders of which is required to direct the related Indenture Trustee to sell or
liquidate the Receivables if the proceeds of such sale would be insufficient to
pay the principal amount of and accrued but unpaid interest on the outstanding
Notes of such series; (vi) decrease the percentage of the aggregate principal
amount of such Notes required to amend the sections of the related Indenture
which specify the applicable percentage of aggregate principal amount of the
Notes of such series necessary to amend such Indenture or certain other related
agreements; or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for such Notes or, except as otherwise permitted or contemplated in
such Indenture, terminate the lien of such Indenture on any such collateral or
deprive the holder of any such Note of the security afforded by the lien of such
Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the Notes
of a given series, unless otherwise specified in the related Prospectus
Supplement, "EVENTS OF DEFAULT" under the related Indenture will consist of: (i)
a default for five days (or such longer period specified in the related
Prospectus Supplement) or more in the payment of any interest on any such Note;
(ii) a default in the payment of the principal of or any installment of the
principal of any such Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any such
default for a period of 30 days after notice thereof is given to such Trust by
the applicable Indenture Trustee or to such Trust and such Indenture Trustee by
the holders of at least 25% in principal amount of such Notes then outstanding;
(iv) any representation or warranty made by such Trust in the related Indenture
or in any certificate delivered pursuant thereto or in connection therewith
having been incorrect in a material respect as of the time made, and such breach
not having been cured within 30 days after notice thereof is given to such Trust
by the applicable Indenture Trustee or to such Trust and such Indenture Trustee
by the holders of at least 25% in principal amount of such Notes then
outstanding; or (v) certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable Trust. However, the amount of principal required
to be paid to Noteholders of such series under the related Indenture will
generally be limited to amounts available to be deposited in the applicable Note
Distribution Account. Therefore, unless otherwise specified in the related
Prospectus Supplement, the failure to pay principal on a class of Notes
generally will not result in the occurrence of an Event of Default until the
final scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Unless otherwise specified in the
related Prospectus Supplement, such declaration may, under certain
circumstances, be rescinded by the holders of a majority in principal amount of
such Notes then outstanding.
If the Notes of any series are due and payable following an Event of Default
with respect thereto, the related Indenture Trustee may institute proceedings to
collect amounts due or foreclose on Trust property, exercise remedies as a
secured party, sell the related Receivables or elect to have the applicable
Trust maintain possession of such Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration. Unless
otherwise specified in the related Prospectus Supplement, however, such
Indenture Trustee is prohibited from selling the related Receivables following
an Event of
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Default, other than a default in the payment of any principal of or a default
for five days or more in the payment of any interest on any Note of such series,
unless (i) the holders of all such outstanding Notes consent to such sale, (ii)
the proceeds of such sale are sufficient to pay in full the principal of and the
accrued interest on such outstanding Notes at the date of such sale or (iii)
such Indenture Trustee determines that the proceeds of Receivables would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such obligations had not been declared due and
payable, and such Indenture Trustee obtains the consent of the holders of
66 2/3% of the aggregate outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the duties
of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to the provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in principal amount of the outstanding Notes of a given series will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the applicable Indenture Trustee, and the holders of
a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
such Indenture that cannot be modified without the waiver or consent of all the
holders of such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement, no holder
of a Note of any series will have the right to institute any proceeding with
respect to the related Indenture, unless (i) such holder previously has given to
the applicable Indenture Trustee written notice of a continuing Event of
Default, (ii) the holders of not less than 25% in principal amount of the
outstanding Notes of such series have made written request to such Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered such Indenture Trustee reasonable indemnity,
(iv) such Indenture Trustee has for 60 days failed to institute such proceeding
and (v) no direction inconsistent with such written request has been given to
such Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related Notes or for the agreements of such Trust contained in the
applicable Indenture.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related series and the performance or observance of every
agreement and covenant of such Trust under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) such Trust has been advised that the rating of the Notes or
the Certificates of such series then in effect would not be reduced or withdrawn
by the Rating Agencies as a result of such merger or consolidation and (v) such
Trust has received an opinion of counsel to the effect that such consolidation
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or merger would have no material adverse tax consequence to the Trust or to any
related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents with respect to such Trust (collectively, the "RELATED
DOCUMENTS"), sell, transfer, exchange or otherwise dispose of any of the assets
of such Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the related Indenture
to be impaired or permit any person to be released from any covenants or
obligations with respect to such Notes under such Indenture except as may be
expressly permitted thereby or (v) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of such Trust or any part thereof,
or any interest therein or the proceeds thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust". No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture, pursuant to any
Advances made to it by the Servicer or otherwise in accordance with the Related
Documents.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by such
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by such Indenture Trustee as such and any
action taken by it that materially affects the related Notes and that has not
been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee for any series may resign at any
time, in which event the Issuer will be obligated to appoint a successor trustee
for such series. The Issuer may also remove any such Indenture Trustee if such
Indenture Trustee ceases to be eligible to continue as such under the related
Indenture or if such Indenture Trustee becomes insolvent. In such circumstances,
the Issuer will be obligated to appoint a successor trustee for the applicable
series of Notes. Any resignation or removal of the Indenture Trustee and
appointment of a successor trustee for any series of Notes does not become
effective until acceptance of the appointment by the successor trustee for such
series.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified by reference to, all the provisions of the Certificates and the Trust
Agreement or Pooling and Servicing Agreement, as applicable.
Unless otherwise specified in the related Prospectus Supplement and except
for the Certificates, if any, of a given series purchased by the Depositor, each
class of Certificates will initially be represented by one or more Certificates
registered in the name of the Depository, except as set forth below. Unless
otherwise specified in the related Prospectus Supplement and except for the
Certificates, if any, of a given series purchased by the Depositor, the
Certificates will be available for purchase in minimum denominations of $1,000
in book-entry form only. The Depositor has been informed by DTC that DTC's
nominee will be Cede, unless another nominee is specified in the related
Prospectus Supplement. Accordingly, such nominee is expected to be the holder of
record of the Certificates of any series that are not purchased by the
Depositor. Unless and until Definitive Certificates are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Certificateholder (other than the Depositor) will be entitled to receive a
physical certificate representing a Certificate. All references herein and in
the related Prospectus Supplement to actions by Certificateholders refer to
actions taken by DTC upon instructions from the Participants and all references
herein and in the related Prospectus Supplement to distributions, notices,
reports and statements to Certificateholders 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. SEE "Certain Information
Regarding the Securities--Book-Entry Registration" and "--Definitive
Securities". Any Certificates of a given series owned by the Depositor will be
entitled to equal and proportionate benefits under the applicable Trust
Agreement or Pooling and Servicing Agreement, except that such Certificates will
be deemed not to be outstanding for the purpose of determining whether the
requisite percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents.
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 of and interest on each class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "DISTRIBUTION DATE") and will be made prior to distributions
with respect to principal of such Certificates. With respect to any Trust that
issues both Notes and Certificates, the Distribution Date for the Certificates
may coincide with the Payment Date for the Notes, in which case such date will
be referred to in the related Prospectus Supplement as a Payment Date with
respect to both the Notes and the Certificates. To the extent provided in the
related Prospectus Supplement, a series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no distributions in respect of
principal. 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 given series or the method for determining
such Pass Through Rate. SEE also "Certain Information Regarding the
Securities--Fixed Rate Securities" and "--Floating Rate Securities"
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herein. Unless otherwise provided in the related Prospectus Supplement,
distributions in respect of the Certificates of a given series that includes
Notes may be subordinate to payments in respect of the Notes of such series as
more fully described in the related Prospectus Supplement. Distributions in
respect of interest on and principal of any class of Certificates will be made
on a PRO RATA basis among all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or Strip
Certificates) may bear interest at a fixed rate per annum ("FIXED RATE
SECURITIES") or at a variable or adjustable rate per annum ("FLOATING RATE
SECURITIES"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable Interest Rate or Pass Through Rate per annum, as the case may be,
specified in the applicable Prospectus Supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of twelve
30-day months. SEE "Description of the Notes--Principal of and Interest on the
Notes" and "Description of the Certificates-- Distributions of Principal and
Interest".
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"INTEREST RESET PERIOD") at a rate per annum determined by reference to an
interest rate basis (the "BASE RATE"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "SPREAD" is the number of basis points (one
basis point equals one-hundredth of a percentage point) that may be specified in
the applicable Prospectus Supplement as being applicable to such class, and the
"SPREAD MULTIPLIER" is the percentage that may be specified in the applicable
Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) LIBOR (a "LIBOR
SECURITY"), (ii) the Commercial Paper Rate (a "COMMERCIAL PAPER RATE SECURITY"),
(iii) the Treasury Rate (a "TREASURY RATE SECURITY"), (iv) the Federal Funds
Rate (a "FEDERAL FUNDS RATE SECURITY"), (v) the CD Rate (a "CD RATE SECURITY")
or (vi) such other Base Rate as is set forth in such Prospectus Supplement. The
"INDEX MATURITY" for any class of Floating Rate Securities is the period of
maturity of the instrument or obligation from which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates", or any successor publication, published by the Board
of Governors of the Federal Reserve System. "COMPOSITE QUOTATIONS" means the
daily statistical release entitled "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
"INTEREST RESET DATE" will be the first day of the applicable Interest Reset
Period or such other day as may be specified in the related Prospectus
Supplement with respect to a class of Floating Rate Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
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minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will be
issued will appoint, and enter into agreements with, a calculation agent (each,
a "CALCULATION AGENT") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be either the
related Trustee or Indenture Trustee with respect to such series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given class. Unless otherwise specified in the
applicable Prospectus Supplement, all percentages resulting from any calculation
of the rate of interest on a Floating Rate Security will be rounded, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward.
CD RATE SECURITIES. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the "CD
RATE" for each Interest Reset Period shall be the rate as of the second business
day prior to the Interest Reset Date for such Interest Reset Period (a "CD RATE
DETERMINATION DATE") for negotiable certificates of deposit having the Index
Maturity designated in the applicable Prospectus Supplement as published in
H.15(519) under the heading "CDs (Secondary Market)". In the event that such
rate is not published prior to 3:00 p.m., New York time, on the Calculation Date
pertaining to such CD Rate Determination Date, then the "CD Rate" for such
Interest Reset Period will be the rate on such CD Rate Determination Date for
negotiable certificates of deposit of the Index Maturity designated in the
applicable Prospectus Supplement as published in Composite Quotations under the
heading "Certificates of Deposit". If by 3:00 p.m., New York time, on such
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, then the "CD Rate" for such Interest Reset Period will be calculated
by the Calculation Agent for such CD Rate Security and will be the arithmetic
mean of the secondary market offered rates as of 10:00 a.m., New York time, on
such CD Rate Determination Date, of three leading nonbank dealers in negotiable
U.S. dollar certificates of deposit in The City of New York selected by the
Calculation Agent for such CD Rate Security for negotiable certificates of
deposit of major United States money center banks of the highest credit standing
(in the market for negotiable certificates of deposit) with a remaining maturity
closest to the Index Maturity designated in the related Prospectus Supplement in
a denomination of $5,000,000; PROVIDED, HOWEVER, that if the dealers selected as
aforesaid by such Calculation Agent are not quoting offered rates as mentioned
in this sentence, the "CD Rate" for such Interest Reset Period will be the same
as the CD Rate for the immediately preceding Interest Reset Period.
The "CALCULATION DATE" pertaining to any CD Rate Determination Date shall be
the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset Date.
COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Commercial Paper Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus Supplement.
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Unless otherwise specified in the applicable Prospectus Supplement, the
"COMMERCIAL PAPER RATE" for each Interest Reset Period will be determined by the
Calculation Agent for such Commercial Paper Rate Security as of the second
business day prior to the Interest Reset Date for such Interest Reset Period (a
"COMMERCIAL PAPER RATE DETERMINATION DATE") and shall be the Money Market Yield
on such Commercial Paper Rate Determination Date of the rate for commercial
paper having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading
"Commercial Paper". In the event that such rate is not published prior to 3:00
p.m., New York time, on the Calculation Date pertaining to such Commercial Paper
Rate Determination Date, then the "Commercial Paper Rate" for such Interest
Reset Period shall be the Money Market Yield on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper". If by 3:00 p.m., New York time, on such Calculation Date such rate is
not yet published in either H.15(519) or Composite Quotations, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
time, on such Commercial Paper Rate Determination Date of three leading dealers
of commercial paper in The City of New York selected by the Calculation Agent
for such Commercial Paper Rate Security for commercial paper of the specified
Index Maturity placed for an industrial issuer whose bonds are rated "AA" or the
equivalent by a nationally recognized rating agency; PROVIDED, HOWEVER, that if
the dealers selected as aforesaid by such Calculation Agent are not quoting
offered rates as mentioned in this sentence, the "Commercial Paper Rate" for
such Interest Reset Period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C> <C>
DX360
Money Market Yield = 360 - (D X M) X 100
</TABLE>
where "D" refers to the applicable rate per annum for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "CALCULATION DATE" pertaining to any Commercial Paper Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Commercial Paper Rate Determination Date or, if such day is not a business day,
the next succeeding business day or (b) the second business day preceding the
date any payment is required to be made for any period following the applicable
Interest Reset Date.
FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"FEDERAL FUNDS RATE" for each Interest Reset Period shall be the effective rate
on the Interest Reset Date for such Interest Reset Period (a "FEDERAL FUNDS RATE
DETERMINATION DATE") for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)". In the event that such rate is not
published prior to 3:00 p.m., New York time, on the Calculation Date (as defined
below) pertaining to such Federal Funds Rate Determination Date, the "Federal
Funds Rate" for such Interest Reset Period shall be the rate on such Federal
Funds Rate Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York time, on such
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, then the "Federal Funds Rate" for such Interest Reset Period shall
be the rate on such Federal Funds Rate Determination Date made publicly
available by the Federal Reserve Bank of New York which is equivalent to the
rate which appears in H.15(519) under the heading "Federal Funds (Effective)";
PROVIDED, HOWEVER, that if such rate is not made publicly available by the
Federal Reserve Bank of New York by 3:00 p.m., New York time, on such
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Calculation Date, the "Federal Funds Rate" for such Interest Reset Period will
be the same as the Federal Funds Rate in effect for the immediately preceding
Interest Reset Period. In the case of a Federal Funds Rate Security that resets
daily, the interest rate on such Security for the period from and including a
Monday to but excluding the succeeding Monday will be reset by the Calculation
Agent for such Security on such second Monday (or, if not a business day, on the
next succeeding business day) to a rate equal to the average of the Federal
Funds Rates in effect with respect to each such day in such week.
The "CALCULATION DATE" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding business day.
LIBOR SECURITIES. Each LIBOR Security will bear interest for each Interest
Reset Period at the interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to LIBOR indexed to the offered rates for U.S. dollar deposits, "LIBOR"
for each Interest Reset Period will be determined by the Calculation Agent for
any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR DETERMINATION DATE"), the
Calculation Agent for such LIBOR Security will determine the arithmetic mean
of the offered rates for deposits in U.S. dollars for the period of the
Index Maturity specified in the applicable Prospectus Supplement, commencing
on such Interest Reset Date, which appear on either, as specified in the
related Prospectus Supplement, (a) the Reuters Screen LIBO Page at
approximately 11:00 a.m., London time, on such LIBOR Determination Date, if
at least two such offered rates appear on the Reuters Screen LIBO Page
("LIBOR REUTERS") or (b) the Telerate Page 3750 ("LIBOR TELERATE"). For
purposes of calculating LIBOR, "LONDON BANKING DAY" means any business day
on which dealings in deposits in United States dollars are transacted in the
London interbank market; "REUTERS SCREEN LIBO PAGE" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or
such other page as may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks); and "TELERATE
PAGE 3750" means the display designated as page "3750" on the Telerate
Service (or such other page as may replace the 3750 page on that service or
services as may be nominated by the British Bankers' Association for the
purpose of displaying London interbank offered rates for U.S. dollar
deposits). If LIBOR is LIBOR Reuters and at least two such offered rates
appear on the Reuters Screen LIBO Page, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such offered rates as determined by
the Calculation Agent for such LIBOR Security. If neither LIBOR Reuters or
LIBOR Telerate is specified in the related Prospectus Supplement, LIBOR will
be determined as if LIBOR Telerate had been specified.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page, or if no rate appears on the Telerate Page 3750, as applicable, on
such LIBOR Determination Date, the Calculation Agent for such LIBOR Security
will request the principal London offices of each of four major banks in the
London interbank market selected by such Calculation Agent to provide such
Calculation Agent with its offered quotations for deposits in U.S. dollars
for the period of the specified Index Maturity, commencing on such Interest
Reset Date, to prime banks in the London interbank market at approximately
11:00 a.m., London time, on such LIBOR Determination Date and in a principal
amount equal to an amount of not less than $1,000,000 that, in the
Calculation Agent's judgment, is representative of a single transaction in
such market at such time. If at least two such quotations are provided,
"LIBOR" for such Interest Reset Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are provided, "LIBOR" for such
Interest Reset Period will be the arithmetic mean of rates quoted by three
major banks in The City of New York selected by the Calculation Agent for
such LIBOR Security at approximately 11:00 a.m., New York time, on such
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LIBOR Determination Date for loans in U.S. dollars to leading European
banks, for the period of the specified Index Maturity, commencing on such
Interest Reset Date, and in a principal amount equal to an amount of not
less than $1,000,000 that, in the Calculation Agent's judgment, is
representative of a single transaction in such market at such time;
PROVIDED, HOWEVER, that if the banks selected as aforesaid by such
Calculation Agent are not quoting rates as mentioned in this sentence,
"LIBOR" for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
TREASURY RATE SECURITIES. Each Treasury Rate Security will bear interest
for each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"TREASURY RATE" for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Determination Date for such Interest Reset Period of
direct obligations of the United States ("TREASURY BILLS") having the Index
Maturity specified in the applicable Prospectus Supplement, as such rate shall
be published in H.15(519) under the heading "U.S. Government
Securities--Treasury bills--auction average (investment)" or, in the event that
such rate is not published prior to 3:00 p.m., New York time, on the Calculation
Date pertaining to such Treasury Rate Determination Date, the auction average
rate (expressed as a bond equivalent on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis) on such Treasury Rate Determination
Date as otherwise announced by the United States Department of the Treasury. In
the event that the results of the auction of Treasury bills having the specified
Index Maturity are not published or reported as provided above by 3:00 p.m., New
York time, on such Calculation Date, or if no such auction is held on such
Treasury Rate Determination Date, then the "Treasury Rate" for such Interest
Reset Period shall be calculated by the Calculation Agent for such Treasury Rate
Security and shall be the yield to maturity (expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 p.m., New York time, on such Treasury Rate Determination
Date, of three leading primary United States government securities dealers
selected by such Calculation Agent for the issue of Treasury bills with a
remaining maturity closest to the specified Index Maturity; PROVIDED, HOWEVER,
that if the dealers selected as aforesaid by such Calculation Agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate" for
such Interest Reset Period will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period.
The "TREASURY RATE DETERMINATION DATE" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
Security, then such Interest Reset Date shall instead be the business day
immediately following such auction date.
The "CALCULATION DATE" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
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BOOK-ENTRY REGISTRATION
Holders of the Certificates or the Notes may hold through DTC (in the United
States) or, solely in the case of the Notes, Cedel or Euroclear (in Europe) if
they are participants of such systems, or indirectly through organizations that
are participants in such systems. The Certificates may not be held, directly or
indirectly, through Cedel or Euroclear. Cede, as nominee for DTC, will hold the
Securities. Cedel and Euroclear will hold omnibus positions in the Notes on
behalf of the Cedel Participants and the Euroclear Participants, respectively,
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries (collectively, the "DEPOSITARIES"), which
in turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its 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 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's participating organizations (the "PARTICIPANTS")
will occur in accordance with DTC rules. Transfers between Cedel Participants
and Euroclear Participants will occur in the ordinary way in accordance with
their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a 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 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.
Unless otherwise specified in the related Prospectus Supplement,
Securityholders that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable (the "APPLICABLE TRUSTEE"), through Participants. Under a book-entry
format, Securityholders may experience some delay in their receipt of payments,
since such payments will be forwarded by the Applicable Trustee to DTC's
nominee. DTC will forward such payments to its
33
<PAGE>
Participants, which thereafter will forward them to Indirect Participants or
Securityholders. Except to the extent the Depositor holds Certificates with
respect to any series of Securities, it is anticipated that the only
"Securityholder", "Noteholder" and "Certificateholder" will be DTC's nominee.
Noteholders will not be recognized by each Indenture Trustee as Noteholders, as
such term is used in each Indenture, and Noteholders will be permitted to
exercise the rights of Noteholders only indirectly through DTC and its
Participants. Similarly, Certificateholders will not be recognized by each
Trustee as Certificateholders as such term is used in each Trust Agreement or
Pooling and Servicing Agreement, and Certificateholders will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "RULES"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise to act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Noteholder under the related Indenture or a Certificateholder under
the related Trust Agreement or Pooling and Servicing Agreement only at the
direction of one or more Participants to whose accounts with DTC the applicable
Notes or 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.
Cedel Bank, societe anonyme ("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(s) for the
related Notes. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System 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 delivery 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 Euroclear in any of 32
currencies, including United States dollars. The
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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. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "EUROCLEAR OPERATOR" or "EUROCLEAR"), under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "COOPERATIVE"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the 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(s) for the related Notes. 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 of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, 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.
Distributions with respect to Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. SEE
"Material Federal Income Tax Consequences" in the Prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I to this
Prospectus. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Noteholder under the Indenture on behalf
of a Cedel Participant or a Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability to effect
such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Administrator, if any, or the Applicable Trustee would seek an
alternative depository (if available) or cause the issuance of Definitive
Securities to the owners thereof or their nominees in the manner described under
"Definitive Securities" below.
Except as required by law, neither the Administrator, if any, nor the
applicable Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
Securities of any series held by DTC's nominee, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
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DEFINITIVE SECURITIES
If so specified in the related Prospectus Supplement, the Notes, if any, and
the Certificates of a series will be issued in fully registered, certificated
form ("DEFINITIVE NOTES" and "DEFINITIVE CERTIFICATES", respectively, and
collectively referred to herein as "DEFINITIVE SECURITIES") to Noteholders or
Certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (i) the related Applicable Trustee determines that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Securities and such Applicable Trustee is unable to locate
a qualified successor, (ii) the Applicable Trustee, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default or a Servicer Default with respect to such Securities, holders
representing at least a majority of the outstanding principal amount of the
Notes or the Certificates, as the case may be, of such series advise the
Applicable Trustee through DTC in writing that the continuation of a book-entry
system through DTC (or a successor thereto) with respect to such Notes or
Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Applicable Trustee. The final payment on any such Definitive
Security, however, will be made only upon presentation and surrender of such
Definitive Security at the office or agency specified in the notice of final
distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement with respect
to the Notes of any series, three or more holders of the Notes of such series or
one or more holders of such Notes evidencing not less than 25% of the aggregate
outstanding principal balance of such Notes may, by written request to the
related Indenture Trustee, obtain access to the list of all Noteholders
maintained by such Indenture Trustee for the purpose of communicating with other
Noteholders with respect to their rights under the related Indenture or under
such Notes. Such Indenture Trustee may elect not to afford the requesting
Noteholders access to the list of Noteholders if it agrees to mail the desired
communication or proxy, on behalf of and at the expense of the requesting
Noteholders, to all Noteholders of such series.
Unless otherwise specified in the related Prospectus Supplement with respect
to the Certificates of any series, three or more holders of the Certificates of
such series or one or more holders of such Certificates evidencing not less than
25% of the Certificate Balance of such Certificates may, by written request to
the related Trustee, obtain access to the list of all Certificateholders
maintained by such Trustee for the purpose of communicating with other
Certificateholders with respect to their rights under the related Trust
Agreement or Pooling and Servicing Agreement or under such Certificates.
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REPORTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or prior
to each Payment Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on such
Payment Date. With respect to each series of Securities, on or prior to each
Distribution Date, the Servicer will prepare and provide to the related Trustee
a statement to be delivered to the related Certificateholders. With respect to
each series of Securities, each such statement to be delivered to Noteholders
will include (to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the Notes
of such series with respect to such Payment Date or the period since the
previous Payment Date, as applicable, and each such statement to be delivered to
Certificateholders will include (to the extent applicable) the following
information (and any other information so specified in the related Prospectus
Supplement) as to the Certificates of such series with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to principal of each class
of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such series;
(iii) the Pool Balance as of the close of business on the last day of the
preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(v) the amount of the Servicing Fee paid to the Servicer with respect to
the related Collection Period or Collection Periods, as the case may be;
(vi) the Interest Rate or Pass Through Rate for the next period for any
class of Notes or Certificates of such series with variable or adjustable
rates;
(vii) the amount of the aggregate realized losses, if any, for the second
preceding Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each as
defined in the related Prospectus Supplement), if any, in each case as
applicable to each class of Securities, and the change in such amounts from
the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that were
repurchased or substituted for in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date, after
giving effect to changes therein on such date;
(xi) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount; and
(xii) for the first such date that is on or immediately following the end
of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent Receivables
and is being passed through as payments of principal on the Securities of
such series.
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Each amount set forth pursuant to subclauses (i), (ii), (v) and (viii) with
respect to the Notes or the Certificates of any series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable Trustee
will mail to each person who at any time during such calendar year has been a
Securityholder with respect to such Trust and received any payment thereon a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. SEE "Material
Federal Income Tax Consequences".
In addition, the filing with the Commission of periodic reports with respect
to each Trust will cease following completion of the reporting period for such
Trust required by Rule 15d-1 of Regulation D under the Exchange Act.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Depositor and the Servicer will agree to service
such Receivables, each Trust Agreement (in the case of a grantor trust, the
Pooling and Servicing Agreement) pursuant to which a Trust will be created and
Certificates will be issued and each Administration Agreement pursuant to which
the Servicer (or such other person named in the related Prospectus Supplement)
will undertake certain administrative duties with respect to a Trust that issues
Notes (collectively, the "TRANSFER AND SERVICING AGREEMENTS"). Forms of the
Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. This summary does
not purport to be complete and is subject to, and qualified by reference to, all
the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the closing date (the "CLOSING DATE") specified in the
Prospectus Supplement for a Trust, the Seller(s) specified in such Prospectus
Supplement will transfer and assign, without recourse, to the Depositor their
respective entire interests in the related Initial Receivables and their
security interests in the related Financed Vehicles pursuant to a receivables
purchase agreement (a "RECEIVABLES PURCHASE AGREEMENT"). On or prior to such
Closing Date, the Depositor will transfer and assign to the Applicable Trustee,
without recourse, pursuant to a Sale and Servicing Agreement or a Pooling and
Servicing Agreement, as applicable, its entire interest in such Initial
Receivables, including its security interests in the related Financed Vehicles.
Each such Receivable will be identified in a schedule appearing as an exhibit to
such Pooling and Servicing Agreement or Sale and Servicing Agreement (a
"SCHEDULE OF RECEIVABLES"). The Applicable Trustee will, concurrently with such
transfer and assignment, execute and deliver the related Notes and/or
Certificates. The Applicable Trustee will not verify the existence of the
Receivables or review the Receivables files. Unless otherwise provided in the
related Prospectus Supplement, the net proceeds received from the sale of the
Certificates and the Notes of a given series will be applied to the purchase of
the related Receivables from the Seller(s) and, to the extent specified in the
related Prospectus Supplement, to the deposit of the Pre-Funded Amount into the
Pre-Funding Account. The related Prospectus Supplement for a given Trust will
specify whether, and the terms, conditions and manner under which, Subsequent
Receivables will be sold by the Seller(s) to the Depositor and by the Depositor
to the applicable Trust from time to time during any Funding Period on each date
specified as a transfer date in the related Prospectus Supplement (each, a
"SUBSEQUENT TRANSFER DATE").
In each Receivables Purchase Agreement the related Seller will represent and
warrant to the Depositor and, in each Sale and Servicing Agreement or Pooling
and Servicing Agreement, the Depositor will represent and warrant to the
applicable Trust, among other things, that: (i) the information provided in the
related Schedule of Receivables is correct in all material respects; (ii) the
Obligor on each related
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Receivable is required to maintain physical damage insurance covering the
Financed Vehicle in accordance with the Seller(s)' normal requirements; (iii) as
of the applicable Closing Date or the applicable Subsequent Transfer Date, if
any, to the best of its knowledge, the related Receivables are free and clear of
all security interests, liens, charges and encumbrances and no offsets, defenses
or counterclaims have been asserted or threatened; (iv) as of the Closing Date
or the applicable Subsequent Transfer Date, if any, each of such Receivables is
or will be secured by a first perfected security interest in favor of the Seller
in the related Financed Vehicle; (v) each related Receivable, at the time it was
originated, complied and, as of the Closing Date or the applicable Subsequent
Transfer Date, if any, 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; and (vi) any other
representations and warranties that may be set forth in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, as of the
last day of the second (or, if the Seller(s) elects, the first) month following
the discovery by or notice to the Seller(s) of a breach of any representation or
warranty of the Seller(s) that materially and adversely affects the interests of
the related Trust in any Receivable, the Depositor, unless the breach is cured,
will repurchase such Receivable from such Trust and the related Seller will be
obligated to simultaneously repurchase such Receivable from the Depositor at a
price equal to the unpaid principal balance owed by the Obligor thereon plus
interest thereon at the respective APR to the last day of the month of
repurchase (the "PURCHASE AMOUNT"). Alternatively, if so specified in the
related Prospectus Supplement, the related Seller or the Depositor will be
permitted, in a circumstance where it would otherwise be required to repurchase
a Receivable as described in the preceding sentence, to instead substitute a
comparable Receivable for the Receivable otherwise requiring repurchase, subject
to certain conditions and eligibility criteria for the substitute Receivable to
be summarized in the related Prospectus Supplement. The repurchase obligation
(or, if applicable, the substitution alternative with respect thereto)
constitutes the sole remedy available to the Certificateholders or the Trustee
and any Noteholders or Indenture Trustee in respect of such Trust for any such
uncured breach. The Depositor's obligation to make such purchase or substitution
is contingent upon the related Seller performing its corresponding obligation to
purchase (or, if applicable, substitute for) such Receivable from the Depositor.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, to assure uniform quality in servicing the Receivables and to reduce
administrative costs, each Trust will designate the Servicer as custodian to
maintain possession, as such Trust's agent, of the related retail installment
sale contracts, retail installment loans, purchase money notes or other notes
and any other documents relating to the Receivables. The Depositor and the
Seller(s)' accounting records and computer systems will reflect the sale and
assignment of the related Receivables to the applicable Trust and Uniform
Commercial Code ("UCC") financing statements reflecting such sales and
assignments will be filed. The Receivables will not be segregated, stamped or
otherwise marked to indicate that they have been sold to the related Trust. If
through inadvertence or otherwise, another party purchases (or takes a security
interest in) the Receivables for new value in the ordinary course of business
and takes possession of the Receivables without actual knowledge of the related
Trust's interest, the purchaser (or secured party) will acquire an interest in
the Receivables superior to the interest of the related Trust.
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "COLLECTION ACCOUNT"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, Reserve
Account or other credit or cash flow enhancement for payment to such Noteholders
will be deposited and from
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which all distributions to such Noteholders will be made (the "NOTE DISTRIBUTION
ACCOUNT"). The Servicer will establish and maintain with the related Trustee an
account, in the name of such Trustee on behalf of the related
Certificateholders, into which amounts released from the Collection Account and
any Pre-Funding Account, Reserve Account or other credit or cash flow
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"CERTIFICATE DISTRIBUTION ACCOUNT"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account in the name of the related Trustee on behalf
of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each series an additional account (the "PAYAHEAD ACCOUNT"), in the
name of the related Indenture Trustee, into which, to the extent required by the
Sale and Servicing Agreement, early payments by or on behalf of Obligors with
respect to 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 Collection Account, they will not constitute collected
interest or collected principal and will not be available for distribution to
the applicable Noteholders or Certificateholders. The Payahead Account will
initially be maintained with the applicable Indenture Trustee or, in the case of
each Trust that does not issue Notes, the applicable Trustee.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account or any Reserve Account, will be described in the related
Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account and any Pre-Funding Account, Reserve Account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "TRUST ACCOUNTS") will be invested as provided in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement in Eligible Investments.
"ELIGIBLE INVESTMENTS" are generally limited to investments acceptable to the
Rating Agencies rating such Securities as being consistent with the rating of
such Securities and may include motor vehicle, recreational vehicle retail sale
contracts or retail installment loans. Except as described below or in the
related Prospectus Supplement, Eligible Investments are limited to obligations
or securities that mature on or before the date of the next distribution for
such series. However, to the extent permitted by the Rating Agencies, funds in
any Reserve Account may be invested in securities that will not mature prior to
the date of the next distribution with respect to such Certificates or Notes and
will not be sold to meet any shortfalls. Thus, the amount of cash in any Reserve
Account at any time may be less than the balance of the Reserve Account. If the
amount required to be withdrawn from any Reserve Account to cover shortfalls in
collections on the related Receivables (as provided in the related Prospectus
Supplement) exceeds the amount of cash in the Reserve Account, a temporary
shortfall in the amounts distributed to the related Noteholders or
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates of such series. Investment earnings on funds
deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "INVESTMENT EARNINGS"), shall be allocated in the manner
described in the related Prospectus Supplement.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"ELIGIBLE INSTITUTION" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i) which has either (A) a
long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term
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unsecured debt rating or certificate of deposit rating acceptable to the Rating
Agencies 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 held by any Trust and will, consistent with the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, follow
such collection procedures as it follows with respect to motor vehicle and/or
recreational vehicle retail installment sale contracts, installment loans,
purchase money notes or other notes that it services for itself or others and
that are comparable to such Receivables. 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, but no such arrangement will, for
purposes of any Sale and Servicing Agreement or Pooling and Servicing Agreement,
modify the original due dates or the amount of the scheduled payments or extend
the final payment date of any Receivable beyond the Final Scheduled Maturity
Date (as such term is defined with respect to any Receivables Pool in the
related Prospectus Supplement). Some of such arrangements may result in the
Servicer purchasing the Receivable for the Purchase Amount, while others may
result in the Servicer making Advances. The Servicer may sell the Financed
Vehicle securing the related Receivable at public or private sale or take any
other action permitted by applicable law. SEE "Certain Legal Aspects of the
Receivables".
The Servicer may from time to time perform any portion of its servicing
obligations under the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement through subservicing agreements with third party
subservicers approved by the Rating Agencies. Each Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable, will provide that, not
withstanding the use of subservicers, the Servicer will remain liable for its
servicing duties and obligations as if the Servicer serviced the Receivables
directly.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables (from whatever source) and all proceeds of such Receivables
collected during each collection period specified in the related Prospectus
Supplement (each, a "COLLECTION PERIOD") into the related Collection Account
within two business days after receipt thereof. However, at any time that and
for so long as (i) the Servicer (or its successor) is the Servicer, (ii) there
exists no Servicer Default 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 Collection Account until on or
before the applicable Distribution Date or Payment Date. Pending deposit into
the Collection Account, collections may be invested by the Servicer at its own
risk and for its own benefit and will not be segregated from its own funds. If
the Servicer were unable to remit such funds, Securityholders might incur a
loss. To the extent set forth in the related Prospectus Supplement, the Servicer
may, in order to satisfy the requirements described above, obtain a letter of
credit or other security for the benefit of the related Trust to secure timely
remittances of collections on the related Receivables and payment of the
aggregate Purchase Amount with respect to Receivables purchased by the Servicer.
Collections on a Precomputed Receivable made during a Collection Period
shall be applied first to repay any outstanding Precomputed Advances made by the
Servicer with respect to such Receivable (as described below), and to the extent
that collections on a Precomputed Receivable during a Collection Period exceed
the outstanding Precomputed Advances, the collections shall then be applied to
the scheduled payment on such Receivable. If any collections remaining after the
scheduled payment is made are insufficient to prepay the Precomputed Receivable
in full, then, generally such remaining collections (the "PAYAHEADS") shall be
transferred to and kept in the Payahead Account, until such later Collection
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Period when the collections may be transferred to the Collection Account and
applied either to the scheduled payment or to prepay such Receivable in full.
ADVANCES
PRECOMPUTED RECEIVABLES. If so provided in the related Prospectus
Supplement, to the extent the collections of interest on and principal of a
Precomputed Receivable with respect to a Collection Period fall short of the
respective scheduled payment, the Servicer will make a Precomputed Advance in
the amount of the shortfall. The Servicer will be obligated to make a
Precomputed Advance on a Precomputed Receivable only to the extent that the
Servicer, in its sole discretion, expects to recoup such advance from subsequent
collections or recoveries on such Receivable or other Precomputed Receivables in
the related Receivables Pool. The Servicer will deposit the Precomputed Advance
in the applicable Collection Account on or before the business day preceding the
applicable Distribution Date or Payment Date. The Servicer will recoup its
Precomputed Advance from subsequent payments by or on behalf of the related
Obligor or from insurance or liquidation proceeds with respect to the Receivable
and will release its right to reimbursement in conjunction with its purchase of
the Receivable as Servicer, or, upon the determination that reimbursement from
the preceding sources is unlikely, will recoup its Precomputed Advance from any
collections made on other Precomputed Receivables in the related Receivables
Pool or from any other source of funds identified in the related Prospectus
Supplement.
SIMPLE INTEREST RECEIVABLES. If so provided in the related Prospectus
Supplement, on or before the business day prior to each applicable Distribution
Date or Payment Date, the Servicer shall deposit into the related Collection
Account as a Simple Interest Advance an amount equal to the amount of interest
that would have been due on the related Simple Interest Receivables at their
respective APRs for the related Collection Period (assuming that such Simple
Interest Receivables are paid on their respective due dates) minus the amount of
interest actually received on such Simple Interest Receivables during the
related Collection Period. If such calculation results in a negative number, an
amount equal to such amount shall be paid to the Servicer in reimbursement of
outstanding Simple Interest Advances. In addition, in the event that a Simple
Interest Receivable becomes a Defaulted Receivable (as such term is defined in
the related Prospectus Supplement), the amount of accrued and unpaid interest
thereon (but not including interest for the then current Collection Period)
shall be withdrawn from the Collection Account and paid to the Servicer in
reimbursement of outstanding Simple Interest Advances. No advances of principal
will be made with respect to Simple Interest Receivables. As used herein,
"ADVANCES" means both Precomputed Advances and Simple Interest Advances.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement with respect to any
Trust, the Servicer will be entitled to receive a servicing fee (the "SERVICING
FEE") for each Collection Period in an amount equal to a specified percentage
per annum (as set forth in the related Prospectus Supplement, the "SERVICING FEE
RATE") of the Pool Balance as of the first day of the related Collection Period.
The Servicing Fee (together with any portion of the Servicing Fee that remains
unpaid from prior Distribution Dates or Payment Dates) will be paid out of the
available funds for the related collection Period prior to any distribution(s)
on the related Payment Date or Distribution Date to the Noteholders or the
Certificateholders of the related series.
With respect to any Trust, the Servicer will generally collect and retain
any late fees, prepayment charges and other administrative fees or similar
charges allowed by applicable law with respect to the related Receivables and
will be entitled to reimbursement from such Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments and
late fees and other charges in accordance with the Servicer's normal practices
and procedures.
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The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of motor vehicle and/or recreational vehicle as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment coupons to Obligors, reporting tax information to
Obligors, paying costs of collections and disposition of defaults and policing
the collateral. The Servicing Fee also will compensate the Servicer for
administering the related Receivables Pool, including making Advances,
accounting for collections and furnishing monthly and annual statements to the
related Trustee and Indenture Trustee with respect to distributions and
generating federal income tax information for such Trust and for the related
Noteholders and Certificateholders. The Servicing Fee also will reimburse the
Servicer for certain taxes, the fees of the related Trustee and Indenture
Trustee, if any, accounting fees, outside auditor fees, data processing costs
and other costs incurred in connection with administering the related
Receivables Pool.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal of and interest (or, where applicable, of
principal of or interest only) on each class of such Securities entitled thereto
will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Payment Date and Distribution Date, as
applicable, collections on the related Receivables will be transferred from the
Collection Account to the Note Distribution Account, if any, and the Certificate
Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus Supplement.
Credit enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a given series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such series
may be subordinate to payments in respect of Notes, if any, of such series or
other classes of Certificates of such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities, Reserve Accounts, over-collateralization, letters of credit,
credit or liquidity facilities, surety bonds, guaranteed investment contracts,
swaps or other interest rate protection agreements, repurchase obligations,
yield supplement agreements, other agreements with respect to third party
payments or other support, cash deposits or such other arrangements as may be
described in the related Prospectus Supplement or any combination of two or more
of the foregoing. If specified in the applicable Prospectus Supplement, credit
or cash flow enhancement for a class of Securities may cover one or more other
classes of Securities of the same series, and credit or cash flow enhancement
for a series of Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or series of Securities may not provide protection against all risks of loss and
may not guarantee repayment of the entire principal balance
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and interest thereon; any such limitations will be described in the related
Prospectus Supplement. If losses occur which exceed the amount covered by any
credit enhancement or which are not covered by any credit enhancement,
Securityholders of any class or series will bear their allocable share of
deficiencies, as described in the related Prospectus Supplement. In addition, if
a form of credit enhancement covers more than one series of Securities,
Securityholders of any such series will be subject to the risk that such credit
enhancement will be exhausted by the claims of Securityholders of other series.
RESERVE ACCOUNT. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor will establish for a series or class of Securities an
account, as specified in the related Prospectus Supplement (the "RESERVE
ACCOUNT"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. The Reserve Account will be funded by an initial deposit
by the Depositor or such other person specified in the related Prospectus
Supplement on the Closing Date in the amount set forth in the related Prospectus
Supplement and, if the related series has a Funding Period, will also be funded
on each Subsequent Transfer Date to the extent described in the related
Prospectus Supplement. As further described in the related Prospectus
Supplement, the amount on deposit in the Reserve Account will be increased on
each Distribution Date or Payment Date thereafter up to the Specified Reserve
Account Balance (as defined in the related Prospectus Supplement) by the deposit
therein of the amount of collections on the related Receivables remaining on
each such Distribution Date or Payment Date after the payment of all other
required payments and distributions on such date. The related Prospectus
Supplement will describe the circumstances and manner under which distributions
may be made out of the Reserve Account, either to holders of the Securities
covered thereby, to the Depositor or such other person specified in the related
Prospectus Supplement.
NET DEPOSITS
As an administrative convenience, unless the Servicer is required to remit
collections daily (SEE "-- Collections" above), the Servicer will be permitted
to make the deposit of collections, aggregate Advances and Purchase Amounts for
any Trust for or with respect to the related Collection Period net of
distributions to be made to the Servicer for such Trust with respect to such
Collection Period. The Servicer may cause to be made a single net transfer from
the Collection Account to the related Payahead Account, if any, or vice versa.
The Servicer, however, will account to the Trustee, any Indenture Trustee, the
Noteholders, if any, and the Certificateholders with respect to each Trust as if
all deposits, distributions and transfers were made individually. With respect
to any Trust that issues both Certificates and Notes, if the related Payment
Dates do not coincide with the Distribution Dates, all distributions, deposits
or other remittances made on a Payment Date will be treated as having been
distributed, deposited or remitted on the Distribution Date for the applicable
Collection Period for purposes of determining other amounts required to be
distributed, deposited or otherwise remitted on such Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date or Payment Date with respect to each series
of Securities, the Servicer will provide to the Applicable Trustee as of the
close of business on the last day of the preceding Collection Period a statement
setting forth substantially the same information as is required to be provided
in the periodic reports provided to Securityholders of such series described
under "Certain Information Regarding the Securities--Reports to Securityholders"
herein.
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish annually to
the related Trust and the Applicable Trustee or Trustee statement as to
compliance by the Servicer during the preceding twelve months (or, in the case
of the first such certificate, from the applicable Closing Date) with certain
standards relating to the servicing
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of the applicable Receivables, the Servicer's accounting records and computer
files with respect thereto and certain other matters.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and the Applicable Trustee,
substantially simultaneously with the delivery of such accountants' statement
referred to above, of a certificate signed by an officer of the Servicer stating
that the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, throughout the
preceding twelve months (or, in the case of the first such certificate, from the
Closing Date) or, if there has been a default in the fulfillment of any such
obligation, describing each such default. The Servicer has agreed to give each
Applicable Trustee notice of certain Servicer Defaults under the related Sale
and Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer may not resign from its obligations and duties as
Servicer thereunder, except upon determination that the Servicer's performance
of such duties is no longer permissible under applicable law. No such
resignation will become effective until the Applicable Trustee or a successor
servicer has assumed the Servicer's servicing obligations and duties under such
Sale and Servicing Agreement or Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Sale and Servicing Agreement
or Pooling and Servicing Agreement or for errors in judgment; except that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of the Servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder. In addition,
each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer is under no obligation to appear in, prosecute or
defend any legal action that is not incidental to the Servicer's servicing
responsibilities under such Sale and Servicing Agreement or Pooling and
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the business of
the Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under such Sale and Servicing Agreement or Pooling and Servicing Agreement.
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SERVICER DEFAULT
"SERVICER DEFAULT" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of (i) any failure by the Servicer to deliver
to the Applicable Trustee for deposit in any of the Trust Accounts or the
Certificate Distribution Account any required payment or to direct the
Applicable Trustee to make any required distributions therefrom, which failure
continues unremedied for three business days after written notice from the
Applicable Trustee is received by the Servicer or after discovery of such
failure by the Servicer; (ii) any failure by the Servicer duly to observe or
perform in any material respect any other covenant or agreement in such Sale and
Servicing Agreement or Pooling and Servicing Agreement, which failure materially
and adversely affects the rights of the Noteholders or the Certificateholders of
the related series and which continues unremedied for 60 days after the giving
of written notice of such failure (A) to the Servicer or the Depositor, as the
case may be, by the Applicable Trustee or (B) to the Servicer and to the
Applicable Trustee by holders of Notes or Certificates of such series, as
applicable, evidencing not less than 25% in principal amount of such outstanding
Notes or of such Certificate Balance; and (iii) the occurrence of an Insolvency
Event with respect to the Servicer. "INSOLVENCY EVENT" means, with respect to
any Person, any of the following events or actions: certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings with respect to such person and certain actions by such
person indicating its insolvency, reorganization pursuant to bankruptcy
proceedings or inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not less
than 25% of the principal amount of such Notes then outstanding may terminate
all the rights and obligations of the Servicer under such Sale and Servicing
Agreement, whereupon such Indenture Trustee or a successor servicer appointed by
such Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. In the case of any Trust that has
not issued Notes, as long as a Servicer 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 principal
amount of such Certificates then outstanding may terminate all the rights and
obligations of the Servicer under such Pooling and Servicing Agreement,
whereupon such Trustee or a successor servicer appointed by such Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Pooling and Servicing Agreement and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to prevent
such Indenture Trustee, such Noteholders, such Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $100,000,000 and whose regular business
includes the servicing of motor vehicle receivables. Such Indenture Trustee or
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation to the Servicer under such
Sale and Servicing Agreement or Pooling and Servicing Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, unless otherwise provided
in the related Prospectus Supplement, the holders of Notes evidencing at least a
majority in principal amount of the then outstanding Notes of the related series
(or the holders of the Certificates of such series evidencing not less than a
majority of the outstanding Certificate Balance, in the case of any Servicer
Default which does not adversely affect the related Indenture Trustee or such
Noteholders) may, on behalf of all such Noteholders
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and Certificateholders, waive any default by the Servicer in the performance of
its obligations under the related Sale and Servicing Agreement and its
consequences, except a Servicer Default in making any required deposits to or
payments from any of the Trust Accounts or to the Certificate Distribution
Account in accordance with such Sale and Servicing Agreement. With respect to
each Trust that has not issued Notes, holders of Certificates of such series
evidencing not less than a majority of the principal amount of such Certificates
then outstanding 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, except a Servicer Default in making any
required deposits to or payments from the Certificate Distribution Account or
the related Trust Accounts in accordance with such Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or Certificateholders'
rights with respect to subsequent defaults.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, each of the
Transfer and Servicing Agreements may be amended by the parties thereto, without
the consent of the related Noteholders or Certificateholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Transfer and Servicing Agreements or of modifying in any
manner the rights of such Noteholders or Certificateholders; provided that such
action will not, in the opinion of counsel satisfactory to the related Trustee
or Indenture Trustee, as applicable, materially and adversely affect the
interest of any such Noteholder or Certificateholder. Unless otherwise specified
in the related Prospectus Supplement, the Transfer and Servicing Agreements may
also be amended by the Depositor, the Servicer, the related Trustee and any
related Indenture Trustee with the consent of the holders of Notes evidencing at
least a majority in principal amount of then outstanding Notes, if any, of the
related series and the holders of the Certificates of such series evidencing at
least a majority of the principal amount of such Certificates then outstanding,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
PROVIDED, HOWEVER, that no such amendment may (i) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on the related Receivables or distributions that are required to be
made for the benefit of such Noteholders or Certificateholders or (ii) reduce
the aforesaid percentage of the Notes or Certificates of such series which are
required to consent to any such amendment, without the consent of the holders of
all the outstanding Notes or Certificates, as the case may be, of such series.
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Depositor) of such Trust and the delivery to such Trustee by each
such Certificateholder (including the Depositor) of a certificate certifying
that such Certificateholder reasonably believes that such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such series will succeed to all the rights of the Noteholders of such series,
under the related Sale and Servicing Agreement.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Depositor,
the related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables, (ii)
the payment to Noteholders, if any, and Certificateholders of the related series
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iii) the occurrence of either event described below.
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In order to avoid excessive administrative expense, the Servicer will be
permitted at its option to purchase from each Trust, as of the end of any
applicable Collection Period, if the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 10% (or such other percentage not lower
than 5% as is specified in the related Prospectus Supplement) or less of the
Initial Pool Balance (as defined in the related Prospectus Supplement, the
"INITIAL POOL BALANCE"), all remaining related Receivables at a price equal to
the aggregate of the Purchase Amounts thereof as of the end of such Collection
Period.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date or Payment Date as of which the Pool Balance is equal to or
less than the percentage of the Initial Pool Balance specified in the related
Prospectus Supplement, solicit bids for the purchase of the Receivables
remaining in such Trust, in the manner and subject to the terms and conditions
set forth in such Prospectus Supplement. If the Applicable Trustee receives
satisfactory bids as described in such Prospectus Supplement, then the
Receivables remaining in such Trust will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
If so specified in the related Prospectus Supplement, the person named as
such in the related Prospectus Supplement (the "ADMINISTRATOR"), will enter into
an agreement (as amended and supplemented from time to time, an "ADMINISTRATION
AGREEMENT") with each Trust that issues Notes and the related Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture. Unless otherwise
specified in the related Prospectus Supplement with respect to any such Trust,
as compensation for the performance of the Administrator's obligations under the
applicable Administration Agreement and as reimbursement for its expenses
related thereto, the Administrator will be entitled to a monthly administration
fee in such an amount as may be set forth in the related Prospectus Supplement
(the "ADMINISTRATION FEE").
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Receivables will be treated by each Trust as "chattel paper" as defined
in the UCC. Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to a security interest in chattel paper. In order to protect each
Trust's ownership or security interest in its Receivables, the Depositor will
file UCC-1 financing statements with the appropriate authorities in the States
of New York, Delaware and any other states deemed advisable by the Depositor to
give notice of such Trust's and any related Indenture Trustee's ownership of and
security interest in the Receivables and their proceeds. Under each Sale and
Servicing Agreement and Pooling and Servicing Agreement, the Servicer will be
obligated to maintain the perfection of each Trust's and any related Indenture
Trustee's interest in the Receivables. It should be noted, however, that a
purchaser of chattel paper who gives new value and takes possession of it in the
ordinary course of such purchaser's business has priority over a security
interest, including an ownership interest, in the chattel paper that is
perfected by filing UCC-1 financing statements, and not by possession of such
chattel paper by the original secured party, if such purchaser acts in good
faith without knowledge that the related chattel paper is subject to a security
interest, including an ownership interest. Any such purchaser would not be
deemed to have such knowledge because there are UCC filings and would not learn
of the sale of or security interest in the Receivables from a review of the
Receivables since they would not be marked to show such sale.
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SECURITY INTEREST IN VEHICLES
In states in which retail installment sale contracts and installment loans
such as the Motor Vehicle and Recreational Vehicle Receivables evidence the
credit sale of automobiles, light-duty trucks or recreational vehicles by
dealers to obligors, the contracts or loans also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the automobiles
and recreational vehicles is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In all states in
which the Receivables have been originated, except as noted below, a security
interest in Financed Vehicles is perfected by obtaining the certificate of title
to the Financed Vehicle or notation of the secured party's lien on the Financed
Vehicle's certificate of title. Notwithstanding the foregoing, in certain
states, folding camping trailers and/or slide-in campers, which may constitute
the Financed Vehicle with respect to certain Recreational Vehicle Receivables,
are not subject to state titling and vehicle registration laws and a security
interest in such recreation vehicles is perfected by filing pursuant to the
provisions of the UCC.
Unless otherwise specified in the related Prospectus Supplement, each Seller
will be obligated to have taken all actions necessary under the laws of the
state in which the Financed Vehicle is located to perfect its security interest
in the Financed Vehicle securing the related Receivable purchased by it from a
Dealer, including, where applicable, by having a notation of its lien recorded
on such vehicle's certificate of title or, if appropriate, by perfecting its
security interest in the related recreational vehicles under the UCC. Because
the Servicer will continue to service the contracts and loans, the Obligors on
the contracts and loans will not be notified of the sales from a Seller to the
Depositor or from the Depositor to the Trust, and no action will be taken to
record the transfer of the security interest from a Seller to the Depositor or
from the Depositor to the Trust by amendment of the certificates of title for
the Financed Vehicles or otherwise.
Pursuant to each Receivables Purchase Agreement, each Seller will assign to
the Depositor its interests in the Financed Vehicles securing the Motor Vehicle
and Recreational Vehicle Receivables assigned by that Seller to the Depositor
and, with respect to each Trust, pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, the Depositor will assign its
interests in the Financed Vehicles securing the related Receivables to such
Trust. However, because of the administrative burden and expense, none of the
Seller, the Depositor, the Servicer or the related Trustee will amend any
certificate of title to identify either the Depositor or such Trust as the new
secured party on such certificate of title relating to a Financed Vehicle nor
will any such entity execute and file any transfer instrument (including, among
other instruments, UCC-3 assignments for those Financed Recreational Vehicles
for which perfection is governed by the UCC).
In most states, an assignment such as that under each Receivables Purchase
Agreement, Sale and Servicing Agreement or Pooling and Servicing Agreement is an
effective conveyance of a security interest without amendment of any lien noted
on a vehicle's certificate of title or the execution or filing of any transfer
instrument, and the assignee succeeds thereby to the assignor's rights as
secured party. In some states, however, in the absence of such an amendment,
execution or filing, the assignment to the Applicable Trustee of a security
interest in Financed Vehicles registered therein may not be effective or such
security interest may not be perfected. If any otherwise effectively assigned
security interest in favor of the Applicable Trustee is not perfected, such
assignment of the security interest to such Trustee may not be effective against
creditors or a trustee in bankruptcy of the applicable Seller, which continues
to be specified as lienholder on any certificates of title or as secured party
on any UCC filing. However, UCC financing statements with respect to the
transfer of each Seller's security interest in related Financed Vehicles to the
Depositor and the transfer to the applicable Trust of the Seller's security
interest in such Financed Vehicles will be filed. In addition, the Servicer will
continue to hold any certificates of title relating to the Financed Vehicles in
its possession as custodian for such Trust pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement. SEE "Description of the
Transfer and Servicing Agreements--Sale and Assignment of Receivables".
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In addition, even in those states where an assignment such as that under
each Receivables Purchase Agreement, Sale and Servicing Agreement or Pooling and
Servicing Agreement is an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, by not
identifying a Trust as the secured party on the certificate of title, the
security interest of such Trust in the vehicle could be defeated through fraud
or negligence. In such states, in the absence of fraud or forgery by the vehicle
owner or the Seller or administrative error by state or local agencies, the
notation of the Seller's lien on the certificates of title will be sufficient to
protect a Trust against the rights of subsequent purchasers of a Financed
Vehicle or subsequent lenders who take a security interest in a Financed
Vehicle. If there are any Financed Vehicles as to which the Seller failed to
obtain a perfected security interest, the security interest of the related Trust
would be subordinate to, among others, the interests of subsequent purchasers of
the Financed Vehicles and holders of perfected security interests therein. Such
a failure, however, would constitute a breach of the warranties of the Depositor
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement and of the related Seller under the Receivables Purchase Agreement and
would create an obligation of the Depositor to repurchase the related Receivable
from the Trust and of the related Seller to simultaneously repurchase the
related Receivable from the Depositor unless the breach were cured. SEE
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables" and "Special Considerations--Certain Legal Aspects--Security
Interests in Financed Vehicles".
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after the vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the owner
thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the vehicle in the state of relocation. However, these procedural safeguards
will not protect the secured party if through fraud, forgery or administrative
error, the debtor somehow procures a new certificate of title that does not list
the secured party's lien. Additionally, in states that do not require a
certificate of title for registration of a motor vehicle or recreational
vehicle, re-registration could defeat perfection. In the ordinary course of
servicing motor vehicle or recreational vehicle 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 its lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related loan before release
of the lien. Under each Sale and Servicing Agreement and Pooling and Servicing
Agreement, the Servicer will be obligated to take appropriate steps, at the
Servicer's expense, to maintain perfection of security interests in the Financed
Vehicles and is obligated to purchase the related Receivable if it fails to do
so.
Under the laws of most states, liens for repairs performed on a motor
vehicle or recreational vehicle and liens for unpaid taxes take priority over
even a perfected security interest in a financed vehicle. The Code also grants
priority to certain federal tax liens over the lien of a secured party. The laws
of certain states and federal law permit the confiscation of vehicles by
governmental authorities under certain circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in the confiscated vehicle. Under each Receivables Purchase Agreement,
the Seller will represent to the related Trust that, as of the date the related
Receivable is sold to such Trust, each security interest in a Financed Vehicle
is or will be prior to all other present liens (other than tax liens and other
liens that arise by operation of law) upon and security interests in such
Financed Vehicle. However, liens for repairs or taxes could arise, or the
confiscation of a Financed Vehicle could occur, at any time during the term of a
Receivable. No notice will be given to the Trustee, any Indenture Trustee, any
Noteholders or the Certificateholders in respect of a given Trust if such a lien
arises or confiscation occurs and any such
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lien or confiscation arising after the applicable Closing Date would not give
rise to the related Seller's repurchase obligation under the applicable
Receivables Purchase Agreement.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the motor
vehicle or recreational vehicle installment sale contract or installment loan
has all the remedies of a secured party under the UCC, except where specifically
limited by other state laws. Among the UCC remedies, the secured party has the
right to perform self-help repossession unless such act would constitute a
breach of the peace. Self-help is the method employed by the Servicer in most
cases and is accomplished simply by retaking possession of the financed vehicle.
In the event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which he
may cure the default prior to repossession. Generally, the right of
reinstatement may be exercised on a limited number of occasions in any one-year
period. In cases where the obligor objects or raises a defense to repossession,
or if otherwise required by applicable state law, a court order must be obtained
from the appropriate state court, and the vehicle must then be repossessed in
accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding and preparing the collateral for disposition
and arranging for its sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance.
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. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. However, the deficiency judgment would be a
personal judgment against the obligor for the shortfall, and a defaulting
obligor can be expected to have very little capital or sources of income
available following repossession. Therefore, in many cases, it may not be useful
to seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the creditor 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 federal 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 Procedures Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Civil Relief Act of 1940, the Texas Consumer Credit Code,
state adoptions of the National Consumer Act and of the Uniform Consumer Credit
Code and state motor vehicle retail installment sales acts, retail installment
sales acts and other similar laws. Also, state laws impose finance charge
ceilings and other restrictions on consumer transactions and require contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their
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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 statutes or the common law, has the effect
of subjecting a seller in a consumer credit transaction (and certain related
creditors and their assignees) to all claims and defenses which the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC Rule.
Accordingly, each Trust, as holder of the related Receivables, will be subject
to any claims or defenses that the purchaser of the applicable Financed Vehicle
may assert against the seller of the Financed Vehicle. Such claims are limited
to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or defense would constitute a breach of the Seller's
warranties under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and would create an obligation of the Seller to repurchase
the Receivable unless the breach is cured. SEE "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties pursuing
repossession and litigation involving deficiency balances. These equitable
principles may have the effect of relieving an obligor from some or all of the
legal consequences of a default.
In several cases, 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 borrowers.
Under each Receivables Purchase Agreement, the related Seller will warrant
to the related Depositor (who will in turn assign its rights under such warranty
to the applicable Trust under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement) that each Receivable complies with all
requirements of law in all material respects. Accordingly, if an Obligor has a
claim against such Trust for violation of any law and such claim materially and
adversely affects such Trust's interest in a Receivable, such violation would
constitute a breach of the warranties of the Seller under such Receivables
Purchase Agreement and would create an obligation of the Seller to repurchase
the Receivable unless the breach is 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 secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a vehicle, and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of the vehicle
at the time of bankruptcy (as determined by the court), leaving the creditor 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with
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federal income tax consequences applicable to all categories of holders, some of
which may be subject to special rules. For example, it does not discuss the tax
treatment of Noteholders or Certificateholders that are insurance companies,
regulated investment companies or dealers in securities. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The opinion of special
Federal tax counsel to each Trust specified in the related Prospectus Supplement
("TAX COUNSEL"), regarding certain federal income tax matters is discussed
below. An opinion of Tax Counsel, however, is not binding on the IRS or the
courts. No ruling on any of the issues discussed below will be sought from the
IRS. For purposes of the following summary, references to the Trust, the Notes,
the Certificates and related terms, parties and documents shall be deemed to
refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust as a partnership
under the Code or whether the Trust will be treated as a grantor trust or
whether an election is made to treat the Trust as a FASIT under the Code. The
Prospectus Supplement for each series of Certificates will specify whether a
partnership election will be made or the Trust will be treated as a grantor
trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
With respect to a Trust for which a partnership election is made, it is the
opinion of Tax Counsel that such Trust will not be an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
This opinion will be based on the assumption that the terms of the Trust
Agreement and related documents will be complied with, and on Tax Counsel's
opinion that the nature of the income of the Trust will exempt it from the rule
that certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Depositor will agree, and the
Noteholders will agree by their purchase of Notes, to treat such Notes as debt
for federal income tax purposes. It is the opinion of Tax Counsel that such
Notes will be classified as debt for federal income tax purposes. The discussion
below assumes this characterization of the Notes is correct.
OID, ETC. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, and that the Notes are not Indexed Securities or
Strip Notes. Moreover, the discussion assumes that the interest formula for the
Notes meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID REGULATIONS") relating to original issue discount ("OID"),
and that any OID on the Notes (I.E., any excess of the principal amount of the
Notes over their issue price) does not exceed a DE MINIMIS amount (I.E., 1/4% of
their principal amount multiplied by the number of full years
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included in their term), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes,
additional tax considerations with respect to such Notes will be disclosed in
the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered to be
issued with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID Regulations, a holder of a
Note issued with a DE MINIMIS amount of OID must include such OID in income, on
a PRO RATA basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "SHORT-TERM NOTE") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
The Taxpayer Relief Act of 1997 revises the maximum rate of tax on net
capital gains for individuals on sales of certain assets (including stocks and
securities). The holding period for which an asset must be held for the gain
from its sale to be eligible for the lowest rate is increased from 12 months to
18 months, with a further rate reduction scheduled to take effect after the year
2000 for the sale of certain assets that have been held at least 5 years. The
Treasury Department is to issue regulations coordinating the capital gain
provisions with other rules involving the treatment of sales and exchange by
pass-through entities such as the Trust.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Depositor (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Depositor is a "related person" within the meaning of the Code and
(ii) provides the Owner Trustee or other person who is otherwise
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required to withhold U.S. tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a foreign person and
providing the foreign person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income tax at graduated rates (if received by a
non-U.S. person with effectively connected income) and withholding tax at a rate
of 30 percent, unless reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
NEW WITHHOLDING REGULATIONS. On October 6, 1997, the Treasury Department
issued new regulations (the "New Regulations") which make certain modifications
to the withholding, backup withholding and information reporting rules described
above. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective for
payments made after December 31, 1998, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust would likely be
treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income", income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Depositor and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Depositor in its capacity as recipient of distributions from the Reserve
Account), and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Depositor and the Servicer is not clear because there is no authority
on transactions closely comparable to that contemplated herein.
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A VARIETY OF ALTERNATIVE CHARACTERIZATIONS ARE POSSIBLE. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Depositor or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Receivables. The Trust's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of
Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders 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 Pass Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. 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. All remaining taxable income of the
Trust will be allocated to the Depositor. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
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.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
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DISCOUNT AND PREMIUM. Unless otherwise indicated in the Prospectus
Supplement, the applicable Seller will represent that the Receivables were not
issued with OID, and, therefore, the Trust would not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a Receivable-by-
Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
SECTION 708 TERMINATION. Pursuant to final Treasury regulations issued May
9, 1997 under Section 708 of the Code, a sale or exchange of 50% or more of the
capital and profits in the Trust would cause a deemed contribution of assets of
the Trust (the "old partnership") to a new partnership (the "new partnership")
in exchange for interests in the new partnership. Such interests would be deemed
distributed to the parties of the old partnership in liquidation thereof and not
constitute a sale or exchange.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect 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 Certificateholders. The Depositor is
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 Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
ADMINISTRATIVE MATTERS. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file 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 (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders 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 Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. 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 Certificateholders
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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 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 Certificateholder 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,
Certificateholders 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 Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
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TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
If a partnership election is not made, it is the opinion of Tax Counsel that
such a 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, 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".
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated as
the 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.
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.
Under Sections 162 or 212 of the Code, each Grantor Trust Certificateholder will
be entitled to deduct its PRO RATA share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment charges
retained by the Servicer, provided that such amounts are reasonable compensation
for services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. 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.
PREMIUM. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Receivable based on each
Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. 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 acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of such Receivable that is
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allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to such Receivable. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is not
clear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear, based on
guidance by the IRS, 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 recently issued
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. SEE "Original Issue Discount." Based on the preamble
to the Section 1286 Treasury Regulations, Tax Counsel is of the opinion that,
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 will 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.
ORIGINAL ISSUE DISCOUNT. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to "original issue discount" (currently Sections 1271 through 1273 and
1275) will be applicable to a Grantor Trust Certificateholder's interest in
those Receivables meeting the conditions necessary for these sections to apply.
Generally, a Grantor Trust Certificateholder that acquires an undivided interest
in a Receivable issued or acquired with OID must include in gross income the sum
of the "daily portions," of the OID on such Receivable for each day on which it
owns a Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a Receivable generally would be determined
as follows. A calculation will be made of the portion of OID that accrues on the
Receivable 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 Receivable under
the prepayment assumption used in respect of the Receivables and (ii) any
payments received during such accrual period, and subtracting from that total
the "adjusted issue price" of the Receivable at the beginning of such accrual
period. No representation is made that the Receivables will prepay at any
prepayment assumption. The "adjusted issue price" of a Receivable 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
Receivable 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. With respect to an initial accrual
period shorter than a full monthly accrual period, the daily portions of OID
must be determined according to an appropriate allocation under either an exact
or approximate method set forth in the OID Regulations, or some other reasonable
method, provided that such method is consistent with the method used to
determine the yield to maturity of the Receivables.
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
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respect of the Receivables. Subsequent purchasers that purchase Receivables 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 through 1278 to the extent an undivided interest in a Receivable
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 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 Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment or
a prepayment) or any gain on 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 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 for an amount that is
greater than its stated redemption price at maturity of such Receivable, such
Grantor Trust Certificateholder will be considered to have purchased the
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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, premium is allocated among the interest payments
on the Receivables 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.
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 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
Certificateholder 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" above. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
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 included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced 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, 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.
NON-U.S. PERSONS. Generally, to the extent that a Grantor Trust Certificate
evidences ownership in underlying Receivables that were issued on or before July
18, 1984, interest or OID paid by the person required to withhold tax under
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty. Accrued OID recognized by the owner on the sale or
exchange of such a Grantor Trust Certificate also will be subject to federal
income tax at the same rate. Generally, such payments would not be subject to
withholding to the extent that a Grantor Trust Certificate evidences ownership
in Receivables issued after July 18, 1984, by natural persons if such Grantor
Trust Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to
Receivables where the obligor is not a natural person in order to qualify for
the exemption from withholding.
As used herein, a "U.S. PERSON" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof (other
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than a partnership that is not treated as a United States person under any
applicable Treasury regulations) or an estate, the income of which from sources
outside the United States is includible in gross income for federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States or a trust if a court within the United States is able
to exercise primary supervision of the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons also will be a U.S. Person.
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, 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.
TRUSTS FOR WHICH A FASIT ELECTION IS MADE
GENERAL. It is the opinion of Tax Counsel that the Trust will, on the
startup day, qualify as a FASIT and its proposed method of operation will enable
it to continue to meet the requirements for qualification and taxation as a
FASIT under the Code assuming a timely FASIT election is made. Based on the
foregoing and assuming compliance with the Transaction Documents, certain of the
Securities will qualify as regular interests in a FASIT ("Regular Securities")
which will generally be treated as debt for U.S. federal income tax purposes.
The Small Business Job Protection Act of 1996 added Sections 860H through 860L
of the Code (the "FASIT Provisions"), which provide for a new type of entity for
federal income tax purposes known as a "financial asset securitization
investment trust" (a "FASIT"). Although the FASIT provisions of the Code became
effective on September 1, 1997, no Treasury regulations or other administrative
guidance has been issued with respect to those provisions. Accordingly,
definitive guidance cannot be provided with respect to many aspects of the tax
treatment of the holders of Regular Securities and the ownership interest (the
"Ownership Securities," with the Regular Securities, the "Securities") in a
FASIT (the "FASIT Securityholders"). Investors also should note that the FASIT
discussion contained herein constitutes only the material federal income tax
consequences to holders of FASIT Securities. The Receivables will only be added
to or deleted from a Trust Fund for which a FASIT election has been made only in
a manner consistent with additions or deletions that would be permitted in the
case of a REMIC.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for federal income tax purposes, or
FASIT Ownership Securities, which generally are not treated as debt for such
purposes, but rather as representing rights and responsibilities with respect to
the taxable income or loss of the related Series FASIT. The Prospectus
Supplement for each Series of Securities will indicate whether one or more FASIT
elections will be made for that Series and which Securities of such Series will
be designated as Regular Securities, and which, if any, will be designated as
Ownership Securities.
QUALIFICATION AS A FASIT. The Trust Fund underlying a Series (or one or
more designated pools of assets held in the Trust Fund) will qualify under the
Code as a FASIT in which the FASIT Regular Securities and the FASIT Ownership
Securities will constitute the "regular interest" and the "ownership interests,"
respectively, if (i) a FASIT election is in effect, (ii) certain tests
concerning (A) the composition
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of the FASIT's assets and (B) the nature of the Securityholders' interests in
the FASIT are met on a continuing basis, and (iii) the Trust Fund is not a
regulated investment company as defined in Section 851(a) of the Code.
ASSET COMPOSITION. In order for a Trust Fund (or one or more designated
pools of assets held by a Trust Fund) to be eligible for FASIT status,
substantially all of the assets of the Trust Fund (or the designated pool) must
consist of "permitted assets" as of the close of the third month beginning after
the closing date and at all times thereafter (the "FASIT QUALIFICATION TEST").
Permitted assets include (i) cash or cash equivalents, (ii) debt instruments
with fixed terms that would qualify as REMIC regular interests if issued by a
REMIC (generally, instruments that provide for interest at a fixed rate, a
qualifying variable rate, or a qualifying interest-only ("IO") type rate, (iii)
foreclosure property, (iv) certain hedging instruments (generally, interest and
currency rate swaps and credit enhancement contracts) that are reasonably
required to guarantee or hedge against the FASIT's risks associated with being
the obligor on FASIT interest, (v) contract rights to acquire qualifying debt
instruments or qualifying hedging instruments, (vi) FASIT regular interests, and
(vii) REMIC regular interests. Permitted assets do not include any debt
instruments issued by the holder of the FASIT's ownership interest or by any
person related to such holder.
INTERESTS IN A FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interests or (ii) a single class of ownership interest
that is held by a fully taxable domestic C corporation. In the case of Series
that include FASIT Ownership Securities, the ownership interest will be
represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount, (iv)
the issue price of the interest does not exceed 125% of its stated principal
amount, (v) the yield to maturity of the interest is less than the applicable
Treasury rate published by the Service plus 5%, and (vi) it if pays interest,
such interest is payable at either (a) a fixed rate with respect to the
principal amount of the regular interest or (b) a permissible variable rate with
respect to such principal amount. Permissible variable rates for FASIT regular
interests are the same as those for REMIC regular interests (i.e., certain
qualified floating rates and weighted average rates). Interest will be
considered to be based on a permissible variable rate if generally, (i) such
interest is unconditionally payable at least annually, (ii) the issue price of
the debt instrument does not exceed the total noncontingent principal payments
and (iii) interest is based on a "qualified floating rate," an "objective rate,"
a combination of a single fixed rate and one or more "qualified floating rate,"
one "qualified inverse floating rate," or a combination of "qualified floating
rates" that do not operate in a manner that significantly accelerates or defers
interest payments on such FASIT regular interest.
If a FASIT Security fails to meet one or more of the requirements set out in
clauses (iii), (iv), or (v), but otherwise meets the above requirements, it may
still qualify as a type of regular interest known as a "High-Yield Interest". In
addition, if a FASIT Security fails to meet the requirement of clause (vi), but
the interest payable on the Security consists of a specified portion of the
interest payments on permitted assets and that portion does not vary over the
life of the Security, the Security also will qualify as a High-Yield Interest. A
High-Yield Interest may be held only by domestic C corporations that are fully
subject to corporate income tax ("ELIGIBLE CORPORATIONS"), other FASITs, and
dealers in securities who acquire such interests as inventory, rather than for
investment. In addition, holders of High-Yield Interests are subject to
limitations on offset of income derived from such interest. See "Federal Income
Tax Consequences-- FASIT Securities--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
CONSEQUENCES OF DISQUALIFICATION. If a Series FASIT fails to comply with
one or more of the Code's ongoing requirements for FASIT status during any
taxable year, the Code provides that its FASIT status may be lost for that year
and thereafter. If FASIT status is lost, the treatment of the former FASIT and
the
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interests therein for federal income tax purposes is uncertain. The former FASIT
might be treated as a grantor trust, as a separate association taxable as a
corporation, or as a partnership. The FASIT Regular Securities could be treated
as debt instruments for federal income tax purposes or as equity interests.
Although the Code authorizes the Treasury to issue regulations that address
situations where a failure to meet the requirements for FASIT status occurs
inadvertently and in good faith, such regulations have not yet been issued. It
is possible that disqualification relief might be accompanied by sanctions, such
as the imposition of a corporate tax on all or a portion of the FASIT's income
for the period of time in which the requirements for FASIT status are not
satisfied.
TAX TREATMENT OF FASIT REGULAR SECURITIES
GENERAL. Payments received by holders of FASIT Regular Securities other
than High-Yield Interests will be accorded the same tax treatment under the Code
as payments received on other taxable debt instruments. Holders of FASIT Regular
Securities must report income from such Securities under an accrual method of
accounting, even if they otherwise would have used the cash receipts and
disbursements method and accordingly, may report income prior to the receipt of
any cash distribution corresponding to such income. Except in the case of FASIT
Regular Securities issued with original issue discount or acquired with market
discount or premium, interest paid or accrued on a FASIT Regular Security
generally will be treated as ordinary income to the Securityholder and a
principal payment on such Security will be treated as a return of capital to the
extent that the Securityholder's basis is allocable to that payment. FASIT
Regular Securities issued with original issue discount or acquired with market
discount or premium generally will treat interest and principal payments on such
Securities in the same manner as other debt instruments. High-Yield Securities
may be held only by fully taxable domestic C corporations, other FASITs, and
certain securities dealers. Holders of High-Yield Securities are subject to
limitations on their ability to use current losses or net operating loss
carryforwards or carrybacks to offset any income derived from those Securities.
TREATMENT OF REALIZED LOSSES. Although not entirely clear, it appears that
holders of FASIT Regular Securities that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such FASIT Regular Security becoming wholly or partially
worthless, and that, in general, holders of FASIT Regular Securities that are
not corporations should be allowed to deduct as a short-term capital loss any
loss sustained during the taxable year on account of any such FASIT Regular
Securities becoming wholly worthless. Although the matter is unclear,
non-corporate holders of FASIT Regular Securities may be allowed a bad debt
deduction at such time that the principal balance of any such FASIT Regular
Security is reduced to reflect realized losses resulting from any liquidated
Underlying Assets. The Internal Revenue Service, however, could take the
position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Underlying Assets remaining in the
related FASIT have been liquidated or the FASIT Regular Securities of the
related Series have been otherwise retired. Potential investors and Holders of
the FASIT Regular Securities are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such FASIT Regular Securities, including any loss resulting from
the failure to recover previously accrued interest or discount income. 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 FASIT Regular Securities.
In addition, FASIT Regular Securities held by a financial institution to
which Section 585 of the Code applies will be treated as evidences of
indebtedness for purposes of Section 582(c)(1) of the Code. FASIT Securities
will not qualify as "Government securities" for either REIT or RIC qualification
purposes.
TREATMENT OF HIGH-YIELD INTEREST. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security with
losses. High-Yield Interests may be held only by Eligible Corporations, other
FASITs, and dealers in securities who acquire such interests as inventory. If a
securities dealer (other than an
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Eligible Corporation) initially acquires a High-Yield Interest as inventory, but
later begins to hold it for investment, the dealer will be subject to an excise
tax equal to the income from the High-Yield Interest multiplied by the highest
corporate income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transfer still will be treated as the holder of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the High-Yield Interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived from a FASIT
Regular Security that is held by a pass-through entity (other than another
FASIT) that issues debt or equity securities backed by the FASIT Regular
Security and that have the same features as High-Yield Interests.
TAX TREATMENT OF FASIT OWNERSHIP SECURITIES
GENERAL. A FASIT Ownership Security represents the residual equity interest
in a FASIT. As such, the holder of a FASIT Ownership Security determines its
taxable income by taking into account all assets, liabilities, and items of
income, gain, deduction, loss, and credit of a FASIT. In general, the character
of the income to the holder of a FASIT Ownership Interest will be the same as
the character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT Ownership Interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
Ownership Security must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the FASIT's
assets and the FASIT Regular Securities issued by the FASIT according to a
constant yield methodology and under an accrual method of accounting. In
addition, holders of FASIT Ownership Securities are subject to the same
limitations on their ability to use losses to offset income from their FASIT
Security as are the holders of High-Yield Interests. See "Federal Income Tax
Consequences--FASIT Securities--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual Securities
also will apply to FASIT Ownership Securities. Accordingly, losses on
dispositions of a FASIT Ownership Security generally will be disallowed where,
within six months before or after the disposition, the seller of such Security
acquires any other FASIT Ownership Security or, in the case of a FASIT holding
mortgage assets, any interest in a Taxable Mortgage Pool, that is economically
comparable to a FASIT Ownership Security. In addition, if any security that is
sold or contributed to a FASIT by the holder of the related FASIT Ownership
Security was required to be marked-to-market under Code section 475 by such
holder, then section 475 will continue to apply to such securities, except that
the amount realized under the mark-to-market rules will be the greater of the
securities' value under present law or the securities' value after applying
special valuation rules contained in the FASIT provisions. Those special
valuation rules generally require that the value of debt instruments that are
not traded on an established securities market be determined by calculating the
present value of the reasonably expected payments under the instrument using a
discount rate of 120% of the applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transactions."
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any Series for which a FASIT election is made generally will
be structured in order to avoid application of the prohibited transaction tax.
BACKUP WITHHOLDING, REPORTING AND TAX ADMINISTRATION. Holders of FASIT
Securities will be subject to backup withholding to the same extent holders of
other debt instruments would be subject. For purposes
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of reporting and tax administration, holders of record of FASIT Securities
generally will be treated in the same manner as holders of other debt
instruments.
* * *
THE FEDERAL TAX CONSEQUENCES SET FORTH ABOVE MAY NOT BE APPLICABLE TO A
PARTICULAR NOTEHOLDER OR CERTIFICATEHOLDER DEPENDING UPON SUCH NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF FUTURE CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each a "BENEFIT PLAN"), from engaging
in certain transactions with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes or Certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "PLAN ASSETS REGULATION"), the assets of a Trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the Trust and
none of the exceptions contained in the Plan Assets Regulation was applicable.
An equity interest is defined under the Plan Assets Regulation as an interest
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. The likely treatment in this
context of Notes and Certificates of a given series will be discussed in the
related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities of a given series
should consult its tax and/or 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.
SENIOR CERTIFICATES ISSUED BY TRUSTS THAT DO NOT ISSUE NOTES
Unless otherwise specified in the related Prospectus Supplement, the
following discussion applies only to nonsubordinated Certificates (referred to
herein as "SENIOR CERTIFICATES") issued by a Trust that does not issue Notes.
The U.S. Department of Labor has granted to the lead Underwriter named in
the 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 Benefit 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 the Exemption. The receivables covered by the Exemption include
motor vehicle installment sales contracts such as the Receivables. The Exemption
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will apply to the acquisition, holding and resale of the Senior Certificates by
a Benefit Plan, provided that certain conditions (certain of which are described
below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Benefit Plan is on
terms (including the price for the Senior Certificates) that are at least as
favorable to the Benefit Plan as they would be in an arm's length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Benefit Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from Standard & Poor's Ratings Service, Moody's
Investor Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.;
(4) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) 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 Seller pursuant to the sale of the
Contracts to the 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 Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith; and
(6) The Benefit Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501 (a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
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 fifty (50) percent of the Senior
Certificates and of the aggregate interests in the Trust are acquired by persons
independent of the Restricted Group, (ii) the Benefit Plan's investment in
Senior Certificates does not exceed twenty-five (25) percent of all of the
Senior Certificates outstanding at the time of the acquisition, and (iii)
immediately after the acquisition, no more than twenty-five (25) percent of the
assets of Benefit Plans for which the fiduciary renders investment advice or has
discretionary authority 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 Benefit Plans sponsored by the Depositor, the
related Seller, any Underwriter, the Trustee, the Servicer, any obligor with
respect to Contracts included in the Trust constituting more than five percent
of the aggregate unamortized principal balance of the assets in the Trust, or
any affiliate of such parties (the "RESTRICTED GROUP").
The Prospectus Supplement for each series will indicate the classes of
Securities offerred thereby to which the Exemptions will apply.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Securities of 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 Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
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In each Underwriting Agreement with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Notes and Certificates, as the case may be, being offered thereby will
be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates or (ii)
specify that the related Notes and Certificates, as the case may be, are to be
resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, such public offering prices and such concessions
may be changed.
This Prospectus may be used, to the extent required, by the Underwriter in
connection with offers and sales related to market making transactions.
Each Underwriting Agreement will provide that the Depositor will indemnify
the underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts in
Eligible Investments acquired from such underwriters or from the Depositor.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust and the Depositor by Brown & Wood LLP, New
York, New York, and for the Underwriter for such series by Brown & Wood LLP.
Material federal income tax will be passed upon for each Trust by Brown & Wood
LLP.
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INDEX OF TERMS
<TABLE>
<S> <C>
Actuarial Receivables............................................................ 19
Administration Agreement......................................................... 48
Administration Fee............................................................... 48
Administrator.................................................................... 48
Advance.......................................................................... 8,42
Applicable Trustee............................................................... 33
APR.............................................................................. 8
Base Rate........................................................................ 28
Benefit Plan..................................................................... 68
Calculation Agent................................................................ 29
Calculation Date................................................................. 29,30,31
CD Rate.......................................................................... 29
CD Rate Determination Date....................................................... 29
CD Rate Security................................................................. 28
Cede............................................................................. 16
Cedel............................................................................ 34
Cedel Participant................................................................ 34
Certificate Balance.............................................................. 5
Certificate Distribution Account................................................. 40
Certificate Pool Factor.......................................................... 21
Certificates..................................................................... 1
chattel paper.................................................................... 48
Closing Date..................................................................... 38
Code............................................................................. 53
Collection Account............................................................... 39
Collection Period................................................................ 41
Commercial Paper Rate............................................................ 30
Commercial Paper Rate Determination Date......................................... 30
Commercial Paper Rate Security................................................... 28
Commission....................................................................... 2
Company.......................................................................... 1,2,3,22
Composite Quotations............................................................. 28
Cooperative...................................................................... 34
Cut-off Date..................................................................... 16
Dealer Agreements................................................................ 16
Dealers.......................................................................... 7,16
Definitive Certificates.......................................................... 36
Definitive Notes................................................................. 36
Definitive Securities............................................................ 36
Depositor........................................................................ 1
Depository....................................................................... 22
Depositaries..................................................................... 33
Distribution Date................................................................ 27
DTC.............................................................................. 16
DTC's Nominee.................................................................... 16
Eligible Corporations............................................................ 65
Eligible Deposit Account......................................................... 40
Eligible Institution............................................................. 40
</TABLE>
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<TABLE>
<S> <C>
Eligible Investments............................................................. 40
ERISA............................................................................ 11
Euroclear........................................................................ 35
Euroclear Operator............................................................... 35
Euroclear Participants........................................................... 34
Events of Default................................................................ 24
Exchange Act..................................................................... 2
Exemption........................................................................ 68
FASIT............................................................................ 64
FASIT Provisions................................................................. 64
FASIT Qualification Test......................................................... 65
FASIT Securityholders............................................................ 64
Federal Funds Rate............................................................... 30
Federal Funds Rate Determination Date............................................ 30
Federal Funds Rate Security...................................................... 28
Final Scheduled Maturity Date.................................................... 8
Financed Motor Vehicles.......................................................... 5,16
Financed Recreational Vehicles................................................... 6,16
Financed Vehicles................................................................ 6
Fixed Rate Securities............................................................ 28
Floating Rate Securities......................................................... 28
foreign person................................................................... 54
FTC Rule......................................................................... 52
Funding Period................................................................... 4
Grantor Trust Certificateholders................................................. 60
Grantor Trust Certificates....................................................... 60
H.15(519)........................................................................ 28
High-Yield Interest.............................................................. 65
Indenture........................................................................ 3
Indenture Trustee................................................................ 1
Index Maturity................................................................... 28
Indirect Participants............................................................ 33
Initial Cut-off Date............................................................. 6
Initial Pool Balance............................................................. 48
Initial Receivables.............................................................. 6
Insolvency Event................................................................. 46
Interest Rate.................................................................... 4
Interest Reset Date.............................................................. 28
Interest Reset Period............................................................ 28
Investment Earnings.............................................................. 40
IO............................................................................... 65
IRS.............................................................................. 53
Issuer........................................................................... 3
LIBOR............................................................................ 31
LIBOR Determination Date......................................................... 31
LIBOR Reuters.................................................................... 31
LIBOR Security................................................................... 28
LIBOR Telerate................................................................... 31
London Banking Day............................................................... 31
Money Market Yield............................................................... 30
Motor Vehicle Receivables........................................................ 16
</TABLE>
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<TABLE>
<S> <C>
new partnership.................................................................. 57
New Regulations.................................................................. 55
Nonbank Seller................................................................... 13
Note Distribution Account........................................................ 40
Note Pool Factor................................................................. 21
Notes............................................................................ 1
Obligors......................................................................... 16
OID.............................................................................. 53
old partnership.................................................................. 57
OID Regulations.................................................................. 53
Ownership Securities............................................................. 64
Participants..................................................................... 33
Pass Through Rate................................................................ 5
Payahead Account................................................................. 40
Payaheads........................................................................ 41
Payment Date..................................................................... 23
Plan Assets Regulation........................................................... 68
Pool Balance..................................................................... 21
Pooling and Servicing Agreement.................................................. 3
Pre-Funded Amount................................................................ 7
Pre-Funding Account.............................................................. 1,4
Precomputed Advance.............................................................. 7
Precomputed Receivables.......................................................... 19
prepayments...................................................................... 14
Prospectus Supplement............................................................ 1
Purchase Amount.................................................................. 39
Rating Agency.................................................................... 14
Receivables...................................................................... 1,5
Receivables Pool................................................................. 16
Receivables Purchase Agreement................................................... 38
Recreational Vehicle Receivables................................................. 16
Registration Statement........................................................... 2
Regular Securities............................................................... 64
Related Documents................................................................ 26
Reserve Account.................................................................. 44
Restricted Group................................................................. 69
Reuters Screen LIBO Page......................................................... 31
Rule of 78's Receivables......................................................... 19
Rules............................................................................ 34
Sale and Servicing Agreement..................................................... 5
Schedule of Receivables.......................................................... 38
Section 1286 Treasury Regulations................................................ 61
Securities....................................................................... 1,64
Securities Act................................................................... 2
Seller(s)........................................................................ 18
Seller Affiliate................................................................. 3
Senior Certificates.............................................................. 68
Servicer......................................................................... 1,3
Servicer Default................................................................. 46
Servicing Fee.................................................................... 42
Servicing Fee Rate............................................................... 42
</TABLE>
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<TABLE>
<S> <C>
Short-Term Note.................................................................. 54
Simple Interest Advance.......................................................... 7
Simple Interest Receivables...................................................... 18
Spread........................................................................... 28
Spread Multiplier................................................................ 28
Strip Certificates............................................................... 5
Strip Notes...................................................................... 4
Subsequent Receivables........................................................... 1,7
Subsequent Transfer Date......................................................... 38
Tax Counsel...................................................................... 53
Telerate Page 3750............................................................... 31
Terms and Conditions............................................................. 35
Transfer and Servicing Agreement................................................. 38
Transferor....................................................................... 1,3
Treasury bills................................................................... 32
Treasury Rate.................................................................... 32
Treasury Rate Determination Date................................................. 32
Treasury Rate Security........................................................... 28
Trust............................................................................ 1,3
Trust Accounts................................................................... 40
Trust Agreement.................................................................. 3
Trustee.......................................................................... 1,3
UCC.............................................................................. 8,39
Underwriting Agreement........................................................... 69
U.S. Person...................................................................... 63
</TABLE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HMFC,
THE DEPOSITOR OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
NOTES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR PROSPECTUS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Noteholders......................... S-3
Incorporation of Certain Documents By
Reference.................................... S-3
Summary........................................ S-4
Risk Factors................................... S-19
Hyundai Motor Finance Company.................. S-22
HMFC's Automobile Financing Program............ S-22
The Trust...................................... S-25
The Receivables Pool........................... S-26
MBIA Insurance Corporation..................... S-31
The Depositor.................................. S-33
Use of Proceeds................................ S-33
Weighted Average Life of the Notes............. S-33
Description of the Notes....................... S-37
Description of the Transfer and Servicing
Agreements................................... S-48
The Policy..................................... S-57
Description of the Certificates................ S-60
Material Federal Income Tax Consequences....... S-60
ERISA Considerations........................... S-60
Underwriting................................... S-61
Legal Matters.................................. S-62
Experts........................................ S-62
Index of Defined Terms......................... S-63
Annex I........................................ A-1
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Summary of Terms............................... 3
Risk Factors................................... 11
The Trusts..................................... 16
The Receivables Pools.......................... 18
Weighted Average Life of the Securities........ 20
Pool Factors and Trading Information........... 21
Use of Proceeds................................ 21
The Company.................................... 22
Description of the Notes....................... 22
Description of the Certificates................ 27
Certain Information Regarding the Securities... 28
Description of the Transfer and Servicing
Agreements................................... 38
Certain Legal Aspects of the Receivables....... 48
Material Federal Income Tax Consequences....... 52
Trusts for Which a Partnership Election is
Made......................................... 53
Trusts Treated as Grantor Trusts............... 60
Trusts for Which a FASIT Election is Made...... 64
ERISA Considerations........................... 68
Plan of Distribution........................... 69
Legal Matters.................................. 70
Index of Terms................................. 71
</TABLE>
------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT,
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.
Hyundai
Auto Receivables Trust 1998-A
$220,000,000 5.90%
Asset Backed Notes, Class A-1
$80,150,000 6.05%
Asset Backed Notes, Class A-2
SSB VEHICLE SECURITIES INC.
DEPOSITOR
HYUNDAI MOTOR FINANCE COMPANY
SELLER AND SERVICER
--------
PROSPECTUS SUPPLEMENT
--------
Salomon Smith Barney
ABN AMRO Incorporated
BancAmerica Robertson Stephens
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