<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
HONDA AUTO LEASE TRUST 1999-A
(Issuer with respect to the Notes)
HONDA TITLING C L.P.
(Originator of the Trust described herein and Transferor of the 99.8% SUBI
Certificate to the Trust)
HONDA LEASE TRUST
(Issuer with respect to the SUBI and the 99.8% SUBI Certificate)
HONDA TITLING A L.P. AND HONDA TITLING B L.P.
(Originators of Honda Lease Trust and transferors of the SUBI to Honda
Titling C.L.P.)
(Exact name as specified in Originator's charter)
DELAWARE 6146 ________________
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4376
(Address, including zip code, and telephone number,
including area code, of Originator's principal
executive offices)
Y. KOHAMA
700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4376
(Name, address, including zip code, and telephone number,
including area code, of agent for service with respect
to the Registrant)
----------------------
COPIES TO:
Warren R. Loui Reed D. Auerbach
O'Melveny & Myers LLP Stroock & Stroock & Lavan LLP
400 South Hope Street 180 Maiden Lane
Los Angeles, CA 90071 New York, New York 10038
----------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Proposed Title of Each Class of Amount to Offering Aggregate Amount of
Securities to be Registered Be Registered Price Per Unit(1) Offering Price(1) Registration Fee(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auto Lease Asset Backed Notes, Class A-1........... $200,000 100% $200,000 $55.60
- ----------------------------------------------------------------------------------------------------------------------------------
Auto Lease Asset Backed Notes, Class A-2........... $200,000 100% $200,000 $55.60
- ----------------------------------------------------------------------------------------------------------------------------------
Auto Lease Asset Backed Notes, Class A-3........... $200,000 100% $200,000 $55.60
- ----------------------------------------------------------------------------------------------------------------------------------
Auto Lease Asset Backed Notes, Class A-4........... $200,000 100% $200,000 $55.60
- ----------------------------------------------------------------------------------------------------------------------------------
Auto Lease Asset Backed Notes, Class B............. $200,000 100% $200,000 $55.60
- ----------------------------------------------------------------------------------------------------------------------------------
99.8% 1999-A Special Unit of Beneficial Interest
Certificate(2)..................................... (3) (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Total.............................................. $1,000,000 100% $1,000,000 $278
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The 1999-A Special Unit of Beneficial Interest ("SUBI") issued by Honda
Lease Trust will constitute a beneficial interest in specified assets
of the assets of Honda Lease Trust, including certain lease contracts
and the automobiles relating to such lease contracts. The SUBI is not
being offered to investors hereunder but will be transferred first by
Honda Titling A L.P. and Honda Titling B L.P. to Honda Titling C L.P. A
99.8% 1999-A Special Unit of Beneficial Interest Certificate (the "SUBI
Certificate") issued by Honda Lease Trust and representing a 99.8%
undivided interest in the SUBI will then be transferred to the Owner
Trustee for the Honda Auto Lease Trust 1999-A issuing the Automobile
Lease Asset Backed Notes, Class A-1, Class A-2, Class A-3, Class A-4
and Class B. The SUBI Certificate is not being offered to investors
hereunder.
(3) Not applicable.
----------------------
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
Subject to Completion, Preliminary Prospectus dated ________ __, 1999
$----------
HONDA AUTO LEASE TRUST 1999-A
AUTO LEASE ASSET BACKED NOTES
HONDA TITLING C L.P.
TRANSFEROR
AMERICAN HONDA FINANCE CORPORATION
SERVICER
The notes will be issued by a trust. The sources for payment of the notes
are a pool of motor vehicle lease contracts and the related Honda and Acura
leased vehicles, payments due thereon and cash held beneficially by the
trust. Interest and principal on the notes are scheduled to be paid
monthly on the 15th day of the month. The first scheduled
distribution date is May 17, 1999.
THE TRUST WILL ISSUE THE FOLLOWING CLASSES OF NOTES FOR SALE:
<TABLE>
<CAPTION>
Underwriting
Original Interest Discounts Proceeds to
Principal Rate Final Scheduled Price to and Honda Titling
Amount (per annum) Distribution Date Public(1) Commissions(2) C L.P.(1)
------ ----------- ----------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Class A-1 Note.. $____________ _____% ___________ _____ __________% _____% __________%
Per Class A-2 Note.. $____________ _____% ___________ _____ __________% _____% __________%
Per Class A-3 Note.. $____________ _____% ___________ _____ __________% _____% __________%
Per Class A-4 Note.. $_____________ _____% ___________ _____ __________% _____% __________%
Per Class B Note.... $_____________ _____% ___________ _____ __________% _____% __________%
</TABLE>
(1) Plus accrued interest, if any, from the date of initial
issuance. Total price to public (excluding such interest) :
$__________.
(2) Total underwriting discount : $_____________.
Credit Suisse First Boston Corporation will purchase the notes from the
trust and will offer the notes to you at the prices set forth above.
The aggregate proceeds to the trust, before deducting expenses
payable by or on behalf of the trust estimated at $_______,
will be $___________.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
TO WHICH IT RELATES IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Before you purchase any notes, consider carefully the risk factors beginning
on page __ of this Prospectus. The notes are asset backed securities issued
by a trust. The notes are not interests in or obligations of Honda Titling C
L.P., American Honda Finance Corporation or any of their affiliates.
Delivery of the notes, in book-entry form only, will be made through The
Depository Trust Company, Cedelbank, SOCIETE ANONYME and the Euroclear System
on or about _________ __, 1999, against payment in immediately available
funds. The notes will not be listed on any exchange.
CREDIT SUISSE FIRST BOSTON
Prospectus dated ________ __, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
CONTENT OF PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. You
should not assume that the information in this prospectus is accurate as of
any date other than the date at the bottom of the front page.
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The following Table
of Contents provides the pages on which these captions are located. You can
find a listing of the pages where capitalized terms used in this prospectus
are defined under the caption "Index of Terms" beginning on page ___ of this
prospectus.
LIMITATIONS ON OFFERS OR SOLICITATIONS
We do not intend this document to be an offer or solicitation:
(1) if used in a jurisdiction in which such offer or solicitation
is not authorized;
(2) if the person making such offer or solicitation is not
qualified to do so; or
(3) if such offer or solicitation is made to anyone to whom it is
unlawful to make such offer or solicitation.
TRANSACTIONS THAT MAY AFFECT THE PRICE OF THE NOTES
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of any
class of notes. Such transactions may include stabilizing. For a description
of these activities, see "Underwriting."
DEALER PROSPECTUS DELIVERY REQUIREMENTS
Until _______ __, 1999 all dealers that effect transactions in the
notes, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealer's
obligation to deliver a prospectus when acting as underwriters with respect
to their unsold allotments or subscriptions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DIAGRAM OF TRANSACTION .................................................... 5
SUMMARY ................................................................... 6
RISK FACTORS .............................................................. 10
You May Have Difficulty Selling Your Notes ........................... 10
You May Experience Losses on Your Investment
Resulting From Contract Defaults or Residual Value Losses ....... 10
The Return on Your Investment Will
Change Over Time ................................................ 11
Risks to Class B Noteholders resulting from
Subordination of the Class B Notes .............................. 12
Risks Associated with Sequential Payment
of Principal on the Notes ....................................... 12
Geographic Concentration Increases Risk
of Loss on Your Investment ...................................... 12
Vehicle Concentration Type Increases Risk ............................ 13
Possible Effects of Consumer Protection Laws ......................... 13
Possible Liens Due to ERISA Liabilities .............................. 13
Possible Liability as a Result of Lessees'
Operation of Leased Vehicles .................................... 14
Possible Effects of an American Honda Finance
Corporation or Honda Titling C L.P. Bankruptcy .................. 14
Risks Associated with Event of Default ............................... 15
Computer Problems in the Year 2000 May
Result in Losses ................................................ 15
The Notes Are Not Suitable Investments for
All Investors ................................................... 16
Withdrawal or Downgrading of Initial Ratings Will
Affect the Prices for Notes Upon Resale ......................... 16
OVERVIEW OF TRANSACTION ................................................... 17
THE TRUST AND THE SUBI .................................................... 18
General .............................................................. 18
The Trust ............................................................ 18
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
The SUBI ............................................................. 19
THE ORIGINATION TRUST ..................................................... 20
General .............................................................. 20
Allocation of Origination Trust Liabilities .......................... 20
HTA LP and HTB LP. ................................................... 21
The Origination Trustee .............................................. 21
Property of the Origination Trust .................................... 22
Contract Origination; Titling of Leased Vehicles ..................... 22
USE OF PROCEEDS ........................................................... 23
THE TRANSFEROR ............................................................ 23
AMERICAN HONDA FINANCE CORPORATION ........................................ 23
General .............................................................. 23
Lease Contract Underwriting Procedures ............................... 24
Determination of Residual Values ..................................... 25
Remarketing Program .................................................. 25
Insurance ............................................................ 26
Collection and Repossession Procedures ............................... 26
Extension Policy ..................................................... 27
Methods of Vehicle Disposal .......................................... 27
Year 2000 ............................................................ 28
Delinquency, Repossession and Loss Data .............................. 29
THE CONTRACTS ............................................................. 33
General .............................................................. 33
Characteristics of the Contracts ..................................... 35
General .............................................................. 35
Representations, Warranties and Covenants ............................ 37
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS ............................. 38
NOTE FACTORS AND TRADING INFORMATION REPORTS TO NOTEHOLDERS ............... 44
DESCRIPTION OF THE NOTES .................................................. 45
General .............................................................. 45
Transfer of the SUBI Certificate ..................................... 47
Reallocation Payments ................................................ 47
Calculation of Investor Percentage ................................... 47
Distributions on the Notes ........................................... 48
The Accounts ......................................................... 55
Statements to Noteholders ............................................ 58
Termination of the Trust; Redemption of the Notes .................... 60
Book-Entry Registration .............................................. 60
Definitive Notes ..................................................... 65
The Indenture Trustee ................................................ 66
SECURITY FOR THE NOTES .................................................... 67
General .............................................................. 67
The Reserve Fund ..................................................... 68
The Contingent and Excess Liability Insurance Policies ............... 69
ADDITIONAL DOCUMENT PROVISIONS ............................................ 70
The Indenture ........................................................ 70
Additional Agreement Provisions ...................................... 72
The SUBI Trust Agreement ............................................. 73
The Servicing Agreement .............................................. 76
Amendment of Basic Documents ......................................... 85
CERTAIN LEGAL ASPECTS OF THE ORIGINATION TRUST AND THE SUBI ............... 85
The Origination Trust ................................................ 85
Qualification of HVT, Inc. as Fiduciary .............................. 86
Structural Considerations ............................................ 86
Allocation of Origination Trust Liabilities .......................... 87
Back-up Security Interest in Certain SUBI Assets ..................... 87
The SUBI ............................................................. 88
Insolvency Related Matters ........................................... 89
Legal Proceedings .................................................... 90
CERTAIN LEGAL ASPECTS OF THE CONTRACTS AND THE LEASED VEHICLES ............ 91
Back-up Security Interests ........................................... 91
Vicarious Tort Liability ............................................. 91
Repossession of Leased Vehicles ...................................... 92
Deficiency Judgments ................................................. 92
Consumer Protection Laws ............................................. 93
Other Limitations .................................................... 94
MATERIAL INCOME TAX CONSIDERATIONS ........................................ 94
Federal Taxation ..................................................... 94
Federal Income Tax Consequences
to United States Noteholders .................................... 95
Federal Income Tax Consequences
to Foreign Investors ............................................ 97
Backup Withholding ................................................... 98
New Withholding Regulations .......................................... 98
Possible Alternative Treatment of the Notes .......................... 98
ERISA CONSIDERATIONS ...................................................... 99
UNDERWRITING .............................................................. 100
RATINGS OF THE NOTES ...................................................... 102
LEGAL MATTERS ............................................................. 102
AVAILABLE INFORMATION ..................................................... 102
FORWARD LOOKING STATEMENTS ................................................ 103
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEX OF TERMS ............................................................ 104
ANNEX I: GLOBAL CLEARANCE,
SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES ............................................. 1
</TABLE>
4
<PAGE>
DIAGRAM OF TRANSACTION
<TABLE>
<S><C>
Dealer
Agreements American Honda Finance
Dealers ------------------ Corporation
| (Servicer)
| Vehicles
1% Proceeds | Leases
|
|--------------------------------------------------------- Honda Lease Origination
| |----------------------------------------------------- Trust --------------------- Trustee
| | (Origination Trust)
| | | |
| | 1% Beneficial | |
| | Interest in UTI 99% Beneficial Interest | | 99%
| | and SUBI* in UTI and SUBI* | | Proceeds
| | | |
Honda Titling B Honda Titling A.L.P.
L.P (UTI (UTI Beneficiary)
Beneficiary) | |
| | | |
| | 99% Beneficial | | 99%
| | Interest in SUBI* | | Proceeds
| | | |
| | 1% Beneficial | |
| | Interest SUBI* | |
| |----------------------------------------------------- Honda Titling C.L.P.
|--------------------------------------------------------- (Transferor)
1% Proceeds | |
SUBI Certificate | | Certificates
(99.8% Beneficial | | and Proceeds
Interest in SUBI)* | |
| |
Owner Honda Auto Pledge
Trustee --------------------------------- Lease Trust
1999-A --------------- Indenture
(Issuer) Trustee
|
| Reserve
|-------- Fund
|
--------|--------
| |
| |
| |
Class A Class B
Noteholders Noteholders
</TABLE>
* The SUBI represents the beneficial interest in the Leased Vehicles and the
Contracts.
5
<PAGE>
SUMMARY
- - This summary highlights selected information from this prospectus and
does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of an
offering of the notes, you should read carefully this entire
prospectus.
- - This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding and is qualified by the
full description of these calculations, cash flows and other
information in this prospectus.
- - You can find a listing of the pages where capitalized terms used in
this prospectus are defined under the caption "Index of Terms"
beginning on page __ in this prospectus.
OVERVIEW OF TRANSACTION
Certain motor vehicle dealers in the American Honda Finance Corporation
network of dealers have assigned closed-end motor vehicle lease contracts to
Honda Lease Trust. Honda Lease Trust was created to avoid the administrative
difficulty and expense associated with retitling leased vehicles in the
securitization of motor vehicle lease contracts. Honda Lease Trust will issue
to the trust a special unit of beneficial interest (or a SUBI) which will
represent the beneficial interest in the contracts and leased vehicles
backing payment on the notes. The trust and the noteholders will have no
interest in any assets of Honda Lease Trust other than the assets backing the
special unit of beneficial interest (or SUBI) transferred to the trust. You
should review the Diagram of Transaction that appears on the prior page for
additional detail.
PRINCIPAL PARTIES
THE TRUST
- Honda Auto Lease Trust 1999-A
THE TRANSFEROR
- Honda Titling C L.P.
THE OWNER TRUSTEE
- U.S. Bank National Association
THE INDENTURE TRUSTEE
- The Bank of New York
THE ORIGINATION TRUST
- Honda Lease Trust
THE ORIGINATION TRUSTEE
- HVT, Inc.
THE SERVICER
- American Honda Finance Corporation
DESCRIPTION OF THE SECURITIES
GENERAL
The trust is offering the following securities pursuant to this prospectus:
- ___% Class A-1 Notes in the aggregate principal amount of $______;
- ___% Class A-2 Notes in the aggregate principal amount of $______;
- ___% Class A-3 Notes in the aggregate principal amount of $______;
- ___% Class A-4 Notes in the aggregate principal amount of $______; and
- ___% Class B Notes in the aggregate principal amount of $______.
The trust is also issuing $__________ aggregate principal amount of ___ %
certificates. The trust is not offering the certificates pursuant to this
prospectus.
MINIMUM DENOMINATIONS
The trust will issue the notes in book-entry form in minimum denominations of
$1,000 and in multiples thereof.
CLEARANCE, REGISTRATION AND SETTLEMENT
You may hold your notes through The Depository Trust Company, Cedel Bank,
societe anonyme or the Euroclear System.
INTEREST RATES AND PAYMENTS
The rates of interest for each class of notes are specified on the cover page
hereof. Interest
6
<PAGE>
with respect to the Class A-1 Notes will be calculated on the basis of the
actual number of days elapsed in the related interest period and a 360-day
year. Interest on the other classes of notes will be calculated on the basis
of a 360-day year of twelve 30-day months.
PRINCIPAL PAYMENTS
Principal will be paid on the notes on each distribution date in an amount
generally equal to 99.8% of the principal collections (and the reimbursement
of 99.8% of losses to the extent of available funds) with respect to the
related contracts and leased vehicles for the preceding month until the notes
have been paid in full.
Principal payments on the notes generally will be made to the holders of the
notes sequentially. No principal will be paid on any class of notes until
each class of notes with a lower numerical or alphabetical designation has
been paid in full (E.G., no principal will be paid on the Class A-2 Notes
until the Class A-1 Notes have been paid in full).
An exception to this rule is that after the Class A-3 Notes have been paid in
full, the Class A-4 Notes and the Class B Notes will both receive principal
payments, pro rata, based on the principal balance of the related class of
notes on the day the Class A-3 Notes have been paid in full.
A second exception is that principal received from the sale of the assets of
the trust following a default under the indenture and the acceleration of the
notes or the insolvency of Honda Titling C L.P., will be paid first on a pro
rata basis, to the Class A Notes until they have been paid in full, and
second, to the Class B Notes until they have been paid in full.
Principal collections generally will equal all payments on or in respect of
the contracts and leased vehicles allocable to principal, after principal
payments on contracts with certain low lease rates have been discounted as
described herein.
ALLOCATION OF LOSSES
The trust may experience losses on the contracts due to defaults, early
terminations and insufficient proceeds upon disposition of the related leased
vehicles. To the extent funds are not available to pay an amount equal to
such losses to the noteholders, the servicer will allocate loss amounts in
the following order of priority:
- to the certificates until the principal balance of the certificates
has been reduced to zero;
- to the Class B Notes until the principal balance of the Class B Notes
has been reduced to zero; and
- to each class of Class A Notes, pro rata.
FINAL SCHEDULED DISTRIBUTION DATES
To the extent not previously paid prior to such dates, the unpaid principal
amount of each class of notes will be payable in full on the final scheduled
distribution dates listed on the cover page of this prospectus.
OPTIONAL REDEMPTION
The servicer has the option to purchase all of the assets of the trust if the
unpaid principal amount of the notes and the certificates is less than or
equal to 10% of the initial unpaid principal amount of the notes and the
certificates.
Any notes that remain outstanding on any distribution date on which the
servicer exercises its option to purchase all of the assets of the trust will
be prepaid in whole at the applicable redemption price on such distribution
date. The redemption price for any class of notes will equal the unpaid
principal amount of that class, plus accrued and unpaid interest thereon.
DATES
DISTRIBUTION DATES
Payments on the notes will be made on the fifteenth day of each month. If the
fifteenth is not a business day, payments will be made on the next business
day. The first distribution date is May 17, 1999.
RECORD DATE
Payments on the notes will generally be made to the holders of record of the
notes on the business day prior to the distribution date.
7
<PAGE>
CUTOFF DATE
__________, 1999. The trust will receive payments made on the related
contracts and leased vehicles on and after this date.
CLOSING DATE
On or about _______ _, 1999.
TRUST PROPERTY
GENERAL
The primary property of the trust will be:
- The certificate representing the special unit of beneficial interest
(or SUBI) evidencing a right to receive 99.8% of the payments made on
or in respect of the related contracts and leased vehicles; and
- Monies on deposit in the reserve fund.
THE SUBI CERTIFICATE
The certificate representing the special unit of beneficial interest (or
SUBI) will evidence a 99.8% beneficial interest, rather than a direct
ownership interest, in certain assets of Honda Lease Trust. These assets
consist of a specified portfolio of the assets of Honda Lease Trust and
consist primarily of certain contracts and leased vehicles. By holding such
certificate, the trust will receive 99.8% of all payments made on or in
respect of the related contracts and leased vehicles. Payments made in
respect of the 0.2% beneficial interest not evidenced by the trust's
certificate will not be available to make payments on the notes or the
certificates.
THE CONTRACTS AND THE LEASED VEHICLES
The contracts consist of retail closed-end lease contracts originated
throughout the United States for the lease of Honda and Acura motor vehicles.
As of _________ __, 1999, the cutoff date:
- the [discounted] outstanding principal balance of the contracts was
$__________;
- the aggregate residual value of the leased vehicles (or the expected
value of the leased vehicles at the time the lease contract
terminates) was $__________;
- the weighted average lease interest rate of the contracts was ____%;
- the weighted average original maturity of the contracts was ____
months; and
- the weighted average remaining term to maturity of the contracts was
_____ months.
SERVICING
SERVICING FEE
The trust will pay to American Honda Finance Corporation, the servicer, a
servicing fee on each distribution date equal to the product of one-twelfth
of 1.00% and the outstanding principal balance of the contracts at the
beginning of the preceding month.
ADVANCES
The servicer will be obligated to advance to the trust the aggregate monthly
payments on contracts due but not received during the related collection
period with respect to contracts that are 31 days or more past due. However,
the servicer will not be required to make an advance if it believes that the
advance is not recoverable. The servicer will be entitled to be reimbursed in
subsequent periods for advances.
CREDIT ENHANCEMENT
In addition to payments on the contracts, the payment to you of interest and
principal will be supported by the following:
- The reserve fund; and
- Subordination of the certificates.
The credit enhancement for the Class A Notes will also include the
subordination of the Class B Notes.
THE RESERVE FUND
Honda Titling C L.P. will establish a reserve fund with the indenture
trustee. Funds on deposit in the reserve fund on each distribution date will
be available to cover shortfalls in distributions of interest and principal
on the notes to the extent described herein. The reserve fund will be funded
as follows:
- On or prior to the closing date, Honda Titling C L.P. will make an
initial deposit of $__________ into the reserve fund.
- On each distribution date, any excess interest collections remaining
after (1)
8
<PAGE>
interest on the notes and certificates has been paid, (2) the
servicer has been paid its servicing compensation and (3) certain
expenses of the trust and the trustees have been paid, will be
deposited into the reserve fund.
- The required reserve fund balance will generally equal ___% of 99.8%
of the sum of the discounted outstanding principal balances of the
contracts and the residual value of certain terminated contracts.
INVESTOR INFORMATION
The mailing address of Honda Titling C L.P. is:
700 Van Ness Avenue
Torrance, California 90501
The telephone number is (310) 781-____.
The mailing address of American Honda Finance Corporation is:
700 Van Ness Avenue
Torrance, California 90501
The telephone number is (310) 781-4100
CUSIP NUMBERS
- - Class A-1 Notes:
- - Class A-2 Notes:
- - Class A-3 Notes:
- - Class A-4 Notes:
- - Class B Notes:
9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the notes.
YOU MAY HAVE DIFFICULTY SELLING
YOUR NOTES The notes will not be listed on any
securities exchange. As a result, if you
want to sell your notes you must locate a
purchaser that is willing to purchase those
notes. There is currently no secondary
market for the notes. We cannot assure you
that a secondary market will develop. The
underwriter intends to make a secondary
market for the notes. The underwriter will
do so by offering to buy the notes from
investors that wish to sell. However, the
underwriter will not be obligated to make
offers to buy the notes and may stop making
offers at any time. In addition, the prices
offered, if any, may not reflect prices that
other potential purchasers, were they to be
given the opportunity, would be willing to
pay. There have been times in the past
where there have been very few buyers of
asset backed securities (i.e., there has
been a lack of liquidity), and there may be
such times in the future. As a result, you
may not be able to sell your notes when you
want to do so or you may not be able to
obtain the price that you wish to receive
upon any sales of your notes.
YOU MAY EXPERIENCE LOSSES ON
YOUR INVESTMENT RESULTING
FROM CONTRACT DEFAULTS OR The trust may experience losses on the lease
RESIDUAL VALUE LOSSES contracts due to default or early
termination or if the proceeds from the sale
of a leased vehicle following termination of
the related lease contract are less than the
residual value for such leased vehicle. The
residual value for each leased vehicle is
established by American Honda Finance
Corporation at the time of origination of
each leased vehicle. The trust will not be
entitled to receive payments made by lessees
for any excess wear and tear on the leased
vehicles. This increases the likelihood
that proceeds from the sale of a leased
vehicle will be insufficient and cause a
loss. The servicer will allocate losses to
the securities if the losses experienced on
the contracts are in excess of the funds
available to pay an amount equal to such
losses as a principal payment on the notes
on the related distribution date.
Consequently, you may incur a loss on your
investment. The servicer will allocate any
such losses (1) first, to the certificates
until the certificate balance has been
reduced to zero, (2) second, to the Class B
Notes until the related note balance has
been reduced to zero and (3) third, to the
Class A Notes, pro rata, based on the
outstanding principal balance of the notes.
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The severity of losses experienced by the
trust in connection with the disposition of
leased vehicles will be affected by:
- the servicer's pro-active lease
maturity termination program;
- the supply of vehicles similar to the
leased vehicles;
- the demand for vehicles similar to the
leased vehicles; and
- the economic and geographic conditions
generally at the time of disposition of
a leased vehicle.
THE RETURN ON YOUR
INVESTMENT WILL CHANGE
OVER TIME Your pre-tax return on your investment will
change from time to time for a number of
reasons including the following:
- THE RATE OF RETURN OF PRINCIPAL IS
UNCERTAIN. The amount of distributions of
principal on the notes and the times when
you receive those distributions depends on
the amount and the times at which lessees
make principal payments on the contracts.
Those principal payments may be regularly
scheduled payments or unscheduled payments
resulting from prepayments or defaults of
the contracts. Additionally, to the extent
of available funds, an amount equal to
losses on the contracts and leased vehicles
will be distributed as payments of principal
on the notes.
- YOU BEAR REINVESTMENT RISK. Asset
backed securities, like the notes, usually
produce more returns of principal to
investors when market interest rates fall
below the interest rates on the contracts
and produce less returns of principal when
market interest rates are above the interest
rates on the contracts. As a result, you
are likely to receive more money to reinvest
at a time when other investments generally
are producing a lower yield than that on the
notes, and are likely to receive less money
to reinvest when other investments generally
are producing a higher yield than that on
the notes. You will bear the risk that the
timing and amount of distributions on your
notes will prevent you from attaining your
desired yield.
- AN EARLY TERMINATION MAY AFFECT THE
YIELD. Your investment in the notes may be
ended before you expected if American Honda
Finance Corporation exercises its option to
purchase all of the assets of the trust.
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RISKS TO CLASS B
NOTEHOLDERS RESULTING FROM
SUBORDINATION OF THE
CLASS B NOTES - PRIORITY OF PAYMENTS. The Class B
Notes are subordinated to the Class A Notes.
If there are insufficient funds to make the
payments described herein on all of the
notes, the Class B Noteholders will not be
paid some or all of the amounts otherwise
distributable on the Class B Notes.
- ALLOCATION OF LOSSES. The Class B
Notes are scheduled to be outstanding longer
than the Class A-1, Class A-2, Class A-3
Notes and Class A-4 Notes. As a result, to
the extent losses on the contracts are
incurred later in the transaction, there is
a greater likelihood that the credit
enhancement provided by the certificates
will not be available to support the Class B
Notes. At any time after the certificate
balance has been reduced to zero, losses in
respect of the contracts and leased vehicles
allocable to the notes exceed the amounts
available to reimburse such losses, any
further losses will be borne by the holders
of the Class B Notes. As a result,
investors in the Class B Notes could incur a
loss on their investment.
- VOTING. Until the principal amount of
the Class A Notes has been reduced to zero,
the Class B Noteholders can not declare an
event of default without the vote of the
Class A Noteholders.
RISKS ASSOCIATED WITH
SEQUENTIAL PAYMENT OF Following the reduction of the certificate
PRINCIPAL ON THE NOTES balance to zero, losses (if, at the time of
any such loss, there are insufficient funds
to make principal payments) will be
allocated (1) first, to the Class B Notes
until its principal balance has been reduced
to zero and (2) second, to the Class A
Notes, pro rata, based on the outstanding
principal balance for each class of Class A
Notes. As a result of the sequential
payment of principal on each class of Class
A Notes, Class A-2 Notes may be allocated
more losses than the Class A-1 Notes as a
relative percentage of their respective
initial principal balances, Class A-3 Notes
may be allocated more losses than the Class
A-1 or Class A-2 Notes as a relative
percentage of their respective initial
principal balances, and Class A-4 Notes may
be allocated more losses than the Class A-1,
Class A-2 or Class A-3 Notes as a relative
percentage of their respective initial
principal balances.
GEOGRAPHIC CONCENTRATION Economic conditions in the states where
INCREASES RISK OF LOSS lessees reside may affect the delinquency,
ON YOUR INVESTMENT loss and prepayment experience of the trust
with respect to the contracts and the leased
vehicles.
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Economic factors such as unemployment,
interest rates, the rate of inflation and
consumer perceptions of the economy may
affect the rate of prepayment and defaults
on the contracts, the ability to sell or
otherwise dispose of the leased vehicles
and the prices received upon disposition
of leased vehicles. As of the cutoff date,
the billing addresses of the lessees with
respect to approximately __%, ___%, and __%
of the receivables (based on outstanding
principal balance) were located in
California, ___________ and ___________,
respectively. Economic conditions in any
state or region may decline over time and
from time to time. Because of the
concentration of the lessees in certain
states, any adverse economic conditions in
those states may have a greater effect on
the performance of the notes than if the
concentration did not exist.
VEHICLE CONCENTRATION TYPE The used car market for any particular model
INCREASES RISK type may be affected by factors not
affecting other model types. These factors
include changes in consumer tastes and
discovery of defects in respect of a
particular model type. By number of
vehicles, ____, ____ and ______ represent
approximately __%, __% and __% of the
related leased vehicles. Any adverse change
with respect to a specific model type would
result in reduced proceeds upon the
disposition of leased vehicles of such model
type. As a result you may could incur a
loss on your investment.
POSSIBLE EFFECTS OF There are many federal and state consumer
CONSUMER PROTECTION LAWS protection laws which impose requirements on
retail lease contracts. If Honda Lease
Trust fails to comply with these laws, it
could be subject to liability. Many states
have adopted laws which permit lessees
certain rights with respect to substandard
vehicles (referred to as lemon laws). The
lessee's remedies may include the right to
terminate the related contract and/or to a
refund of some or all of the payments made
under the lease. As a result you could
suffer a loss on your investment. However,
American Honda Finance Corporation will be
required to reimburse the trust for the
amount of liabilities or losses that arise
in connection with any liability of Honda
Lease Trust or the trust relating to
consumer protection laws.
POSSIBLE LIENS DUE TO ERISA
LIABILITIES It is possible that the contracts and leased
vehicles could become subject to liens in
favor of the Pension Benefit Guaranty
Corporation to satisfy unpaid ERISA
obligations of any member of an "affiliated
group" that includes American Honda Finance
Corporation and its affiliates. However,
Honda Titling C L.P. believes that the
likelihood of any such
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liability being asserted against the related
contracts and leased vehicles or, if so
asserted, being successfully pursued, is
remote. You can not be certain the contracts
and leased vehicles will not become subject
to an ERISA liability.
POSSIBLE LIABILITY AS A State laws differ as to whether a party that
RESULT OF LESSEES' incurs an injury involving a leased vehicle
OPERATION OF LEASED may sue the owner of the vehicle merely by
VEHICLES virtue of that ownership. Most states
either prohibit such liability or limit the
lessor's liability to the amount of
liability insurance that the lessee was
required to carry (but failed to maintain)
under applicable law. However, if liability
imposed on the origination trust in
connection with any leased vehicles it owns
(and not just the leased vehicles backing
the notes) exceeds the coverage provided by
the liability insurance policies held by the
origination trust, you could experience
delays in payments due to you or may not
ultimately receive all interest and
principal due to you.
In contrast to many other states, under New
York law, the holder of title of a motor
vehicle, including a titling trust, as
lessor, or the agent of the titling trust,
may be considered an "owner" and thus may be
held jointly and severally liable with the
lessee for the negligent use or operation of
a motor vehicle. As a result, liabilities
and losses could arise if lawsuits are
brought against either Honda Lease Trust or
American Honda Finance Corporation, as agent
of Honda Lease Trust, in connection with the
negligent use or operation of a leased
vehicle backing payment on the notes. If
any such lawsuits were commenced, you could
incur a loss on your investments due to any
liabilities suffered as a result of those
lawsuits.
POSSIBLE EFFECTS OF AN If American Honda Finance Corporation or
AMERICAN HONDA FINANCE Honda Titling C L.P. were to become subject
CORPORATION OR HONDA to bankruptcy proceedings, a court could
TITLING C L.P. conclude that American Honda Finance
BANKRUPTCY Corporation or the Honda Titling C L.P. owns
the special unit of beneficial interest (or
SUBI) conveyed to the trust. This could
result in losses or delays in the payment of
your notes. This conclusion could be either
because the transfer of the special unit of
beneficial interest (or SUBI) from Honda
Titling C L.P. to the trust was not a "true
sale" or Honda Titling C L.P. or the trust
should be treated as the same entity as
American Honda Finance Corporation for
bankruptcy purposes. If this were to occur,
you could experience delays in payments due
on your notes, or may not ultimately receive
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all interest and principal due on your notes
as a result of, among other things:
- the "automatic stay" which prevents
secured creditors from exercising
remedies against a debtor in bankruptcy
without permission from the court and
provisions of the U.S. Bankruptcy Code
that permit substitute of collateral in
certain circumstances;
- certain tax or government liens on
American Honda Finance Corporation's
property (that arose prior to the
transfer of a contract to the trust)
having a prior claim on collections
before the collections are used to make
payments on your securities; or
- the trust not having a perfected
security interest in (a) one or more of
the leased vehicles securing the
contracts or (b) any cash collections
held by American Honda Finance
Corporation at the time that American
Honda Finance Corporation becomes the
subject of a bankruptcy proceeding.
Honda Titling C L.P. has taken steps in
structuring the transactions described in
this prospectus to minimize the risk that a
court would consolidate Honda Titling C L.P.
with American Honda Finance Corporation for
bankruptcy purposes or conclude that the
sale of the lease contracts to Honda Titling
C L.P. was not a "true sale."
RISKS ASSOCIATED WITH EVENT OF You should be aware that the amount of
DEFAULT principal or interest required to be paid to
you prior to the final scheduled
distribution date for a class of notes
generally will be limited to amounts
available. Therefore, the failure to pay
principal or interest on a class of notes
generally will not result in the occurrence
of an event of default under the indenture
until the final scheduled distribution date
for such class of notes.
COMPUTER PROBLEMS IN THE YEAR
2000 MAY RESULT IN LOSSES Many computers and computer chips were not
programmed to recognize more than two digits
in a year of a date. As a result, in the
year 2000 (year '00 to the computer), those
computers will not know whether the '00
refers to the year 1900 or the year 2000.
If American Honda Finance Corporation, its
affiliates or an external supplier were to
experience a year 2000 problem in its
computer system, such a problem could result
in errors or delays in making collections on
the leases and payments on your notes. To
address this problem, American Honda Finance
Corporation initiated a
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comprehensive program to coordinate its
compliance efforts, which is anticipated
to be completed in the spring of 1999 for
year 2000. These actions are described
under "American Honda Finance Corporation"
in this prospectus. To the extent that
American Honda Finance Corporation systems
have problems in the year 2000 and later,
the amount and timing of distributions to
noteholders could be adversely affected.
THE NOTES ARE NOT SUITABLE
INVESTMENTS FOR ALL
INVESTORS The notes are not a suitable investment for
any investor that requires a regular or
predictable schedule of payments or payment
on any specific date. The notes are complex
investments that should be considered only
by investors who, either alone or with their
financial, tax and legal advisors, have the
expertise to analyze the prepayment,
reinvestment, default and market risk, the
tax consequences of an investment, and the
interaction of these factors.
WITHDRAWAL OR DOWNGRADING OF
INITIAL RATINGS WILL AFFECT
THE PRICES FOR NOTES UPON
RESALE A security rating is not a recommendation to
buy, sell or hold securities. Similar
ratings on different types of securities do
not necessarily mean the same thing. You
are encouraged to analyze the significance
of each rating independently from any other
rating. Any rating agency may change its
rating of the notes after the notes are
issued if that rating agency believes that
circumstances have changed. Any subsequent
change in rating will likely affect the
price that a subsequent purchaser will be
willing to pay for the notes.
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OVERVIEW OF TRANSACTION
Certain motor vehicle dealers ("Dealers") in the American Honda
Finance Corporation ("AHFC") network of dealers have assigned and will assign
retail closed-end motor vehicle lease contracts to Honda Lease Trust, a
Delaware business trust (the "Origination Trust") pursuant to agreements
("Dealer Agreements") between each Dealer and AHFC. The Origination Trust was
created in July 1997 to avoid the administrative difficulty and expense
associated with retitling leased vehicles in connection with the
securitization of motor vehicle lease contracts. The Origination Trust has
issued to Honda Titling A L.P. ("HTA LP") and Honda Titling B L.P. ("HTB LP"
and, together with HTA LP, the "UTI Beneficiaries") a 99% and a 1% beneficial
interest, respectively (the "99% UTI Interest" and "1% UTI Interest"), in the
undivided trust interest (the "UTI") representing the entire beneficial
interest in the unallocated assets of the Origination Trust. See "The
Origination Trust -- Property of the Origination Trust".
The UTI Beneficiaries will instruct the trustee of the Origination
Trust to allocate a separate portfolio of lease contracts and leased vehicles
within the Origination Trust and create a special unit of beneficial interest
(the "SUBI") which will represent the entire beneficial interest in such
separate portfolio. Upon its creation, such separate portfolio will no longer
be a part of the Origination Trust Assets represented by the UTI. The
Origination Trust will issue a 99% and a 1% beneficial interest in the SUBI
to HTA LP and HTB LP, respectively, each of which will sell such interest in
the SUBI to Honda Titling C L.P. (the "Transferor"). The Transferor will in
turn contribute and transfer 99.8% of its beneficial interest in the SUBI
(the "SUBI Interest") to the Honda Auto Lease Trust 1999-A (the "Trust"). In
return, the Trust will issue the Class A Notes and the Class B Notes offered
hereby and the Certificates. The Certificates are the undivided equity
interest in the Trust and will be permanently retained by the Transferor. The
UTI Beneficiaries from time to time in the future may cause additional
special units of beneficial interest similar to the SUBI ("Other SUBIs") to
be created out of the UTI and sold to the Transferor or one or more other
entities.
Pursuant to a servicing agreement dated as of April 1, 1998 (the
"Basic Servicing Agreement"), as supplemented by a servicing supplement dated
as of __________1, 1999 (the "Servicing Supplement" and together with the
Basic Servicing Agreement, the "Servicing Agreement"), each among the
Origination Trust, the UTI Beneficiaries and AHFC. Pursuant to the Servicing
Agreement, AHFC is the servicer for the Origination Trust Assets, including
the SUBI Assets (in such capacity, the "Servicer").
The Trust will issue the following aggregate principal amounts of
notes pursuant to an indenture, dated as of __________1, 1999 (the
"Indenture"), between the Trust and the Indenture Trustee: (i)
$__________(the "Initial Class A-1 Note Balance") of Class A-1 Notes (the
"Class A-1 Notes "); (ii) $__________ (the "Initial Class A-2 Note Balance")
of Class A-2 Notes (the "Class A-2 Notes "); (iii) $__________ (the "Initial
Class A-3 Note Balance") of Class A-3 Notes (the "Class A-3 Notes "); (iv)
$__________ (the "Initial Class A-4 Note Balance" and, together with the
Initial Class A-1 Note Balance, the Initial Class A-2 Note Balance and the
Initial Class A-3 Note Balance, the "Initial Class A Note Balance") of Class
A-4 Notes (the "Class A-4 Notes" and, together with the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes, the "Class A Notes"); and (v)
$__________ (the "Initial Class B Note Balance" and, together with the
Initial Class A Note Balance, the "Initial Note Balance") of Class B Notes
(the "Class B Notes")" and, together with the Class A Notes, the "Notes").
Each class of Notes is referred to as a "Class."
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The Trust will also issue $__________ ( the "Initial Certificate
Balance") of Certificates (the "Certificates") which will be retained by the
Transferor.
THE TRUST AND THE SUBI
GENERAL
The Trust and the Noteholders will have no interest in the UTI, any
Other SUBI or any assets of the Origination Trust evidenced by the UTI or any
Other SUBI. Payments made on or in respect of the Origination Trust Assets
not represented by the SUBI will not be available to make payments on the
Notes. For further information regarding the Origination Trust, see "The
Origination Trust".
THE TRUST
The Trust was formed pursuant to a trust agreement, dated as of
February __, 1999 , between the Transferor and U.S. Bank National Association
("U.S. Bank"), as owner trustee (in such capacity, the "Owner Trustee") and
Wilmington Trust Company, as Delaware co-trustee (in such capacity, the
"Co-Trustee") and will be amended and restated pursuant to a securitization
trust agreement dated as of __________ 1, 1999 (the "Agreement"), among the
Transferor, the Owner Trustee and The Bank of New York ("BONY"), as indenture
trustee (in such capacity, the "Indenture Trustee"). Pursuant to the
Agreement, on the date of initial issuance of the Notes (the "Closing Date"),
the Transferor will create the Trust by transferring and assigning the SUBI
Interest and SUBI Certificate, to the Owner Trustee in exchange for the Notes
and the Certificates. The property of the Trust will primarily include (i)
the SUBI Interest, (ii) the right of the Trust to such amounts as from time
to time may be held in the Note Distribution Account, the SUBI Collection
Account and the Reserve Fund and investments of such amounts, and (iii) the
Owner Trustee's rights as a third-party beneficiary to the Servicing
Agreement and the SUBI Trust Agreement. Through its ownership of the SUBI
Certificate, the Trust also will have a beneficial interest in certain
amounts as from time to time may be held in the SUBI Collection Account and
investments of such amounts.
Because of the administrative difficulty and expense associated with
retitling leased vehicles, including federal and state regulatory
requirements to obtain odometer readings and to pay vehicle transfer fees and
taxes, the Trust will have an interest only in the SUBI Certificate and the
related SUBI Assets transferred to it by the Transferor, and will not have a
direct ownership interest in any Leased Vehicles.
Credit enhancement for the Noteholders is generally provided by (i)
certain excess Interest Collections; (ii) amounts otherwise payable to the
Transferor in respect of the Certificates; (iii) available monies on deposit in
the Reserve Fund; and (iv) in the case of the Class A Notes, the subordination
of payments otherwise payable to the Class B Noteholders. As a result, if the
foregoing protection is insufficient, the Noteholders ultimately will have to
look to payments made on or in respect of the Contracts and the Leased Vehicles
(including under certain related insurance policies) and the proceeds of Dealer
repurchase obligations, if any, to make distributions on or in respect of the
SUBI Assets to the Indenture Trustee which in turn will be distributed to the
Noteholders. In such event, certain factors, such as the fact that the Trust
will not have a direct ownership interest in the Contracts or the Leased
Vehicles or a perfected security interest in the Leased Vehicles (which will be
titled in the name of the Origination Trust or the Origination Trustee) may
limit the amount realized to less than the amount due from the related lessees.
Investors in the Notes may thus be subject to delays in payment and may incur
losses on their investment in the Notes as a result of defaults or delinquencies
by lessees and because of
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depreciation in the value of the related Leased Vehicles. See "The
Origination Trust -- Allocation of Origination Trust Liabilities", "Security
for the Notes -- The Reserve Fund", "Additional Document Provisions -- The
Servicing Agreement -- Insurance on Leased Vehicles", "Certain Legal Aspects
of the Origination Trust and the SUBI -- The SUBI" and "Certain Legal Aspects
of the Contracts and the Leased Vehicles" for a discussion of these matters.
THE SUBI
Pursuant to a supplement to the Origination Trust Agreement, dated
as of _____________, 1999 (the "SUBI Supplement" and, together with the
Origination Trust Agreement, the "SUBI Trust Agreement"), the Origination
Trust will, upon the order of HTA LP and HTB LP, respectively, issue a 99%
and a 1% beneficial interest in the SUBI to the Transferor. On the Closing
Date, the Transferor will exchange the 99% and the 1% beneficial interests in
the SUBI for the SUBI Interest (99.8% of the SUBI) and a 0.2% beneficial
interest in the SUBI (the "Retained SUBI Interest"), each evidenced by a
certificate (respectively, the "SUBI Certificate" and the "Retained SUBI
Certificate"). The Indenture Trustee and the Owner Trustee will be
third-party beneficiaries of the SUBI Trust Agreement.
The Transferor will then transfer and assign the SUBI Certificate to
the Owner Trustee pursuant to the Agreement as property of the Trust, and the
Trust will pledge and deliver the SUBI Certificate to the Indenture Trustee
pursuant to the Indenture. The Retained SUBI Certificate will not be
transferred to the Trust and will be permanently retained by the Transferor.
Accordingly, the Transferor will be entitled to receive 0.2% of all payments
made on or in respect of the SUBI Assets and will share in 0.2% of all losses
and liabilities incurred by the SUBI Assets. Any payments made in respect of
the Retained SUBI Interest will not be available to make payments on the
Notes.
The SUBI will be issued pursuant to the SUBI Supplement and will
evidence a beneficial interest in certain specified Origination Trust Assets
consisting of (i) certain lease contracts (the "Contracts"), automobiles,
minivans and sport utility vehicles relating to the Contracts (the "Leased
Vehicles") and all proceeds or payments received or due on or after
__________ 1, 1999 (the "Cutoff Date"), and (ii) all other Origination Trust
Assets allocated to the SUBI, including (a) the SUBI Collection Account (to
the extent of funds therein relating to the Contracts and Leased Vehicles),
(b) certain rights to receive payments made to AHFC, the Origination Trust or
the Origination Trustee under any insurance policies relating to the
Contracts, the related lessees or the Leased Vehicles, and (c) all proceeds
of the foregoing (collectively, the "SUBI Assets"). See "The Origination
Trust -- Property of the Origination Trust."
The SUBI will evidence an indirect beneficial interest, rather than
a direct legal interest, in the SUBI Assets. The SUBI will not represent a
beneficial interest in any Origination Trust Assets other than the SUBI
Assets. Payments made on or in respect of Origination Trust Assets other than
the SUBI Assets will not be available to make payments on the Notes.
THE ORIGINATION TRUST
GENERAL
The Origination Trust is a Delaware business trust formed as of July
17, 1997 and is governed by a second amended and restated trust and servicing
agreement (the "Origination Trust Agreement"), among the UTI Beneficiaries,
the Servicer, HVT, Inc., as trustee (the "Origination Trustee"), Delaware
Trust Capital Management, Inc., as Delaware trustee, and U.S. Bank, as trust
agent (in such capacity, the "Trust Agent"). The primary business purpose of
the Origination Trust is to take assignments of, and
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serve as record holder of title to, substantially all lease contracts and the
related leased vehicles originated through Dealers in the AHFC network of
dealers. Pursuant to the Servicing Agreement, AHFC will service the lease
contracts included in the Origination Trust Assets, including the Contracts.
See "Additional Document Provisions -- The SUBI Trust Agreement" and " -- The
Servicing Agreement" and "Certain Legal Aspects of the Origination Trust and
the SUBI -- The Origination Trust".
Except as otherwise described under "Additional Document Provisions
- --The Origination Trust Agreement", pursuant to the Origination Trust
Agreement the Origination Trust may not (i) issue interests therein or
securities thereof other than the SUBI Interest, the Retained SUBI Interest,
the SUBI Certificate, the Retained SUBI Certificate, Other SUBIs representing
divided interests in other portfolios of Origination Trust Assets (the "Other
SUBI Assets") and certificates representing Other SUBIs or portions thereof
(the "Other SUBI Certificates"), the UTI representing a divided interest in
all Origination Trust Assets not allocated as SUBI Assets or Other SUBI
Assets (the "UTI Assets") and the certificates representing the UTI (the "UTI
Certificates"); (ii) borrow money (except from the UTI Beneficiaries or their
affiliates or as described in clause (vi)) in connection with funds used to
acquire lease contracts and the related leased vehicles; (iii) make loans;
(iv) invest in or underwrite securities, other than Eligible Investments or
as otherwise permitted by the Origination Trust Agreement or the SUBI Trust
Agreement; (v) offer securities in exchange for property (other than the SUBI
Certificate, the Retained SUBI Certificate, the Other SUBI Certificates and
the UTI Certificates); or (vi) repurchase or otherwise reacquire its
securities (other than for purposes of cancellation) except in connection
with financing or refinancing the acquisition of lease contracts and the
related leased vehicles or as otherwise permitted by each such financing or
refinancing.
ALLOCATION OF ORIGINATION TRUST LIABILITIES
The UTI Beneficiaries may from time to time allocate Origination
Trust Assets to Other SUBIs and may sell or pledge Other SUBI Certificates in
connection with other financings. Similarly, the UTI Beneficiaries may some
time in the future, pledge the UTI Certificates as security for obligations
to third-party lenders. The Origination Trust Agreement will permit the
Origination Trust, in the course of its activities, to incur certain
liabilities relating to its assets other than the SUBI Assets, or relating to
its assets generally, and to which, in certain circumstances, the SUBI Assets
may be subject. Pursuant to the Origination Trust Agreement, as among the
beneficiaries of the Origination Trust and their pledgees, an Origination
Trust liability relating to a particular Origination Trust Asset will be
allocated to and charged against the allocated portfolio of Origination Trust
Assets to which it belongs. Origination Trust liabilities that are incurred
with respect to the Origination Trust Assets generally will be borne pro rata
among all portfolios of Origination Trust Assets in proportion to the value
of the lease contracts and leased vehicles in each portfolio. The Origination
Trustee, the beneficiaries of the Origination Trust (including the Owner
Trustee) and their pledgees (including the Indenture Trustee) will be bound
by this allocation. In particular, the Origination Trust Agreement will
require the holders from time to time of Other SUBI Certificates and any UTI
Certificates to waive any claim that they might otherwise have with respect
to the SUBI Assets and to fully subordinate any claims to the SUBI Assets in
the event that this waiver is not given effect. Similarly, by virtue of
holding Notes or a beneficial interest in the Notes, Noteholders and Note
Owners will be deemed to have waived any claim that they might otherwise have
with respect to Other SUBI Assets and the UTI Assets. See "Additional
Document Provisions -- The SUBI Trust Agreement -- The SUBI, the Other SUBIs
and the UTI" and "Certain Legal Aspects of the Origination Trust and the SUBI
- -- The SUBI".
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HTA LP AND HTB LP
HTA LP and HTB LP are the UTI Beneficiaries under the Origination
Trust Agreement. The sole general partners of HTA LP and HTB LP are Honda
Titling A LLC ("HTA LLC") and Honda Titling B LLC ("HTB LLC"), respectively,
each a Delaware limited liability company formed in July 1997 for the purpose
of serving as such general partners. AHFC is the sole limited partner of each
of the UTI Beneficiaries. Honda Titling Inc., a Delaware corporation ("HTI"),
is a wholly owned special purpose subsidiary of AHFC and is the independent
member of each of HTA LLC and HTB LLC. HTI's certificate of incorporation
requires it to at all times have two independent directors who are
unaffiliated with AHFC. AHFC is the other member of each of HTA LLC and HTB
LLC. The UTI Beneficiaries were formed as limited partnerships under the laws
of Delaware in July 1997 for the purpose of being the grantors and the
initial beneficiaries of the Origination Trust, holding the UTI Certificates,
acquiring, pledging and transferring interests in the SUBI and Other SUBIs
and engaging in related transactions. The limited liability company
agreements of each of HTA LLC and HTB LLC and the limited partnership
agreements of each UTI Beneficiary limit their respective activities to the
foregoing purposes and to any activities incidental thereto or necessary
therefor. Neither HTA LLC nor HTB LLC may transfer its general partnership
interest in the related UTI Beneficiary. The principal offices of HTA LP and
HTB LP are located at 700 Van Ness Avenue, Torrance, California 90501 and
their telephone numbers are (310) 781-8726 and (310) 781-8730, respectively.
THE ORIGINATION TRUSTEE
The Origination Trustee is a wholly owned, special purpose
subsidiary of U.S. Bank that was organized in October 1996 solely for the
purpose of acting as Origination Trustee. HVT, Inc. is not affiliated with
AHFC or any of its affiliates. U.S. Bank, as Trust Agent, serves as agent for
the Origination Trustee to perform certain functions of the Origination
Trustee pursuant to the Origination Trust Agreement. The Origination Trust
Agreement provides that if U.S. Bank no longer can be the Trust Agent, the
designee of the UTI Beneficiaries (who may not be either UTI Beneficiary or
any affiliate thereof) will have the option to purchase the stock of the
Origination Trustee for a nominal amount. If such designee does not timely
exercise this option, then the Origination Trustee will appoint a new trust
agent, and that new trust agent (or its designee) will next have the option
to purchase the stock of the Origination Trustee. If none of these options is
timely exercised, U.S. Bank may sell the stock of the Origination Trustee to
another party.
PROPERTY OF THE ORIGINATION TRUST
The property of the Origination Trust consists of (i) fixed rate retail
closed-end lease contracts originated throughout the United States and assigned
to the Origination Trust by AHFC or Dealers and all monies due from lessees
thereunder; (ii) the automobiles, minivans and sports utility vehicles
(collectively, the "motor vehicles") leased pursuant thereto and all proceeds
thereof; (iii) all of AHFC's rights (but not its obligations) with respect to
the lease contracts and leased vehicles, including the right to receive proceeds
of Dealer repurchase obligations, if any; (iv) the rights to certain insurance
proceeds received by the Servicer, the Origination Trust or the Origination
Trustee on behalf of the Origination Trust, from any physical damage, credit
life, disability and all other insurance policies or self-insurance, if any, to
the extent applicable to the Origination Trust, any contract or leased vehicle
or the ability of a lessee to make required payments with respect to the related
contract or the related leased vehicle (each, an "Insurance Policy"), including
the Contingent and Excess Insurance Policies; (v) all security deposits with
respect to such lease contracts to the extent due to the lessor thereunder; and
(vi) all proceeds of the foregoing (collectively, the "Origination Trust
Assets"). From time to time after the date of this
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<PAGE>
Prospectus, AHFC will cause Dealers to originate additional retail closed-end
lease contracts and to assign such lease contracts to the Origination Trust
and, as described below, title the related leased vehicles in the name of the
Origination Trust or the Origination Trustee.
CONTRACT ORIGINATION; TITLING OF LEASED VEHICLES
All lease contracts originated by the Dealers and assigned to the
Origination Trust have been, or will be, underwritten using the underwriting
criteria described under "American Honda Finance Corporation -- Lease
Contract Underwriting Procedures". In connection with the origination of each
lease contract, the Origination Trust or, if required by the department of
motor vehicles of a particular state, the Origination Trustee or a
Co-trustee, will be listed as the owner of the related leased vehicle on the
related certificate of title. Liens will not be placed on such certificates
of title, and new certificates of title will not be issued, to reflect the
interest of the Owner Trustee, as holder of the SUBI Certificate, or the
Indenture Trustee, as pledgee of the SUBI Certificate, in the Leased
Vehicles. The certificates of title to the leased vehicles registered in many
states will, however, reflect a first lien in any of the Origination Trust,
AHFC or HVT, Inc. (the "Administrative Lien") which will exist solely to
assure delivery of the certificates of title to the leased vehicles to the
Servicer. Each entity in which an Administrative Lien is recorded has entered
into an agreement in which it acknowledges that it has no interest in the
related leased vehicles and additionally waives, quitclaims and releases any
claim that it may have against such leased vehicles by virtue of such liens.
Pursuant to the Dealer Agreements, each Dealer is obligated, after
origination of lease contracts and assignment thereof to the Origination
Trust, to repurchase such lease contracts which do not meet certain
representations and warranties made by such Dealer. These representations and
warranties relate primarily to the origination of the lease contracts and the
titling of the related leased vehicles, and do not typically relate to the
creditworthiness of the related lessees or the collectibility of such lease
contracts. The Dealer agreements do not generally provide for recourse to the
Dealer for unpaid amounts in respect of a defaulted lease contract, other
than in connection with the breach of the foregoing representations and
warranties. The rights of the Origination Trust to receive proceeds of such
Dealer repurchase obligations will constitute Origination Trust Assets (and
accordingly will constitute SUBI Assets to the extent they relate to the
Contracts and Leased Vehicles), although the related Dealer agreements will
not constitute Origination Trust Assets.
USE OF PROCEEDS
The net proceeds from the sale of the Notes (I.E., the proceeds of
the public offering of the Notes minus expenses relating thereto) will be
applied by the Transferor to purchase the SUBI from HTA LP and HTB LP.
THE TRANSFEROR
The Transferor is a limited partnership formed under the laws of
State of Delaware on February 1, 1999. The sole general partner of the
Transferor is Honda Titling C LLC, a Delaware limited liability company ("HTC
LLC"). AHFC is the sole limited partner of the Transferor. Honda Funding
Inc., a Delaware special purpose corporation ("HFI") and wholly owned
subsidiary of AHFC, is the independent member of HTC LLC. HFI's certificate
of incorporation requires it to at all times have two independent directors
who are unaffiliated with AHFC. AHFC is the other member of HTC LLC. HTC LLC
may not transfer its general partnership interest in the Transferor. The
principal office of the Transferor is located at 700 Van Ness Avenue,
Torrance, California 90501 and its telephone number is (310) 781-4376.
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<PAGE>
HTC LLC was organized for the purpose of serving as the general
partner of the Transferor. The Transferor was organized for the purpose of
acting as the grantor of entities such as the Trust, acquiring, pledging or
transferring interests in the SUBI and Other SUBIs, causing securities
similar to the Notes to be issued, and engaging in related transactions. The
limited partnership agreement of the Transferor and the limited liability
company agreement of HTC LLC limit their respective activities to such
purposes and to any activities incidental or necessary thereto.
AMERICAN HONDA FINANCE CORPORATION
GENERAL
American Honda Finance Corporation ("AHFC") was incorporated in the
State of California in February 1980. AHFC and its wholly owned subsidiary,
Honda Canada Finance Inc. ("HCFI") provide wholesale and retail financing to
authorized dealers of Honda and Acura automobiles, minivans, sport utility
vehicles, Honda motorcycles (including scooters and all terrain vehicles) and
Honda power equipment, such as lawn and utility tractors, lawnmowers, snow
throwers, water pumps, portable outboard motors, outboard marine engineers
and generators, to their customers in the United States and Canada. AHFC and
HCFI also offer retail leasing for Honda and Acura motor vehicles throughout
the United States and Canada. AHFC and its wholly owned subsidiary American
Honda Service Contract Corporation ("AHSCC") administer the sale of vehicle
service contracts for American Honda Motor Co., Inc. ("AHMC"), a California
corporation throughout the United States. AHFC has four wholly owned special
purpose finance subsidiaries: American Honda Receivables Corp., American
Honda Receivables Corp. II, Honda Titling Inc. and Honda Funding Inc.
AHFC is a wholly owned subsidiary of AHMC that is the sole
authorized distributor of Honda and Acura motor vehicles, power equipment,
parts and accessories in the United States. AHMC is a wholly owned subsidiary
of Honda Motor Co., Ltd., a Japanese corporation which is a worldwide
manufacturer and distributor of motor vehicles and power equipment. The
principal executive offices of AHFC are located at 700 Van Ness Avenue,
Torrance, California 90501. Its telephone number is (310) 781-4100.
As of December 31, 1998, December 31, 1997 and December 31, 1996,
AHFC and its affiliates (excluding HCFI) had approximately ________, ________
and ________ retail lease contracts outstanding, respectively. The aggregate
net outstanding principal balances of retail lease contracts at such dates
(including retail lease contracts that were sold but are still being serviced
by AHFC), were $________, $________ and $________, respectively. Of these
amounts, the related leased vehicles had an estimated aggregate residual
value as of the end of their lease terms of approximately $________,
$________ and $________, respectively.
LEASE CONTRACT UNDERWRITING PROCEDURES
AHFC originates retail lease contracts secured by new and used Honda
and Acura motor vehicles from approximately 1,250 Dealers located throughout
the United States. In keeping with the practice of AHFC, the Contracts were
originated by Dealers in accordance with AHFC's requirements, as described
below, under existing agreements with such Dealers. The Contracts were
originated in accordance with AHFC's underwriting standards, which emphasize
the prospective purchaser's ability to pay and creditworthiness, as well as
the asset value of the motor vehicle to be financed.
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<PAGE>
Applications submitted to AHFC must list sufficient information to
process the application, including the applicant's income, residential
status, monthly mortgage or rent payment, bank account(s) and other personal
information. Upon receipt of an application, AHFC obtains a credit report
from an independent credit bureau. The credit report is reviewed by AHFC to
determine the applicant's current credit status and past credit performance.
Factors considered negative generally include past due credit, repossessions,
loans charged off by other lenders and previous bankruptcy proceedings.
Positive factors such as amount of credit and favorable payment history are
also considered.
The credit decision is made utilizing, in addition to other
considerations, a credit scoring system. The credit scoring system includes
an assessment of residence and employment stability and credit bureau
information. Other considerations include income requirements and the ratio
of income to total debt. An assessment is made of the relative degree of
credit risk indicated by these criteria and the decision to grant or deny
credit is made at the appropriate management level. The system will recommend
approval for scores above a predetermined threshold and will recommend
rejection for scores below that level, although the underwriting staff for
the appropriate region has the ultimate approval or rejection authority.
The amount of a lease contract for a new or used Honda or Acura
motor vehicle generally will not exceed 100% of the dealer invoice cost of
the related leased vehicle plus optional features at the dealer cost, sales
tax, title and registration fees, insurance premiums for credit life and
credit disability insurance and certain fees for extended service contracts.
After an application has been approved by an AHFC branch office and
the prospective lessee has agreed to the terms of the related lease contract,
including an assignment of the lease contract from the Dealer to the
Origination Trust, AHFC receives from the Dealer a lease contract package
containing, among other things, the standard form lease contract between the
Dealer and the lessee, the customer's application, applicable insurance
information (company, agent and additional insured(s), with the Origination
Trust or Origination Trustee named as loss payee) and any payments due from
the customer. AHFC determines whether such package complies with its
requirements. The specifics of the lease contract are compared to the
application approved by the branch office, and the rate, truth-in-leasing
disclosures and purchase price from the Dealer are verified.
DETERMINATION OF RESIDUAL VALUES
The residual value committee of AHFC is charged with appropriately setting
end of lease residual values on all leased Honda and Acura motor vehicles.
Residual values are determined for each model, leasing term, and contractual
mileage. Where warranted, separate residuals are established for different
body styles, trim levels or engine size within a given model.
The committee consists of the Vice President of the Consumer Financial
Services Division, Senior Managers from Corporate Operations and Sales and
Marketing, the Manager of Vehicle Remarketing and Assistant Managers from
Sales and Marketing and Risk Management. The committee meets in March, July
and November of each year. Special meetings are called when either
operational factors or the releasing of a new model require a review. The
President of AHFC gives the final approval for residual values.
Prior to each committee meeting the Sales and Marketing Division looks at the
following factors before preparing its recommendations as to residual value
for the committee:
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- - the residual values that have been determined by AHFC's insurance
carrier, Premier Lease and Loan Services;
- - the residual values that have been established by Honda and Acura's
major competitors; and
- - industry trends with respect to valuation of the vehicles.
The factors that the committee uses prior to making a final determination are:
- - the insured residual value;
- - competitive positioning; and
- - AHFC's historical performance.
The residual value insurance will not be an asset of either the SUBI or the
Trust. The residual value insurance will remain as an asset of the Origination
Trust and will be allocated solely to the UTI.
REMARKETING PROGRAM
The Lease Maturity Center handles all ends of lease remarketing. The
Lease Maturity Center is a centralized operation in Irving, Texas. As of
[October 1998], the Lease Maturity Center employed a Manager, [two] Operations,
[three] Customer Service and [two] Collections Supervisors, and over [90]
employees in the areas of customer service, collections, accounting and titles.
The Lease Maturity Center attempts to deliver to each lessee marketing
information regarding that lessee's lease from the Lease Maturity Center
approximately twelve months from the related lease maturity date. The Lease
Maturity Center starts contacting and servicing the lessee six months prior to
lease maturity by mailing, each lessee a letter outlining such lessee's end of
lease options. Also at six months to maturity, the original Acura or Honda
dealership is mailed a list of lease contracts scheduled to mature within the
next six months. Included on this list is designation of lessees with AHFC
pre-approval for new lease contracts. Based on the lessee's credit history with
AHFC and other creditors, approximately 70% of AHFC's lease end-of-term lessees
are pre-approved for a new lease or loan through AHFC on behalf of the
Origination Trust.
At approximately four months prior to maturity, each lessee is mailed
additional information regarding their lease obligations, including the motor
vehicle inspection and turn-in process. The Lease Maturity Center contacts each
lessee approximately eighty days prior to maturity of the lease.
AHFC contacts the lessees to inform them of the end of lease process
and their options, and each lessee is encouraged to visit such lessee's Acura or
Honda dealership. Whether or not the lessee has decided to return the leased
motor vehicle, the lessee is encouraged to have the motor vehicle inspected
through an independent inspection company, Crawford and Co. AHFC continues to
contact each lessee until either a full residual value payoff is received or the
motor vehicle is returned to an Acura or Honda dealership.
INSURANCE
AHFC's form of lease contract requires that lessees maintain motor
vehicle liability and motor vehicle physical damage insurance on the leased
vehicle. The motor vehicle liability coverage must provide minimum limits of
$100,000 per person and $300,000 per accident for bodily injury to third
parties, and $50,000 for damage to the property of third parties. These
limits are higher than the minimum required
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<PAGE>
by statute in the various states. This coverage must name the
Origination Trust as an additional insured. The motor vehicle physical damage
coverage must provide comprehensive and collision coverage for the actual cash
value of the vehicle, with maximum deductibles of $500 for each such coverage,
and name the Origination Trust as loss payee. Since lessees may choose their own
insurers to provide the required coverage, the specific terms and conditions of
their policies vary. Lessees are required to provide evidence that the specified
insurance coverage and additional insured/loss payee provisions are in effect
for the duration of the lease.
AHFC does not require lessees to carry credit disability, credit life
or credit health insurance or other similar insurance coverage which provides
for payments to be made on the lease contracts on behalf of lessees in the event
of disability or death. To the extent that such insurance coverage is obtained
on behalf of a lessee, payments received in respect of such coverage may be
applied to payments on the related lease contract to the extent that the
lessee's beneficiary chooses to do so.
COLLECTION AND REPOSSESSION PROCEDURES
There are two methods for lessees to make monthly payments on lease
contracts. Most lessees mail payments to AHFC's lockbox although some lessees
use AHFC's automatic bank account debit program. AHFC considers a lease contract
to be past due and delinquent for servicing and enforcement of collection
purposes when the lessee fails to pay at least 90% of a scheduled payment by the
related due date; any portion of a scheduled payment not paid on the related due
date automatically becomes due with the next scheduled payment. A computer
generated delinquency notice is mailed to the lessee on the eleventh day of
delinquency and a follow up telephone call is made on the fifteenth day of
delinquency. If the delinquent contract cannot be brought current or completely
collected within approximately 60 days, AHFC generally attempts to repossess the
related leased vehicle. Repossessed vehicles are held in inventory to comply
with statutory requirements and then are sold (generally within 60 days after
repossession). Any deficiencies remaining after repossession and sale of the
vehicle or after the full charge-off of the related contract are pursued by AHFC
to the extent practicable and legally permitted. Lessees are contacted and, when
warranted by individual circumstances, repayment schedules are established and
monitored until the deficiencies are either paid in full or become impractical
to pursue.
EXTENSION POLICY
DISASTER RELIEF DEFERRAL. In response to natural disasters (e.g.,
floods, hurricanes, and tornadoes), AHFC's policy is to negotiate with any
affected lessee to insure payment on the contract. Lessees affected will
generally be able to defer a lease payment without charge or penalty. The lease
payment deferral will not extend the maturity date of the lease contract. All
disaster relief deferments require both Supervisor and Manager approval at the
applicable AHFC branch office. Lessees are required to sign a Lease Deferral
Agreement.
NON-DISASTER RELIEF DEFERRAL. Lessees who have encountered financial
difficulties due to extraordinary circumstances such as illness, temporary
unemployment or unexpected expenses may qualify for a non-disaster lease
deferral. Non-disaster lease deferrals are used in extreme circumstances and are
not utilized in normal business practices. The lease payment deferral does not
extend the maturity date of the lease contract. All non-disaster relief
deferrals require both Supervisor and Assistant Manager or Manager approval.
Lessees are required to sign a Lease Deferral Agreement.
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<PAGE>
TERM EXTENSIONS. Lease term extensions are only granted during the end
of lease process, normally during the last 45 days of a lease contract. Lessees
who at the end of a lease intend to lease another Honda or Acura motor vehicle
but cannot do so at lease maturity for reasons such as awaiting delivery of a
new vehicle, preference for next model year, other timing circumstances may
qualify for a term extension of up to a maximum of six months. A lessee must
have exhibited a good past payment history with AHFC on the lessee's current
lease contract to qualify for an extension and is required to sign a Lease
Extension Agreement.
The Servicing Agreement will require that Contracts not be extended by
more than ___ months in the aggregate (or by more than ___ months with the
inclusion of any deferrals) or to a date later than the last day of the month
immediately preceding the month in which the Final Scheduled Distribution Date
in respect of the Class B Notes occurs.
METHODS OF VEHICLE DISPOSAL
The Remarketing Department handles all motor vehicle sales for AHFC
including repossession and end of lease sales. The Remarketing Department is
managed at a centralized location in Irving, Texas, with Field Representative
Administrators located near their respective auction sites. As of [October
1998], the Remarketing Department consisted of the Remarketing Manager, the
Remarketing Supervisor, [six] Field Representative Administrators and [30]
administrative staff persons.
Upon lease contract maturity, the lessee has the opportunity to
purchase the motor vehicle at the residual value stated in the lease contract.
If the lessee does not purchase the motor vehicle and returns it to the
dealership, the receiving dealer has the option of purchasing the motor vehicle
at the residual value stated in the lease contract. On selected motor vehicles
determined by AHFC, the receiving dealer has the option of purchasing the
returned motor vehicle at a price lower than the residual value. This process is
called the Market Based Purchased Option ( the "MBPO Program") and AHFC sets the
value of the motor vehicle at the market price for a premium quality motor
vehicle. The market price for premium quality motor vehicles sold under the MBPO
Program is established by current AHFC auction information.
If the dealership does not purchase the motor vehicle at the full
residual value or through the MBPO Program, AHFC consigns the motor vehicle to
be picked up by either an auction or independent transport company. AHFC
maintains operating standards for auction and transport companies. AHFC requires
that each motor vehicle be assigned to a carrier within 24 hours of consignment
receipt and delivered to auction sites within seventy-two hours of carrier
assignment.
Each motor vehicle undergoes an auction condition report, including
motor vehicle condition grade. Each auction condition report is subsequently
faxed to AHFC. Each auction site is given latitude in repairing minor damage,
but all major damage is first reviewed by an AHFC Field Representative
Administrator prior to any repair. Each auction site should sell the motor
vehicle within 60 days of taking the motor vehicle into inventory.
AHFC has regular sales at over [16] major auction locations across the
United States. AHFC's highest volume region is the Northeast. In some instances,
AHFC will transport motor vehicles into different regions of the country where
it perceives there to be greater demand for such motor vehicles. Each auction
sells motor vehicles to licensed dealerships and does not sell to the public.
During [October 1998], AHFC had [42] scheduled sales.
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AHFC also sells motor vehicles through the internet through ADT and
Manheim's auction internet websites, which can be accessed by registered Acura
or Honda dealers. Approximately [300] vehicles were sold over the internet
during [September 1998]. Prices of motor vehicles sold on the internet are
determined by Field Remarketing Administrators based upon various vehicle
conditions.
YEAR 2000
AHFC has an ongoing program designed to resolve the potential impact of
year 2000 on the ability of AHFC's computerized information systems to
accurately process information that may be date sensitive. AHFC has identified
the critical data storage and operating systems and developed plans to ensure
the readiness of AHFC's systems to process dates beyond the year 2000. It is
anticipated that AHFC's systems will be year 2000 compliant by the spring of
1999. Independent consultants have been retained to assist in the development
and execution of the year 2000 action plan. AHFC has initiated communications
with dealers, financial institutions, and suppliers to determine the extent of
risk created by those third parties' failure to remediate their own year 2000
issues. At present, AHFC cannot determine the effect of failed remediation
efforts by these outside parties.
Costs associated with the year 2000 systems and software modifications
are expensed as incurred. The total estimated costs associated with the required
modifications to AHFC's computerized information systems are not expected to
have a material impact on AHFC's condition, financial and otherwise.
The inability of AHFC and its vendors and the parties with whom it
contracts to address the necessary year 2000 modifications of computerized
information systems could result in a significant adverse effect on AHFC's
operations and financial results including the inability to collect receivables,
pay obligations, process new business and occupy facilities. Any such inability
could have a material adverse effect on Noteholders. AHFC is in the process of
developing a contingency plan in the case of failure of the year 2000
remediation efforts. Completion of the contingency plan is expected by the end
of fiscal year 1999.
DELINQUENCY, REPOSSESSION AND LOSS DATA
Set forth below is certain information concerning AHFC's experience
with respect to its entire portfolio of new and used Honda and Acura motor
vehicle lease contracts, which includes lease contracts owned by AHFC or the
Origination Trust and those that have been sold but are still being serviced by
AHFC. Credit losses are an expected cost in the business of extending credit and
are considered in AHFC's rate-setting process. AHFC's strategy is to minimize
credit losses while providing financing support for the sale of Honda and Acura
motor vehicles.
AHFC establishes an allowance for expected credit losses and deducts
amounts reflecting lease contracts against such allowance. For lease contracts,
the account balance related to a lease contract is charged against the allowance
for credit losses when the contract has been delinquent for 120 days, unless
AHFC has repossessed the related leased vehicle. In such cases, the account
balances are not charged against the allowance for credit losses until AHFC has
either sold the repossessed related leased vehicle or held it in repossession
inventory for more than 90 days. Any recoveries from charge-offs related to a
lease contract are credited to the allowance.
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The data presented in the following tables are for illustrative
purposes only. Delinquency, repossession and loss experience may be influenced
by a variety of economic, social, geographic conditions and other factors beyond
the control of AHFC. There is no assurance that AHFC's delinquency, repossession
and loss experience with respect to its lease contracts and the related leased
vehicles in the future, or the experience of the Trust with respect to the
Contracts and the Leased Vehicles, will be similar to that set forth below.
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<PAGE>
RETAIL VEHICLE LEASE CONTRACT DELINQUENCY EXPERIENCE(1)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
At March 31,
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1998 1998 1997 1996 1995 1994
-------------------- ------------ --------------- ------------- ---------------- -----------
Units % Units % Units % Units % Units % Units %
----- - ----- - ----- - ----- - ----- - ----- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ending Dollar Amount of
Lease Contracts
Outstanding (2)........ $ % $ % $ % $ % $ % $ %
Ending Number of Lease
Contracts Outstanding.. % % % % % %
Percentage of Lease
Contracts
Delinquent[(3)](4)(5) % % % % % %
31-60 Days............. % % % % % %
61-90 Days............. % % % % % %
91 Days or More........ % % % % % %
Total............... % % % % % %
</TABLE>
- ---------------
(1) Includes lease contracts that have been sold but are still being serviced
by AHFC.
(2) Based on the sum of all principal amounts outstanding under lease contracts
(inclusive of the residual values of the related leased vehicles).
[(3) Excludes lease contracts the related lessees of which are bankrupt or have
commenced bankruptcy proceedings. As of September 30, 1998, approximately
_____ lease contracts involving bankrupt lessees were delinquent for at
least _____ days.]
(4) The period of delinquency is based on the number of days payments of at
least 10% of a monthly payment are contractually past due.
(5) As a percentage of the total number of lease contracts at period end.
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE(1)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
At or for the Fiscal Year Ended March 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Ending Number of Lease Contracts
Outstanding..............
Average Lease Contracts
Outstanding..............
Repossessions:
Number of Repossessions..
Number of Repossessions as a
Percentage of:
Lease Contracts
Outstanding.........
Average Lease Contracts
Outstanding..........
Losses:
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<PAGE>
Dollar Amount of Lease Contracts
Outstanding (2).......... $ $ $ $ $
Average Net Receivables
Outstanding.......... $ $ $ $ $
Net Repossession Losses(3)
Average Net Repossession
Loss per Liquidated
Lease Contract(2)(4). $ $ $ $ $
Net Repossession Losses as
a Percentage of Average
Net Receivables
Outstanding.......... $ $ $ $ $
% % % %
</TABLE>
- ---------------
(1) Includes lease contracts that have been sold but are still being serviced
by AHFC.
(2) Based on the sum of all principal amounts outstanding under lease contracts
(inclusive of the residual values of the related leased vehicles).
(3) Includes losses on charged-off accounts, but does not include expenses
incurred to dispose of vehicles.
(4) Dollars not in thousands.
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<PAGE>
RESIDUAL VALUE LOSS EXPERIENCE(1)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
At or for the Fiscal Year Ended March 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total Number of Leased
Vehicles Scheduled to
Terminate...............
Number of Returned Vehicles
Sold by AHFC(2).........
Full Termination Ratio(3).. % % % % %
Total Losses on Returned
Vehicles Sold by AHFC(4). $ $ $ $ $
Average Loss Per Returned
Vehicle Sold by AHFC(5).
$ $ $ $ $
Losses as a Percentage of
Residual Values of
Returned Vehicles Sold by
AHFC(6)................. $ $ $ $ $
Losses as a Percentage of
Residual Values of
Scheduled Terminations(7). $ $ $ $ $
Total Losses/(Gains) on
Vehicles that Reached
Scheduled Term(4)....... $ $ $ $ $
</TABLE>
- ---------------
(1) Includes lease contracts that have been sold but are still being serviced
by AHFC. To the extent that average maturity of lease contracts vary over
time, the residual value loss experience for the periods in the table may
not be fully comparable.
(2) Number of Matured Contracts for which vehicles had been returned to and
sold by AHFC.
(3) The ratio of returned vehicles sold during the stated period over vehicles
scheduled (as of the date of origination of the related lease contracts) to
terminate during such period expressed as a percentage.
(4) Losses include expenses incurred to dispose of vehicles but exclude certain
amounts received after the sale and disposition of the vehicle.
(5) Dollars not in thousands.
(6) The ratio of total losses on returned vehicles sold by AHFC during the
stated period over the Residual Values of such vehicles expressed as a
percentage.
(7) The ratio of total losses on returned vehicles sold by AHFC during the
stated period over the Residual Values of all vehicles under lease
contracts scheduled to terminate during the stated period expressed as a
percentage.
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THE CONTRACTS
GENERAL
The Contracts will consist of a pool of ________ motor vehicle
closed-end retail lease contracts, for new or used Honda and Acura motor
vehicles, having an aggregate principal balance of $_______ as of the Cutoff
Date and an aggregate discounted principal balance of $_______ as of the Cutoff
Date, originated by Dealers located throughout the United States, each of which
has an original term to maturity of not more than ___ months, selected from the
Origination Trust's portfolio of retail closed-end Honda and Acura motor vehicle
lease contracts that are not evidenced by or reserved for allocation to an Other
SUBI. The Contracts were originated by Dealers and assigned to the Origination
Trust, in accordance with the underwriting procedures previously described under
"American Honda Finance Corporation -- Lease Contract Underwriting Procedures".
The Contracts have been selected based upon the criteria specified in the SUBI
Trust Agreement and described under "The Contracts -- Characteristics of the
Contracts -- General" and " -- Representations, Warranties and Covenants". AHFC
will represent and warrant that, except as otherwise described in the
immediately preceding sentence, no adverse selection procedures were employed or
will be employed in selecting the Contracts for inclusion in the SUBI Assets and
that it is not aware of any bias in the selection of such Contracts that would
cause the delinquencies or losses on such Contracts to be greater than those
experienced on other retail closed-end lease contracts held in the Origination
Trust's portfolio; however, there can be no assurance that the delinquencies or
losses on the Contracts will not be greater than either such experience on such
other Contracts.
Each Contract will be a finance lease for accounting purposes and will
have been written for a capitalized cost (which may exceed the manufacturer's
suggested retail price), plus an implicit rate in each Contract calculated as an
annual percentage rate (the "Lease Rate") on a constant yield basis. The
Contracts will provide for equal monthly payments (the "Monthly Payments") such
that at the end of the related Contract term such capitalized cost will have
been amortized to an amount equal to the residual value of the related Leased
Vehicle established at the time of origination of such Contract (the "Residual
Value"). See "American Honda Finance Corporation -- Determination of Residual
Values". The amount to which the capitalized cost of a Contract has been
amortized at any point in time is referred to herein as its "Outstanding
Principal Balance".
The "Aggregate Net Investment Value" as of any day will equal the sum
of (i) the Discounted Principal Balance of all Contracts other than Charged-off,
Liquidated, Matured and Additional Loss Contracts and (ii) the aggregate
Residual Value of all Leased Vehicles to the extent that the related Contracts
have reached their scheduled maturities and as to which all payments relating to
the Contracts have been made (each, a "Matured Contract") within the three
immediately preceding Collection Periods but which Leased Vehicles as of the
last day of the most recent Collection Period have remained unsold and not
otherwise disposed of by the Servicer for no more than two full Collection
Periods (the "Matured Leased Vehicle Inventory"). The "Discounted Principal
Balance" of (i) a Contract (or the related Leased Vehicle) with a Lease Rate
less than _____% (each, a "Discounted Contract") will equal the present value of
all remaining Monthly Payments on such Contract and the Residual Value of the
related Leased Vehicle, calculated using a discount rate of _____%, and (ii) all
Contracts other than Discounted Contracts will equal their Outstanding Principal
Balance. As of the Cutoff Date, the aggregate Discounted Principal Balance of
the Contracts and the Aggregate Net Investment Value was $__________. A
"Collection Period" is the month immediately preceding the month in which a
Distribution Date occurs.
33
<PAGE>
All of the Contracts will be closed-end leases. Under a closed-end
lease, at the end of its term, if the lessee does not elect to purchase the
related leased vehicle by exercise of the purchase option contained in such
lease contract, the lessee is required to return the leased vehicle to or upon
the order of the lessor, at which time the lessee will then owe only incidental
charges for excess mileage, excessive wear and use and other items that may be
due under such lease. In contrast, under an open-end lease, the lessee is also
obligated to pay at the end of the lease term any deficit between the fair
market value of the leased vehicle at that time and the residual value
established at the time of origination of such lease.
Each lessee will be permitted to purchase the Leased Vehicle at the end
of the term of the related Contract. The purchase price will be a fixed dollar
amount equal to the Residual Value plus any applicable taxes and all other
incidental charges that may be due under the Contract. In addition, each
Contract will allow the related lessee voluntarily to terminate such Contract by
paying certain miscellaneous charges and a termination amount more fully
described below. In most instances, the Contracts are not expected to run to
their full terms. See "Risk Factors -- The Return on Your Investment Will Change
Over Time" and "Maturity, Prepayment and Yield Considerations".
Each Contract will provide that the lessor may terminate such Contract
and repossess the Leased Vehicle in the event of a default by the lessee. Events
of default under the Contracts will include, but will not be limited to, failure
to make payment when due, certain events of bankruptcy or insolvency, failure to
maintain the insurance required by the Contract, and failure to maintain or
repair the Leased Vehicle as required or to comply with any other term or
condition of the Contract which has a material adverse effect on the lessee's
ability to make payments or the lessor's ability to recover the full Residual
Value of the Leased Vehicle.
In the forms of contract used by the Dealers to evidence the Contracts,
upon early termination where the lessee is not in default and does not exercise
its option to purchase the Leased Vehicle, the amount owed by the lessee (the
"Early Termination Charge") will be determined by adding (i) any due but unpaid
Monthly Payments and any incidental charges owing under the Contract except
excess mileage charges and (ii) the Outstanding Principal Balance less the
Realized Value from the sale or other disposition of the related Leased Vehicle
and applying the Security Deposit to reduce any deficiency. If, instead, there
is an early termination and the lessee is in default, the amount owed by a
lessee in default will be determined by adding (i) the Early Termination Charge,
(ii) payments accrued under the Contract through the date of termination, (iii)
collection, repossession transportation and storage expenses (iv) official fees
and taxes and (v) reasonable attorneys' fees and court costs (to the extent
permitted by law).
The "Realized Value" of a Leased Vehicle is the actual sale price
less any fees and taxes incurred on the sale or the sale price determined by
AHFC and the lessee in a written agreement. However, each Contract provides
that the lessee has the right to obtain (at the lessee's expense) from an
independent third party acceptable to the lessor a professional appraisal of
the amount of the Leased Vehicle that could be realized at sale. This
appraised value then would be used as the realized value for purposes of
calculating sums due from the lessee. Although AHFC cannot predict whether
any lessee will challenge the price determined by AHFC, management of AHFC is
unaware of any successful such challenge by any lessee under its retail
closed-end lease contracts.
In the event of early termination of a Contract where the lessee is in
default, the amounts collected with respect to such Contract and the related
Leased Vehicle (after deducting the costs and other sums retained by the
Servicer in connection therewith) may be less than the Outstanding Principal
Balance of such Contract, which shortfall can be due to, among other things, the
use of a wholesale appraisal of a Leased Vehicle as described above. If a
Contract reaches the date on which the last
34
<PAGE>
Monthly Payment is due, as such date may have been extended (the "Maturity
Date"), but the related Leased Vehicle cannot be sold or otherwise disposed
of for a net amount at least equal to its Residual Value, there may be an
additional shortfall in amounts otherwise expected to be received in respect
of the SUBI Interest. If any of the foregoing shortfalls is not covered from
the Investor Percentage of certain excess Interest Collections, amounts
otherwise payable to the Transferor in respect of the Certificates, amounts
on deposit in the Reserve Fund, the subordination of interest payments
otherwise payable to the Class B Noteholders and, in the case of the Class
A-4 Notes, the subordination of principal payments otherwise payable to the
Class B Noteholders, in each case to the extent described herein, investors
in the Notes could suffer a loss on their investments.
CHARACTERISTICS OF THE CONTRACTS
GENERAL
The Contracts were selected using several criteria, including, as of
the Cutoff Date, that each Contract (i) is written with respect to a Leased
Vehicle that was at the time of the origination of the related lease contract a
new or used motor vehicle; (ii) was originated in the United States after
________, 199_; (iii) has a Maturity Date on or after ________, 200_ and no
later than ________, 200_; (iv) fully amortizes to an amount equal to the
Residual Value of the related Leased Vehicle based on a fixed Lease Rate
calculated on a constant yield basis and provides for level payments over its
term (except for payment of the Residual Value); (v) was not more than __ days
past due as of the Cutoff Date; and (vi) has never been extended for more than
_____ months in the aggregate. The Contracts consist of __________ lease
contracts. As of the Cutoff Date, the Lease Rate of the Contracts ranged from
_____% to _____%, with a weighted average Lease Rate of _____%. The aggregate of
the original principal balances of the Contracts as of their respective dates of
origination was $__________. As of the Cutoff Date, the aggregate Outstanding
Principal Balance of the Contracts was $__________, the aggregate Residual Value
of the Leased Vehicles was $__________ and the Contracts had a weighted average
original term of _____ months and a weighted average remaining term to scheduled
maturity of _____ months. Appearing below is some additional information
regarding the characteristics of the Contracts:
<TABLE>
<CAPTION>
Average Minimum Maximum
------------ ------------ -------------
<S> <C> <C> <C>
Original Principal Balance..................... $ $ $
Outstanding Principal Balance(1)............... $ $ $
Residual Value................................. $ $ $
Lease Rate(1).................................. %(2) % %
Seasoning (months)(1).......................... (2)
Remaining Term (months)(1)..................... (2)
</TABLE>
- ---------------
(1) As of the Cutoff Date.
(2) Weighted by Outstanding Principal Balance as of the Cutoff Date.
DISTRIBUTION OF THE LEASED VEHICLES BY MAKE
As of the Cutoff Date, the composition of the Leased Vehicles by make
of vehicle was as follows:
35
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Contracts Number of Contracts
--------------- -------------------------
<S> <C> <C>
Honda.................................. %
Acura.................................. .
----------- ---------
Total......................... 100.00%
=========== =========
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY LEASE RATE
The distribution of the Contracts as of the Cutoff Date by Lease Rate
was as follows:
<TABLE>
<CAPTION>
Percentage of
Percentage of Cutoff Date Aggregate Cutoff
Number of Number of Outstanding Date Outstanding
Lease Rate Range Contracts Contracts Principal Balance Principal Balance
- -------------------- ----------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
3.00% to 3.99%......... % $ %
4.00% to 4.99%.........
5.00% to 5.99%.........
6.00% to 6.99%.........
7.00% to 7.99%.........
8.00% to 8.99%.........
9.00% to 9.99%.........
10.00% to 10.99%.........
11.00% to 11.99%.........
12.00% to 12.99%.........
------ ------ ---------- ------
Total 100.00% $ 100.00%
====== ====== ========== ======
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY MATURITY
The distribution of the Contracts as of the Cutoff Date by year of
maturity was as follows:
<TABLE>
<CAPTION>
Percentage of
Percentage of Cutoff Date Aggregate Cutoff
Number of Number of Outstanding Date Outstanding
Year of Maturity Contracts Contracts Principal Balance Principal Balance
- -------------------- ----------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
1999..................... % $ %
2000.....................
2001.....................
2002.....................
------ ------ ---------- ------
Total 100.00% $ 100.00%
====== ====== ========== ======
</TABLE>
36
<PAGE>
DISTRIBUTION OF THE CONTRACTS BY STATE
The distribution of the Contracts as of the Cutoff Date by State of
origination, specified for States representing 5% or more of the number of
Contracts, was as follows:
<TABLE>
<CAPTION>
Percentage of
Percentage of Cutoff Date Aggregate Cutoff
Number of Number of Outstanding Date Outstanding
State Contracts Contracts Principal Balance Principal Balance
- ---------- --------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
California.................... % $ %
......................
......................
......................
......................
All other states..............
------ ------ ---------- ------
Total 100.00% $ 100.00%
====== ====== ========== ======
</TABLE>
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Contracts and Leased Vehicles will be described in a schedule
appearing as an exhibit to the SUBI Supplement (the "Schedule of Contracts
and Leased Vehicles"). The Schedule of Contracts and Leased Vehicles will
identify each Contract by its contract identification number, will identify
each Leased Vehicle by its vehicle identification number and will set forth
as to each such Contract, among other things, its: (i) date of origination;
(ii) Maturity Date; (iii) Monthly Payment; (iv) original capitalized cost;
(v) Outstanding Principal Balance and Discounted Principal Balance as of the
Cutoff Date; and (vi) Residual Value. In the Servicing Agreement,
representations and warranties will be made with respect to each Contract and
Leased Vehicle to the effect described in the text of the first paragraph
under "The Contracts -- Characteristics of the Contracts -- General", and
certain other representations and warranties will be made, including, among
other things, that each such Contract and, to the extent applicable, the
related Leased Vehicle or lessee: (a) was originated by a Dealer located in
the United States in the ordinary course of its business and in compliance
with AHFC's customary credit and collection policies and practices; (b) is
owned by the Origination Trust or the Origination Trustee, free of all liens,
encumbrances or rights of others (other than the holder of any Administrative
Liens); (c) was originated in compliance with, and complies with, all
material applicable legal requirements; (d) all material consents, licenses,
approvals or authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given by the
originator of such Contract and the Origination Trustee in connection with
(i) the origination of such Contract, (ii) the execution, delivery and
performance by such originator of the Contract and (iii) the acquisition by
the Origination Trust of such Contract and Leased Vehicle, have been duly
obtained, effected or given and are in full force and effect as of such date
of creation or acquisition; (e) is the legal, valid and binding obligation of
the lessee; (f) to the knowledge of the Servicer, is not subject to any right
of rescission, setoff, counterclaim or other defense of the related lessee to
pay the Outstanding Principal Balance due under such Contract and no such
right of rescission, offset, defense or counterclaim has been asserted or
threatened; (g) each of the related Dealer, the Servicer and the Origination
Trustee has each satisfied all obligations required to be fulfilled on its
part with respect thereto; (h) is payable solely in United States dollars in
the United States; (i) the lessee thereunder is located in the United States
and is not (i) AHFC, the Transferor or any of their respective affiliates or
(ii) the United States or any state or local government thereof, or any
agency, department or instrumentality of the United States or any state or
37
<PAGE>
local government thereof; (j) requires the lessee to maintain insurance
against loss or damage to the related Leased Vehicle under an insurance
policy that names the Origination Trust, the Origination Trustee or a
co-trustee as loss payee; (k) the related certificate of title is registered
in the name of the Origination Trust or the Origination Trustee (or a
properly completed application for such title has been submitted to the
appropriate titling authority); (l) is a closed-end lease that requires (i)
equal monthly payments to be made within 60 months of the date of origination
of such Contract and (ii) such payments to be made by the lessee thereof
within 30 days after the billing date for such payment; (m) is fully
assignable and does not require the consent of the lessee as a condition to
any transfer, sale or assignment of the rights of the originator; (n) has a
Residual Value that does not exceed an amount reasonably established by the
Servicer consistent with its policies and practices; (o) has never been
extended by more than six months in the aggregate or otherwise modified
except in accordance with AHFC's normal credit and collection policies and
practices; (p) is not an Other SUBI Asset; (q) to the knowledge of AHFC, the
lessee thereunder is not bankrupt or currently the subject of a bankruptcy
proceeding; (r) is not more than 60 days past due; (s) is a finance lease for
accounting purposes; and (t) is a "true lease" for applicable state law
purposes relating to the perfection of security interests.
The Servicing Agreement will provide that upon the discovery by the
Origination Trustee, AHFC, the Owner Trustee, the Indenture Trustee or the
Transferor of a breach of any representation, warranty or covenant referred
to in the preceding paragraph that materially and adversely affects the
Origination Trust, the owners of interests in the SUBI or the Noteholders in
the related Contract or Leased Vehicle, which breach is not cured in all
material respects within 60 days after AHFC discovers such breach or is given
notice thereof, such Contract and Leased Vehicle (and any other related SUBI
Assets) will be reallocated to the UTI or, in certain circumstances, to AHFC.
In connection with such reallocation, AHFC will be required to deposit (or
cause to be deposited) into the SUBI Collection Account an amount (the
"Reallocation Payment") equal to the Discounted Principal Balance of such
Contract as of the last day of the Collection Period during which the related
cure period ended, plus an amount equal to any imputed interest, lease charge
or Monthly Payment on such Contract at the related Lease Rate that was
delinquent as of the end of such Collection Period. The foregoing payment
obligation will survive any termination of AHFC as Servicer under the
Servicing Agreement.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The rate of payment of principal of the Notes will depend on the
rate of payments on or in respect of the Contracts and the Leased Vehicles
(including scheduled payments on and prepayments and liquidations of the
Contracts) and losses with respect thereto, which cannot be predicted with
certainty. In addition, because payments made on or in respect of the
Contracts and the Leased Vehicles that are allocable to the SUBI Interest
will ordinarily be distributed to Noteholders according to the timing of
their receipt, the rate of principal payments on the Notes and the yield to
maturity of the Notes generally will be directly related to the rate at which
payments on or in respect of the Contracts and the Leased Vehicles are made.
The rate of payment of principal of the Notes may also be affected by payment
by AHFC of Reallocation Payments in respect of certain Contracts as to which
an uncured breach of certain representations and warranties or certain
servicing covenants has occurred and the exercise by the Servicer of its
right to purchase all of the assets of the Trust at its option under certain
circumstances pursuant to the Agreement, thereby triggering a redemption of
the Notes. A substantial increase in the rate of payments on or in respect of
the Contracts and Leased Vehicles (including prepayments and liquidations of
the Contracts) or a substantial increase in the amount of Loss Amounts may
shorten the final maturity of and may significantly affect the yields on each
Class of Notes. See "Description of the Notes -- Termination of the Trust;
Redemption of the Notes", "The Contracts -- Representations,
38
<PAGE>
Warranties and Covenants" and "Additional Document Provisions -- The
Servicing Agreement -- Collections."
In general, no principal payments (including allocations of Covered
Loss Amounts) will be made on (i) the Class A-2 Notes until the Class A-1
Notes have been paid in full, (ii) the Class A-3 Notes until the Class A-2
Notes have been paid in full or (iii) Class A-4 or Class B Notes until the
Class A-3 Notes have been paid in full. Principal payments in respect of the
Class A-4 and Class B Notes will be based on the fixed Class A Percentage and
Class B Percentage, which will be calculated when the Class A-1, Class A-2
and Class A-3 Notes have been paid in full, and then used to determine the
distribution of principal payments on the Class A-4 Notes and the Class B
Notes, which may affect the maturity and yield on the Class A-4 Notes. The
Investor Percentage of Uncovered Loss Amounts will be allocated first to the
Certificates until the Certificate Balance has been reduced to zero, then to
the Class B Notes until the related Note Balance has been reduced to zero and
then on a pro rata basis among each Class of Class A Notes based on the
related Class Allocation Percentages. As a result of the sequential payment
of principal to each Class of Class A Notes, because Uncovered Loss Amounts
incurred following the reduction of the Class B Note Balance to zero will be
allocated on each Distribution Date based on the then-current Class
Allocation Percentages, each Class of Class A Notes with a later maturity may
be allocated more Loss Amounts than each Class of Class A Notes with an
earlier maturity as a relative percentage of their respective Initial Note
Balances.
All of the Contracts are prepayable, in whole or in part, at any
time without penalty. The prepayment experience with respect to the Contracts
will affect the life of the Notes. In general, the rate of prepayments on the
Contracts may be influenced by a variety of economic, social, geographic and
other factors beyond the control of AHFC. The Origination Trust began to
accept assignments of lease contracts on November 25, 1997. All of the lease
contracts assigned to the Origination Trust for allocation as SUBI Assets
since that time have been, and all of the lease contracts to be assigned to
the Origination Trust subsequent to the date of this Prospectus will be,
assigned by Dealers using AHFC's underwriting standards. As more fully
described under "American Honda Finance Corporation -- Methods of Vehicle
Disposal", AHFC actively encourages lessees under lease contracts with
remaining terms of less than twelve to eighteen months, depending on the
model and lease term to either buy, trade in or refinance the related leased
vehicles prior to the scheduled maturities of the related lease contracts. As
part of this program, during the last several months of a lease contract AHFC
may selectively offer certain incentives to encourage lease contract
terminations, which may result in residual value losses. AHFC estimates that
for the three fiscal years ended March 31, 1998 and the six months ended
September 30, 1998, an average of approximately __% of the number of retail
lease contracts in its portfolio (including those owned by AHFC or the
Origination Trust and those that had been sold but still were being serviced
by AHFC) that were scheduled to mature during such period were terminated
prior to maturity, either because of voluntary prepayments or repossession of
the leased vehicles due to default by the lessees under the related lease
contracts. AHFC is not aware of any publicly available industry statistics
that set forth termination rates for retail closed-end lease contracts
similar to the Contracts.
Historical levels of lease contract defaults, leased vehicle
repossessions and losses and residual value losses are discussed under "American
Honda Finance Corporation -- Delinquency, Repossession and Loss Data". No
assurances can be given that the Contracts will experience the same rate of
prepayment or default or any greater or lesser rate than AHFC's historical rate,
or that the Residual Value experience of Leased Vehicles related to Contracts
that have reached their Maturity Dates will differ from AHFC's historical
residual value loss experience for all of the retail lease contracts in its
portfolio
39
<PAGE>
(including those owned by the Origination Trust or the Origination
Trustee and those that had been sold but still were being serviced by AHFC).
The effective yield on, and average life of, each Class of Notes
will depend upon, among other things, the amount of scheduled and unscheduled
payments on or in respect of the Contracts and the Leased Vehicles and the
rate at which such payments are paid to the Noteholders. In the event of
prepayments of the Contracts (and payment of the Residual Value of the
related Leased Vehicles), Noteholders who receive such amounts may not be
able to reinvest the related payments of principal received on the Notes at
yields as high as the related Note Rate. The timing of changes in the rate of
prepayments on the Contracts and payments in respect of the Leased Vehicles
may also affect significantly an investor's actual yield to maturity and the
average life of the related Class of Notes. A substantial increase in the
rate of payments on or in respect of the Contracts and Leased Vehicles
(including prepayments and liquidations of the Contracts) may shorten the
final maturity of and may significantly affect the yield on the Notes.
The yield to an investor who purchases Notes in the secondary market
at a price other than par will vary from the anticipated yield if the rate of
prepayment on the Contracts is actually different than the rate anticipated
by such investor at the time such Notes were purchased.
In sum, an investor's expected yield will be affected by the
following factors: (i) the price the investor paid for the Notes, (ii) the
rate of prepayments in respect of the Contracts and Leased Vehicles and (iii)
the investor's assumed reinvestment rate. These factors do not operate
independently, but are interrelated. For example, if the rate of prepayments
on or in respect of the Contracts and Leased Vehicles is slower than
anticipated, the investor's yield will be lower if interest rates are higher
than the investor anticipated and higher if interest rates are lower than the
investor anticipated. Conversely, if the rate of prepayments on or in respect
of the Contracts and Leased Vehicles is faster than anticipated, the
investor's yield will be higher if interest rates are higher than the
investor anticipated and lower if interest rates are lower than the investor
anticipated.
In addition, the Investor Percentage of the net proceeds of any sale
or other disposition of the SUBI Interest, the SUBI Certificate and other
property of the Trust, which may occur under certain circumstances involving
an Indenture Event of Default, to the extent such net proceeds constitute
Principal Collections, will be distributed first, on a pro rata basis, to the
Class A Noteholders based on their respective Class Note Balances until the
Class A Notes have been paid in full, and second, to the Class B Noteholders.
Prepayments on motor vehicle lease contracts may be measured by a
prepayment standard or model. The prepayment model used with respect to the
Contracts is based on a prepayment assumption (the "Prepayment Assumption")
expressed in terms of percentages of ABS. "ABS" refers to a prepayment model
which assumes a constant percentage of the original number of Contracts in a
pool prepay each month. However, as used herein, a 100% Prepayment Assumption
assumes that, based on the assumptions in the next paragraph, the original
Outstanding Principal Balance of a Contract will prepay as follows: (i) ____%
ABS for the first six months of the life of the Contract, (ii) ____% ABS for the
seventh through twelfth month of the life of the Contract, (iii) ____% ABS for
the thirteenth through eighteenth month of the life of the Contract, (iv) ____%
ABS for the nineteenth through twenty-fourth month of the life of the Contract
and (v) ____% ABS following the twenty-fourth month of the life of the Contract
until the original Outstanding Principal Balance of the Contract has been paid
in full. Neither ABS nor the Prepayment Assumption purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of lease contracts, including the Contracts. There can
40
<PAGE>
be no assurance that the Contracts will prepay at the indicated levels of the
Prepayment Assumption or at any other rate.
The tables below were prepared on the basis of certain assumptions,
including that: (i) all Collections (including Monthly Payments and net sale
proceeds in respect of the Leased Vehicles relating to Matured Contracts) are
timely received, and that no Contracts are ever delinquent; (ii) no
Reallocation Payment is made in respect of any Contract; (iii) there are no
Loss Amounts; (iv) the Servicer exercises its optional purchase option of the
property of the Trust as described herein; (v) all distributions of principal
and interest on the Notes are made on the dates specified herein; (vi) the
Servicing Fee is 1% per annum of 99.8% of the Aggregate Net Investment Value;
(vii) all prepayments are full Prepayments; and (viii) the Contracts have
assumed Lease Rates of ___% and were originated ____ months prior to the
Cutoff Date.
No representation is made as to what the actual levels of losses and
delinquencies on the Contracts will be. Because the Contracts will have
characteristics which differ from those assumed in preparing the following
tables, distributions of principal on the Notes may be made earlier or later
than set forth in the tables. The tables are provided solely to illustrate
the effect of prepayments of the Contracts on the Class A-1 Note Balance, the
Class A-2 Note Balance, the Class A-3 Note Balance, the Class A-4 Note
Balance and the Class B Note Balance and the weighted average life of each
Class of Notes under the assumptions stated below and are not a prediction of
the prepayment rates that might actually be experienced with respect to the
Contracts. Investors are urged to make their investment decisions on a basis
that includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
The following tables set forth the percentages of the Initial Note
Balance of each Class of Notes that would be outstanding after each of the
dates shown, based on a rate equal to 0%, 50%, 100%, 150% and 200% of the
Prepayment Assumption. As used in the table, "0% Prepayment Assumption"
assumes no prepayments on a Contract, "50% Prepayment Assumption" assumes
that a Contract will prepay at 50% of the Prepayment Assumption, and so forth.
41
<PAGE>
PERCENTAGE OF INITIAL CLASS A-1 PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS A-1 NOTES
<TABLE>
<CAPTION>
Prepayment Assumption
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
- ------------------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
________ 1999......................... 100% 100% 100% 100% 100%
________ 2000.........................
________ 2001.........................
________ 2002.........................
________ 2003.........................
Weighted Average Life (Years)(1)......
=========== =========== =========== ========== ========
</TABLE>
- ------------------------
(1) The weighted average life of the Class A-1 Notes is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-1 Note
Balance.
PERCENTAGE OF INITIAL CLASS A-2 PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS A-2 NOTES
<TABLE>
<CAPTION>
Prepayment Assumption
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
- ------------------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
________ 1999......................... 100% 100% 100% 100% 100%
________ 2000.........................
________ 2001.........................
________ 2002.........................
________ 2003.........................
Weighted Average Life (Years)(1)......
=========== =========== =========== ========== ========
</TABLE>
- ------------------------
(1) The weighted average life of the Class A-2 Notes is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-2 Note
Balance.
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<PAGE>
PERCENTAGE OF INITIAL CLASS A-3 PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS A-3 NOTES
<TABLE>
<CAPTION>
Prepayment Assumption
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
- ------------------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
________ 1999......................... 100% 100% 100% 100% 100%
________ 2000.........................
________ 2001.........................
________ 2002.........................
________ 2003.........................
Weighted Average Life (Years)(1)......
============ ============ ============ ============ =========
</TABLE>
- ------------------------
(1) The weighted average life of the Class A-3 Notes is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-3 Note
Balance.
PERCENTAGE OF INITIAL CLASS A-4 PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS A-4 NOTES
<TABLE>
<CAPTION>
Prepayment Assumption
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
- ------------------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
________ 1999......................... 100% 100% 100% 100% 100%
________ 2000.........................
________ 2001.........................
________ 2002.........................
________ 2003.........................
Weighted Average Life (Years)(1)......
============ ============ ============ ============ =========
</TABLE>
- ------------------------
(1) The weighted average life of the Class A-4 Notes is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-4 Note
Balance.
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<PAGE>
PERCENTAGE OF INITIAL CLASS B PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS B NOTES
<TABLE>
<CAPTION>
Prepayment Assumption
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
- ------------------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
________ 1999......................... 100% 100% 100% 100% 100%
________ 2000.........................
________ 2001.........................
________ 2002.........................
________ 2003.........................
Weighted Average Life (Years)(1)......
============ ============ ============ ============ =========
</TABLE>
- ------------------------
(1) The weighted average life of the Class B Notes is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class B Note
Balance.
NOTE FACTORS AND TRADING INFORMATION
REPORTS TO NOTEHOLDERS
The "Note Factor" with respect to any Class of Notes will be a
seven-digit decimal that the Servicer will compute each month indicating the
Note Balance of the related Class of Notes as of the close of business on the
Distribution Date in such month as a fraction of the Initial Note Balance of
such Class of Notes. Each Note Factor will initially be 1.0000000 and will
decline to reflect reductions in the related Note Balance resulting from
distributions of principal and unreimbursed Note Principal Loss Amounts, if
any. The portion of the Note Balance of a Class of Notes for a given month
allocable to a holder of Notes of such Class can be determined by multiplying
the original denomination of the holder's Note by the related Note Factor for
that month.
Pursuant to the Agreement, the Indenture Trustee will provide to all
registered holders of the Notes (which shall be Cede & Co. ("Cede") as the
nominee of The Depository Trust Company ("DTC") unless definitive notes are
issued under the limited circumstances described herein) unaudited monthly
reports concerning payments received on or in respect of the Contracts and
the Leased Vehicles, the Aggregate Net Investment Value, the Investor
Percentage, the Class A-1, Class A-2, Class A-3, Class A-4 and Class B Note
Factors and various other items of information. A person acquiring an
interest in the Notes (each, a "Note Owner" may obtain copies of such reports
upon a request in writing to the Indenture Trustee. In addition, Noteholders
during each calendar year will be furnished information for tax reporting
purposes not later than the latest date permitted by law. For further details
concerning information furnished to Noteholders and Note Owners, see
"Description of the Notes --Statements to Noteholders" and "Description of
the Notes -- Book-Entry Registration".
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<PAGE>
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture, a form of which,
together with forms of the Agreement, the SUBI Trust Agreement and the
Servicing Agreement, has been filed as an exhibit to the Registration
Statement on Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement"), of which this Prospectus is a part. The following
summaries of all material provisions of the foregoing documents and the
summaries of all material provisions included elsewhere in this Prospectus do
not purport to be complete and are subject to, and qualified in their
entirety by reference to, the actual provisions of such documents. Where
particular provisions of or terms used in the Indenture, the Agreement, the
SUBI Trust Agreement and the Servicing Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
GENERAL
Each Note will represent the right to receive monthly payments of
interest at the related Note Rate and, to the extent described herein,
monthly payments of principal. These payments will be funded from the
Investor Percentage of distributions to the Trust of Interest Collections and
Principal Collections allocable to the SUBI Interest and monies on deposit in
the Reserve Fund, in each case to the extent described herein. The Class B
Notes will be subordinated to the Class A Notes so that (i) interest payments
generally will not be made in respect of the Class B Notes until interest in
respect of the Class A Notes has been paid, (ii) principal payments generally
will not be made in respect of the Class B Notes until the Class A-1, Class
A-2 and Class A-3 Notes have been paid in full and (iii) if other sources
available to make payments of principal and interest on the Class A-4 Notes
are insufficient, amounts that otherwise would be paid in respect of the
Class B Notes generally will be available for that purpose, as more fully
described under "Description of the Notes -- Distributions on the Notes". The
Certificates will be subordinated to the Notes.
The Notes will be issued in denominations of $1,000 and integral
multiples thereof in book-entry form. The Notes will initially be represented
by global notes registered in the name of Cede, the nominee of DTC. No Note
Owner will be entitled to receive a note representing such owner's Note,
except as set forth below. Unless and until Notes are issued in fully
registered certificated form ("Definitive Notes") under the limited
circumstances described below, all references herein to distributions,
notices, reports and statements to Noteholders will refer to the same actions
made with respect to DTC or Cede, as the case may be, for the benefit of Note
Owners in accordance with DTC procedures. See "Description of the Notes --
Book-Entry Registration" and " --Definitive Notes".
On the fifteenth day of each month or, if such day is not a Business
Day, on the next succeeding Business Day, beginning on May 17, 1999 (each, a
"Distribution Date"), distributions in respect of the Class A Notes will be
made to the holders of record of the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes (respectively, the "Class A-1 Noteholders", the "Class A-2
Noteholders", the "Class A-3 Noteholders" and the "Class A-4 Noteholders",
and collectively, the "Class A Noteholders"), the Class B Notes (the "Class B
Noteholders" and, together with the Class A Noteholders, the "Noteholders")
and the Certificates (the "Certificateholders") as of the day immediately
preceding such Distribution Date or, if Definitive Notes are issued, the last
day of the immediately preceding calendar month (each such date, a "Record
Date"). On each Distribution Date, the Indenture Trustee will distribute
interest to the Noteholders based on the related Class Note Balance as of the
immediately preceding Distribution Date (after giving effect to reductions in
such Class Note Balance as of such immediately preceding Distribution Date)
or, in the case of the first Distribution Date, on the Initial Class Note
Balance, at an
45
<PAGE>
annual percentage rate equal to, in the case of (i) the Class A-1 Notes,
_____% (the "Class A-1 Note Rate"), (ii) the Class A-2 Notes, _____% (the
"Class A-2 Note Rate"), (iii) the Class A-3 Notes, _____% (the "Class A-3
Note Rate"), (iv) the Class A-4 Notes, _____% (the "Class A-4 Note Rate") and
(v) the Class B Notes, ____% (the "Class B Note Rate" and, together with the
Class A-1, Class A-2, Class A-3 and Class A-4 Note Rates, the "Note Rates").
Interest will be payable to Certificateholders on the Certificate Balance, at
an annual percentage rate not expected to exceed ___% (the "Certificate
Rate"). All such payments on the Class A-1 Notes will be calculated on the
basis of the actual number of days elapsed and a 360-day year. All such
payments on the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and Class B
Notes and on the Certificates will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. A "Business Day" will be a day other
than a Saturday or Sunday or a day on which banking institutions in New York,
New York, [Chicago, Illinois], Wilmington, Delaware or Los Angeles,
California are authorized or obligated by law, executive order or government
decree to be closed.
To the extent not previously paid prior to such dates, the
outstanding principal amount of each Class of Notes will be payable in full
on, the final scheduled distribution date for each Class of Notes set forth
on the cover page hereof (each a "Final Scheduled Distribution Date").
The "Class Note Balance" of any Class of Notes at any time will be
equal to the initial Class Note Balance amount of such Class of Notes, less
the sum of (i) all payments made on or prior to such date allocable to
principal (including any reimbursements of Loss Amounts allocable to
Principal Loss Amounts in respect of such Class), (ii) the amount of Note
Principal Loss Amounts allocable to such Class of Notes, if any, which have
not been reimbursed as described herein and (iii) in the case of the Class B
Notes, any unreimbursed Class B Note Principal Carryover Shortfall. The
"Class A Note Balance" will mean the sum of the Class A-1, Class A-2, Class
A-3 and Class A-4 Note Balances and the "Note Balance" will mean the sum of
the Class A Note Balance and the Class B Note Balance. See "Description of
the Notes -- Distributions on the Notes". The "Certificate Balance" at any
time will be equal to the Initial Certificate Balance less the sum of (i) all
payments made on or prior to such date allocable to principal (including any
reimbursements of Loss Amounts allocable to the Certificates and Certificate
Principal Loss Amounts) and (ii) the amount of Certificate Principal Loss
Amounts, if any, which have not been reimbursed as described herein
[and Certificate Note Principal Carryover Shortfall].
During the period when the Notes are outstanding, the Note Balance
will decline as the Investor Percentage of Principal Collections and Covered
Loss Amounts are distributed to the Noteholders and as Note Principal Loss
Amounts are incurred and not reimbursed. The Aggregate Net Investment Value
can change daily as principal is paid on or in respect of the Contracts and
the Leased Vehicles, as Reallocation Payments in respect of certain Contracts
as to which an uncured breach of certain representations and warranties or
certain servicing covenants has occurred are paid by AHFC, as liquidation
losses and other losses in respect of the Contracts and Leased Vehicles are
incurred and as Leased Vehicles in Matured Leased Vehicle Inventory are sold
or otherwise disposed of.
The amount of principal and interest required to be paid to holders
of any Class of the Notes prior to the Final Scheduled Distribution Date for
that Class of Notes generally will be limited to amounts available in the
Note Distribution Account for payment to Noteholders. Therefore, the failure
to pay principal of or interest on a Class of Notes generally will not result
in the occurrence of an Indenture Event of Default until the Final Scheduled
Distribution Date for such Class of Notes.
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<PAGE>
TRANSFER OF THE SUBI CERTIFICATE
Pursuant to the SUBI Supplement, on the Closing Date, the
Origination Trust will, upon the order of HTA LP and HTB LP, respectively,
issue a 99% and a 1% beneficial interest in the SUBI to the Transferor, which
will exchange the 99% and the 1% beneficial interests in the SUBI for the
SUBI Certificate and the Retained SUBI Certificate. Simultaneously, the
Transferor, pursuant to the Agreement, will deliver the SUBI Certificate to
the Owner Trustee as property of the Trust and transfer and assign to the
Owner Trustee as property of the Trust, without recourse, all of its right,
title and interest in and to the SUBI Interest represented by the SUBI
Certificate. The Owner Trustee will, concurrently with such delivery,
transfer and assignment, deliver the Notes and the Certificates to or upon
the order of the Transferor and, pursuant to the Indenture, the Trust will
pledge and deliver the SUBI Certificate to the Indenture Trustee.
Pursuant to the Agreement, the Transferor will represent and warrant
that immediately prior to the transfer and assignment of the SUBI Certificate
to the Owner Trustee as property of the Trust, the Transferor had good title
to, and was the sole legal and beneficial owner, of the SUBI Certificate,
free and clear of liens and claims.
REALLOCATION PAYMENTS
As more fully described under "The Contracts -- Representations,
Warranties and Covenants" and "Additional Document Provisions -- The
Servicing Agreement -- Collections", under certain circumstances AHFC will be
required to make Reallocation Payments in respect of certain Contracts (and
the related Leased Vehicles) discovered not to be in compliance with AHFC's
representations or warranties or Contracts as to which certain servicing
procedures have not been followed, in either case that materially and
adversely affects such Contract. Upon any such payment, the Aggregate Net
Investment Value will decline by an amount equal to the Discounted Principal
Balance of such Contract, and such Contract and the related Leased Vehicle
will no longer constitute SUBI Assets as they will be reallocated and become
UTI Assets, or, in certain cases, be transferred to the Servicer.
CALCULATION OF INVESTOR PERCENTAGE
The Trust will be allocated by the Servicer Investor Percentage of
all Interest Collections and Principal Collections collected or received in
respect of the related Collection Period. In addition, the Trust will be
allocated by the Servicer Investor Percentage of (i) an amount equal to the
Discounted Principal Balance of any Contract that became a Charged-off
Contract during such Collection Period (all such amounts in any Collection
Period, the "Charged-off Amount"), (ii) the Residual Value Loss Amount for
such Collection Period and (iii) any Additional Loss Amounts incurred during
such Collection Period.
"Additional Loss Amounts" will be incurred in the event of any
uninsured liability to third parties (I.E., litigation risk) on the part of
the Origination Trust as ultimately is borne by the SUBI Assets, whether such
liability is incurred (i) with respect to the SUBI Assets and is therefore
allocated to the SUBI Assets pursuant to the SUBI Trust Agreement, (ii) with
respect to the Origination Trust Assets generally and therefore a pro rata
portion of such liability is allocated to the SUBI Assets pursuant to the
SUBI Trust Agreement or (iii) with respect to UTI Assets or Other SUBI Assets
if such UTI Assets or Other SUBI Assets are insufficient to pay such
liability. See "Certain Legal Aspects of the Origination Trust and The SUBI
- -- The SUBI" for a discussion of related risks. "Additional Loss Amounts"
will include both losses incurred with respect to the foregoing uninsured
liabilities and monies reserved
47
<PAGE>
within the SUBI Collection Account against future losses in respect of such
liabilities by the Servicer on behalf of the Origination Trustee.
A "Charged-off Contract" will be a Contract (a) with respect to
which the related Leased Vehicle has been repossessed and sold or otherwise
disposed of or (b) which has been written off by the Servicer in accordance
with its normal policies for writing off lease contracts other than with
respect to repossessions.
The "Investor Percentage" in respect of any Collection Period is
99.8%.
The "Residual Value Loss Amount" for any Collection Period generally
will represent the aggregate net losses on dispositions of Matured Leased
Vehicle Inventory, and will be equal to the sum of (i) the aggregate of the
Residual Values of all those Leased Vehicles that were included in Matured
Leased Vehicle Inventory but that had remained unsold and not otherwise
disposed of by the Servicer for at least two full Collection Periods as of
the last day of such Collection Period, (ii) the excess, if any, of (a) the
aggregate of the Residual Values of all Leased Vehicles previously included
in Matured Leased Vehicle Inventory but that were sold or otherwise disposed
of during such Collection Period, over (b) Net Matured Leased Vehicle
Proceeds for such Collection Period and (iii) any losses (up to the
respective Discounted Principal Balance) on Contracts terminated on or prior
to their Maturity Dates during such Collection Period by agreement between
the Servicer and the lessee in connection with the payment of less than their
respective Outstanding Principal Balances.
DISTRIBUTIONS ON THE NOTES
GENERAL
On the tenth calendar day of each month or if such day is not a
Business Day, the following Business Day, (each, a "Determination Date"), the
Servicer will inform the Origination Trustee and the Indenture Trustee of,
among other things, the amount of Interest Collections and Principal
Collections, the Class A-1, Class A-2, Class A-3, Class A-4 and Class B Note
Factors, the Class A-1, Class A-2, Class A-3, Class A-4 and Class B
Allocation Percentages, the amount of Advances to be made by the Servicer,
the Required Amount, if any, to be withdrawn from the Reserve Fund and the
Servicing Fee and other servicing compensation payable to the Servicer, in
each case with respect to the Collection Period immediately preceding the
Collection Period in which such Determination Date occurs. On or prior to
each Determination Date, the Servicer shall also determine the Reserve Fund
Requirement and the amounts to be distributed to the Noteholders and to the
Transferor in respect of the Certificates. The "Allocation Percentage" with
respect to any Class of Notes and Distribution Date, will equal the Note
Balance of such Class of Notes as a percentage of the Note Balance,
calculated as of the last day of the related Collection Period.
DISTRIBUTIONS OF INTEREST
On each Distribution Date, the Origination Trustee and the Indenture
Trustee, as necessary, will make the following payments in the amounts and
order of priority described below. The Origination Trustee (and the Indenture
Trustee with respect to the Reserve Fund), will distribute from amounts on
deposit in the SUBI Collection Account, the Investor Percentage of Interest
Collections collected during or received in respect of the related Collection
Period, together with (a) amounts ("Released Amounts") that would otherwise
be payable to the Transferor in respect of the Certificates on such
Distribution Date, (b) to the extent necessary to make the distributions
described below other than in clause (ix), the
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<PAGE>
amount withdrawn from the Reserve Fund in respect of the Required Amount, if
any, and (c) to the extent needed to make distributions described in clauses
(x) through (xii), to the Class A-4 Noteholders, amounts that would otherwise
be distributable to the Class B Noteholders in respect of the Class B
Percentage of the Investor Percentage of Principal Collections in respect of
such Collection Period:
(i) in the event of an Indenture Event of Default as a
result of the Indenture Trustee having received written instructions
from holders of Class A Notes evidencing not less than a majority of
the Voting Interests thereof, voting together as a single class, or
holders of Class A and Class B Notes evidencing not less than a
majority of the Voting Interests thereof, voting together as a single
class, to sell or dispose of the SUBI Interest, to the Indenture
Trustee, the Investor Percentage of Capped Indenture Trustee
Administrative Expenses, and to the Owner Trustee, the Investor
Percentage of Capped Owner Trustee Administrative Expenses;
(ii) to the Note Distribution Account for the pro rata
payment to each Class of Class A Noteholders, interest at the related
Note Rate on the Class A-1, Class A-2, Class A-3 or Class A-4 Note
Balance, as applicable, as of the immediately preceding Distribution
Date (after giving effect to any reduction in such Note Balance on such
immediately preceding Distribution Date) or, in the case of the first
Distribution Date, on the Initial Class A-1, Class A-2, Class A-3 or
Class A-4 Note Balance, as applicable, together with any unpaid Class
A-1, Class A-2, Class A-3 or Class A-4 Interest Carryover Shortfall, as
applicable;
(iii) to the Note Distribution Account for payment to the
Class B Noteholders, interest at the Class B Note Rate on the Class B
Note Balance as of the immediately preceding Distribution Date (after
giving effect to any reduction in the Class B Note Balance on such
immediately preceding Distribution Date) or, in the case of the first
Distribution Date, on the Initial Class B Note Balance, together with
any unpaid Class B Interest Carryover Shortfall;
(iv) to the Certificate Distribution Account for payment
to the Certificateholders, interest at the Certificate Rate on the
Certificate Balance as of the immediately preceding Distribution Date
(after giving effect to any reduction in the Certificate Balance on
such immediately preceding Distribution Date) or, in the case of the
first Distribution Date, on the Initial Certificate Balance, together
with any unpaid Certificateholder Interest Carryover Shortfall;
(v) to the Servicer, reimbursement of the Investor
Percentage of Capped Contingent and Excess Liability Premiums;
(vi) to the Origination Trustee, the Investor Percentage
of Capped Origination Trust Administrative Expenses;
(vii) in circumstances other than as set forth in clause
(i) above, to the Indenture Trustee, the Investor Percentage of Capped
Indenture Trustee Administrative Expenses, and to the Owner Trustee,
the Investor Percentage of Capped Owner Trustee Administrative
Expenses;
(viii) to the Servicer, the Investor Percentage of (a) the
Servicing Fee and (b) any unpaid Servicing Fees payable in respect of
compensation to the Servicer with respect to one or more prior
Collection Periods;
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<PAGE>
(ix) to the Reserve Fund, until the amount on deposit
therein equals the Reserve Fund Requirement;
(x) to the Note Distribution Account for payment to the
Class A Noteholders, (a) so long as the Note Balance of the Class B
Notes has not been reduced to zero, an amount equal to the Covered Loss
Amount for the related Distribution Date sequentially, commencing with
the Class A-1 Noteholders until the Note Balance of each such Class has
been reduced to zero, or (b) if the Note Balance of the Class B Notes
has been reduced to zero, pro rata, based on the Class A-1, Class A-2,
Class A-3 or Class A-4 Allocation Percentage, as applicable, an amount
equal to the sum of the Covered Loss Amount and the Uncovered Loss
Amount for the related Distribution Date;
(xi) to the Note Distribution Account for payment to each
Class of Class A Noteholders, pro rata, based upon the aggregate of the
amounts allocable to such Class pursuant to clause (x) above that were
not previously distributed pursuant to such clause or this clause (each
such amount, a "Class A-1 Note Principal Loss Amount", "Class A-2 Note
Principal Loss Amount," "Class A-3 Note Principal Loss Amount" or
"Class A-4 Note Principal Loss Amount", respectively);
(xii) to the Note Distribution Account for payment to each
Class of Class A Noteholders, accrued and unpaid interest at the
related Note Rate, on any unreimbursed Class A-1, Class A-2, Class A-3
and Class A-4 Note Principal Loss Amount, as applicable;
(xiii) to the Note Distribution Account for payment to the
Class B Noteholders, (a) if the Certificate Balance has been reduced to
zero, an amount equal to the Uncovered Loss Amount for the related
Distribution Date plus (b) following the reduction of the Note Balance
of the Class A Notes to zero, the Covered Loss Amount for the related
Distribution Date, until the Note Balance of the Class B Notes is
reduced to zero;
(xiv) to the Note Distribution Account for payment to the
Class B Noteholders, the aggregate of the amounts allocable pursuant to
clause (xiii) above that were not previously distributed pursuant to
such clause or this clause (each such amount, a "Class B Note Principal
Loss Amount"), together with any Class B Note Principal Carryover
Shortfall;
(xv) to the Note Distribution Account for payment to the
Class B Noteholders, accrued and unpaid interest at the Class B Note
Rate on any unreimbursed Class B Note Principal Loss Amount and any
unreimbursed Class B Note Principal Carryover Shortfall; and
(xvi) to the Certificate Distribution Account for payment
to the Certificateholders, (a) an amount equal to the Uncovered Loss
Amount for the related Distribution Date plus (b) following the
reduction of the Note Balance of the Class B Notes to zero, the Covered
Loss Amount for the related Distribution Date, until the Certificate
Balance is reduced to zero;
(xvii) to the Certificate Distribution Account for payment
to the Certificateholders, the aggregate of the amounts allocable
pursuant to clause (xvi) above that were not previously distributed
pursuant to such clause or this clause (each such amount, a
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<PAGE>
"Certificate Principal Loss Amount"), together with any Certificate
Principal Carryover Shortfall;
(xviii) to the Certificate Distribution Account for payment
to the Certificateholders, accrued and unpaid interest at the
Certificate Rate on any unreimbursed Certificate Principal Loss Amount
and any unreimbursed Certificate Principal Carryover Shortfall; and
(xix) to the Indenture Trustee, the Owner Trustee and the
Origination Trustee, as applicable, the Investor Percentage of all
Uncapped Administrative Expenses.
The balance, if any, of the Interest Collections allocated to the Notes for
the related Collection Period, after giving effect to the distributions in
clauses (i) through (xix) above, will constitute "Excess Interest
Collections".
The entire amount of Excess Interest Collections will be paid to the
Transferor; provided however, in the event the ERISA Compliance Test is not
met on any Distribution Date, all Excess Interest Collections shall be
deposited into the Reserve Fund. See "Additional Document Provisions -- The
Servicing Agreement -- Compliance with ERISA".
If on any Distribution Date there remains any shortfall in amounts
required to be distributed to the Class A-1 Noteholders, Class A-2
Noteholders, Class A-3 Noteholders and Class A-4 Noteholders under clauses
(ii), (x), (xi) or (xii) above, then the amount available will be distributed
pro rata to such Noteholders based on the Class A-1 Allocation Percentage,
the Class A-2 Allocation Percentage, the Class A-3 Allocation Percentage and
the Class A-4 Allocation Percentage, respectively.
If and to the extent that the full amount distributable on a
Distribution Date pursuant to clauses (i) through (xix) above exceeds the
Investor Percentage of Interest Collections for the related Collection
Period, then (i) Released Amounts otherwise distributable to the Transferor
will be applied to such shortfall, and (ii) if available Released Amounts are
insufficient to cover such shortfall, then the Required Amount will be
withdrawn from the Reserve Fund and applied to such shortfall (other than any
shortfall in amounts to be deposited into the Reserve Fund as set forth in
clause (ix) above).
"Capped Origination Trust Administrative Expenses" will equal the
amounts sufficient to pay specified administrative costs and expenses of the
Origination Trust that are allocable to the SUBI Interest up to but not
exceeding $100,000 in any calendar year. "Capped Indenture Trustee
Administrative Expenses" will equal the amounts sufficient to pay the
Indenture Trustee's compensation and certain other expenses up to but not
exceeding $50,000 in any calendar year (or $100,000 in a calendar year in
which an Indenture Event of Default occurs with respect to which the
Indenture Trustee sells or otherwise disposes of the SUBI Interest). "Capped
Owner Trustee Administrative Expenses" will equal amounts sufficient to pay
the Owner Trustee's compensation and certain other expenses up to but not
exceeding $5,000 in any calendar year.
"Capped Contingent and Excess Liability Premiums" will equal the
amounts sufficient to pay the premiums then due on the portion of the
Contingent and Excess Liability Insurance Policies allocable to the SUBI
Interest, up to but not exceeding $__________ in any calendar year.
The "Class A-1 Interest Carryover Shortfall" with respect to any
Distribution Date will equal the excess, if any, of (i) the amount of interest
distributable on the Class A-1 Notes for such Distribution
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<PAGE>
Date and any outstanding Class A-1 Interest Carryover Shortfall from the
immediately preceding Distribution Date plus interest at the Class A-1 Note
Rate on such outstanding Class A-1 Interest Carryover Shortfall from such
immediately preceding Distribution Date to but not including the current
Distribution Date, over (ii) the amount of interest distributed to the Class
A-1 Noteholders on such Distribution Date. The "Class A-2 Interest Carryover
Shortfall", the "Class A-3 Interest Carryover Shortfall", the "Class A-4
Interest Carryover Shortfall," the "Class B Interest Carryover Shortfall" and
the "Certificate Interest Carryover Shortfall" will be calculated in the same
manner as the Class A-1 Interest Carryover Shortfall, appropriately modified
to relate to the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes,
the Class B Notes and the Certificates, respectively.
The "Class B Note Principal Carryover Shortfall", with respect to
any Distribution Date from and after the Distribution Date on which the Class
A-3 Notes are paid in full, will equal the amount, if any, of the Class B
Percentage of the Investor Percentage of Principal Collections allocable to
the SUBI Interest for such Distribution Date that is instead applied to the
distribution of principal to the Class A Noteholders, pursuant to clauses (x)
through (xii) above. The Class B Percentage of the Investor Percentage of
Principal Collections will be applied for such purposes only to the extent
that the other amounts available therefor are insufficient.
"Loss Amounts" with respect to any Collection Period will include
Charged-off Amounts, Residual Value Loss Amounts and Additional Loss Amounts.
"Covered Loss Amounts" for any Distribution Date will equal the
lesser of (i) the Investor Percentage of Loss Amounts for such Distribution
Date and (ii) amounts available for distribution described above remaining
after application of (a) clauses (i) through (ix) prior to the reduction of
the Note Balance of the Class A Notes to zero or (b) clauses (i) through
(xii) following the reduction of the Note Balance of the Class A Notes to
zero.
"Uncovered Loss Amounts" for any Distribution Date will equal the
excess of (i) the Investor Percentage of Loss Amounts for such Distribution
Date over (ii) Covered Loss Amounts for such Distribution Date.
A "Note Principal Loss Amount" with respect to any Distribution Date
will equal the sum of all Class A-1, Class A-2, Class A-3, Class A-4 and
Class B Note Principal Loss Amounts and will represent a loss of principal in
respect of Loss Amounts allocable to the Notes and will arise when the
Investor Percentage of Interest Collections, the Required Amount, the
Released Amounts and, with respect to any Class A-4 Note Principal Loss
Amount, amounts otherwise payable in respect of principal to the Class B
Noteholders are not sufficient to cover such loss. As described under
"Description of the Notes -- General", any Note Principal Loss Amounts
allocable to a Class of Notes which are not reimbursed as provided herein
will reduce the Note Balance of such Class of Notes.
"Uncapped Administrative Expenses" with respect to any Collection
Period will mean all specified expenses incurred by the Indenture Trustee,
the Owner Trustee and the Origination Trustee with respect to the Indenture,
the Notes, the Trust or the Origination Trust in excess of Capped
Administrative Expenses that have been paid but have not yet been reimbursed.
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ALLOCATION OF PRINCIPAL
The amount of Principal Collections allocable to the Notes in
respect of a Collection Period (the "Principal Allocation") generally will
mean the Principal Collections in respect of such Collection Period allocable
to the SUBI multiplied by the Investor Percentage.
"Principal Collections" will mean, with respect to any Collection
Period, all Collections allocable to the principal component of any Contract
(including any payment in respect of the related Leased Vehicle, but other
than any payment as to which a Loss Amount has been realized and allocated
during any prior Collection Period), discounted to the extent required below.
For purposes of determining Principal Collections, the principal component of
all payments made on or in respect of a Discounted Contract will be
discounted to present value at a rate of _____%, thereby effectively
reallocating a portion of the payments received in respect of the principal
component of the Contracts to Interest Collections and providing additional
credit enhancement for the benefit of the Noteholders. "Collections" with
respect to any Collection Period will include all net collections received on
or in respect of the Contracts and Leased Vehicles during such Collection
Period, such as Monthly Payments (including amounts that were previously
Payments Ahead but which represent Monthly Payments due during such
Collection Period), Prepayments, Excess Mileage Fees, Extension Fees,
Advances, Net Matured Leased Vehicle Proceeds, Net Repossession Proceeds, all
other Net Liquidation Proceeds, any Net Insurance Proceeds not included in
Net Liquidation Proceeds in respect of the immediately preceding Collection
Period, but shall not include, and (as appropriate) shall be net of (i)
Payments Ahead with respect to one or more future Collection Periods, (ii)
amounts paid to the Servicer in respect of outstanding Advances, Matured
Leased Vehicle Expenses, Repossession Expenses, all other Liquidation
Expenses and Insurance Expenses, (iii) Administrative Charges and (iv)
Additional Loss Amounts in respect of such Collection Period. "Interest
Collections" with respect to any Collection Period generally will equal the
amount by which Collections exceed Principal Collections. "Net Repossession
Proceeds" will equal Repossession Proceeds net of Repossession Expenses, and
"Net Liquidation Proceeds" will equal Liquidation Proceeds net of related
Liquidation Expenses. "Net Matured Leased Vehicle Proceeds" will be Matured
Leased Vehicle Proceeds received during a Collection Period net of Matured
Leased Vehicle Expenses incurred during such Collection Period and "Net
Insurance Proceeds" will be Insurance Proceeds received in a Collection
Period net of Insurance Expenses incurred in a Collection Period.
APPLICATION AND DISTRIBUTIONS OF PRINCIPAL
On each Distribution Date, beginning with the May 17, 1999
Distribution Date and ending on the Distribution Date on which the Class A-3
Notes have been paid in full, the Indenture Trustee will distribute an amount
equal to the Investor Percentage of all Principal Collections collected or
received in respect of the related Collection Period allocable to the Notes
as principal. Such principal payments will be made first to the Class A-1
Noteholders until the Class A-1 Notes have been paid in full, second, to the
Class A-2 Noteholders until the Class A-2 Notes have been paid in full,
third, to the Class A-3 Noteholders until the Class A-3 Notes have been paid
in full, and thereafter the Class A Percentage and the Class B Percentage of
any such remaining Principal Collections will be distributed as principal to
the Class A-4 Noteholders and the Class B Noteholders, respectively. The
"Class A Percentage" will mean the Class A Note Balance immediately after the
Class A-3 Notes have been paid in full as a percentage of the Note Balance at
such time, and the "Class B Percentage" will equal one minus the Class A
Percentage. The Class A Percentage and the Class B Percentage will not change
after they are set.
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In general, no principal payments (including amounts with respect to
Covered Loss Amounts) will be made on the Class A-2 Notes until the Class A-1
Notes have been paid in full, on the Class A-3 Notes until the Class A-1 and
Class A-2 Notes have been paid in full, or on the Class A-4 or Class B Notes
until the Class A-1, Class A-2 and Class A-3 Notes have been paid in full.
Following the reduction of the Note Balance of the Class B Notes to zero,
principal payments will be distributed on a pro rata basis to the Class A
Notes. Uncovered Loss Amounts will be allocated first to the Class B Notes
until the Note Balance of the Class B Notes has been reduced to zero and then
to the Class A Notes, pro rata, based on the Class A-1, Class A-2, Class A-3
and Class A-4 Allocation Percentages. Amounts with respect to Uncovered Loss
Amounts will not be allocated or reimbursed to any Noteholder once the
balance of the related Notes has been reduced to zero. In addition, the
Investor Percentage of the net proceeds of any sale or other disposition of
the SUBI, the SUBI Certificate or other property of the Trust, which may
occur under certain circumstances involving an Indenture Event of Default (as
described under "Additional Agreement Provisions--The Indenture--Events of
Default"), to the extent such net proceeds constitute Principal Collections,
will be distributed first, on a pro rata basis, to the Class A-1, Class A-2,
Class A-3 and Class A-4 Noteholders based on their respective Class Note
Balances until the Class A Notes have been paid in full, and second, to the
Class B Noteholders.
In addition, on any Distribution Date from and after the
Distribution Date on which the Class A-3 Notes are paid in full, but only to
the extent that other amounts available therefor are insufficient, amounts
that would otherwise be distributable to the Class B Noteholders in respect
of the Class B Percentage of the Investor Percentage of Principal Collections
collected or received in respect of the related Collection Period will
instead be distributed as principal payments to the Class A-4 Noteholders up
to an amount equal to the sum of (i) the Class A-4 Allocation Percentage of
the Investor Percentage of Loss Amounts incurred during the related
Collection Period and allocable to the SUBI Interest, (ii) any Class A-4 Note
Principal Loss Amounts and (iii) accrued and unpaid interest on any Class A-4
Note Principal Loss Amounts, as set forth under "Description of the Notes --
Distributions on the Notes -- Distributions of Interest."
THE ACCOUNTS
THE SUBI COLLECTION ACCOUNT
On or prior to the Closing Date, the Origination Trustee will
establish a trust account with and in the name of the Trust Agent for the
benefit of the holders of the SUBI Certificates, into which collections on or
in respect of the Contracts and the Leased Vehicles generally will be
deposited (the "SUBI Collection Account" and, together with the Note
Distribution Account, the Payahead Account and the Reserve Fund, the
"Accounts"). As the holder of the SUBI Certificate, the Owner Trustee will
have certain beneficial rights to amounts on deposit from time to time in the
SUBI Collection Account and to investments thereon, which as part of the
property of the Trust will be pledged by the Trust to the Indenture Trustee
to secure payments on the Notes.
DEPOSITS INTO THE SUBI COLLECTION ACCOUNT. Pursuant to the Servicing
Agreement, unless the Monthly Remittance Conditions are met, within two
Business Days after receipt, payments made on or in respect of the Contracts
and the Leased Vehicles generally will be deposited by the Servicer into the
SUBI Collection Account. Such deposits will include, but will not be limited
to, the following payments made in respect of the SUBI Assets: (i) Monthly
Payments; (ii) early payments of the Outstanding Principal Balance of a
Contract, including any payment of lease charge or interest or payment by the
Servicer of the Reallocation Payment (each, a "Prepayment"); (iii) proceeds
from the sale or other disposition of Leased Vehicles included in the Matured
Leased Vehicle Inventory (including any Excess
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Mileage Fees and Extension Fees, but excluding proceeds paid under any
residual value insurance policy) ("Matured Leased Vehicle Proceeds"),
proceeds received in connection with the sale or other disposition of Leased
Vehicles that have been repossessed or have been returned to the Servicer in
connection with a Prepayment of the related Contract ("Repossession
Proceeds"), all proceeds received by the Servicer, the Origination Trust or
the Origination Trustee on behalf of the Origination Trust from any Insurance
Policy ("Insurance Proceeds"), and other amounts received in connection with
the realization of the amounts due under any Contract (together with Matured
Leased Vehicle Proceeds, Repossession Proceeds and Insurance Proceeds,
"Liquidation Proceeds"); and (iv) Extension Fees and Excess Mileage Fees.
On each Deposit Date, the following amounts will be deposited into
the SUBI Collection Account: (i) Advances by the Servicer; (ii) Reallocation
Payments by the Servicer in respect of certain Contracts as to which an
uncured breach of certain representations and warranties or certain servicing
covenants has occurred; (iii) with respect to any Lease as to which the
related lessee has failed to remit all or a portion of the Monthly Payment
for the related Collection Period, an amount equal to the lesser of (a) the
portion of the Monthly Payment not received and (b) any Payments Ahead
received by the Servicer which have not yet been applied against any
outstanding Monthly Payments (each, a "Payahead Credit"); and (iv) any
Security Deposits which became Liquidation Proceeds in the related Collection
Period.
The Servicer will be entitled to reimbursement for expenses incurred
in connection with the realization of Matured Leased Vehicle Proceeds
("Matured Leased Vehicle Expenses"), Repossession Proceeds ("Repossession
Expenses") and other Liquidation Proceeds (such expenses, together with
Matured Leased Vehicle Expenses, Repossession Expenses and Insurance
Expenses, "Liquidation Expenses"), either from amounts on deposit in the SUBI
Collection Account or as a deduction from Matured Leased Vehicle Proceeds,
Repossession Proceeds, Insurance Proceeds or other Liquidation Proceeds, as
appropriate, deposited into the SUBI Collection Account. Additionally, the
Servicer shall be entitled to reimbursement for any Monthly Payments for
which the Servicer has made an unreimbursed Advance and for all Reimbursable
Servicer Expenses as described under "Additional Document Provision -- The
Servicing Agreement -- Advances" and " -- Servicing Compensation".
MONTHLY REMITTANCE CONDITIONS. As discussed above, the Servicing
Agreement will require the Servicer to make all deposits of Collections
received on or in respect of the Contracts and the Leased Vehicles to be
deposited into the SUBI Collection Account on the second Business Day
following receipt thereof. However, so long as the Monthly Remittance
Conditions are satisfied, the Servicer may deposit Collections into the SUBI
Collection Account, on a monthly basis on each Deposit Date. The "Monthly
Remittance Conditions" will be satisfied so long as (i) no Servicer
Termination Event exists and is continuing and (ii) either (a) the short-term
unsecured debt of the Servicer is rated at least "A-1" or its equivalent by
the Rating Agencies or (b) the Servicer obtains a letter of credit, surety
bond or insurance policy (the "Servicer Letter of Credit") under which
demands for payment may be made to secure timely remittance of monthly
collections to the SUBI Collection Account and the Servicer and the Indenture
Trustee are provided with confirmation from each Rating Agency to the effect
that the use of such alternative remittance schedule will not result in the
qualification, reduction or withdrawal of its then-current rating on any
Class of Notes. Pending deposit into the SUBI Collection Account, Collections
received on or in respect of the SUBI Assets may be used by the Servicer at
its own risk and for its own benefit and will not be segregated from its own
funds. Additionally, Payments Ahead need not be deposited in the Payahead
Account unless any of the Monthly Remittance Conditions are not met and may
be retained by the Servicer until the Deposit Date related to the Collection
Period in which such
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Payments Ahead became Payahead Credits. On the Deposit Date, on which any
Payment Ahead becomes a Payahead Credit, the Servicer will deposit the
Payahead Credit in the SUBI Collection Account. If any of the Monthly
Remittance Conditions are not met, the Servicer will have to deposit all
Payments Ahead in the Payahead Account within two days of receipt and on each
Deposit Date transfer any Payahead Credits to the SUBI Collection Account
from the Payahead Account.
NET DEPOSITS. Pursuant to the Servicing Agreement, the Servicer may
deduct from the Collections to be deposited in the SUBI Collection Account,
all or any part of the Servicer Reimbursement for the related Collection
Period. Additionally, so long as AHFC is the Servicer, the Servicer will be
permitted to deposit in the SUBI Collection Account only the net amount
distributable with respect to the SUBI Certificate and the Retained SUBI
Certificate. The Servicer, however, will account to the Origination Trustee,
the Indenture Trustee, the Noteholders and the Transferor as if all of the
deposits and distributions described herein were made individually. This net
deposit provision will be for the administrative convenience of the parties
involved and will not affect amounts required to be deposited into the
Accounts.
WITHDRAWALS FROM THE SUBI COLLECTION ACCOUNT. On each Distribution
Date, the Origination Trustee will transfer all Collections in respect of the
SUBI Interest on deposit in the SUBI Collection Account in respect of the
related Collection Period (including any Payahead Credits) as set forth in
"Description of the Notes -- Distributions on the Notes -- Distributions of
Interest" and "-- Application and Distribution of Principal". The remaining
0.2% of Collections will be distributed from the SUBI Collection Account on
such Distribution Date to the Transferor in respect of the Retained SUBI
Interest, which amounts in no event will be available to make payments on the
Notes. Any funds in excess of the amounts to be distributed to the Note
Distribution Account for payment to the Noteholders, the Servicer in respect
of the Servicing Fee, to the Reserve Fund in order to meet the Reserve Fund
Requirement and the Trustees for any fees and expenses in respect of the
related Collection Period generally will be paid to the Transferor.
In the event that on any date the Servicer supplies the Origination
Trustee and the Indenture Trustee with an officer's certificate setting forth
the basis for such withdrawal, the Origination Trustee shall remit to the
Servicer, without interest and prior to any other distribution from the SUBI
Collection Account on such date, monies from the SUBI Collection Account
representing (i) unreimbursed Matured Leased Vehicle Expenses, Repossession
Expenses, Insurance Expenses and other Liquidation Expenses, (ii) Monthly
Payments with respect to which the Servicer has made an unreimbursed Advance
and (iii) an amount equal to any unreimbursed Advances that the Servicer has
concluded are Nonrecoverable Advances (collectively, the "Servicer
Reimbursement").
THE NOTE DISTRIBUTION ACCOUNT
On or prior to the Closing Date, the Owner Trustee will establish a
trust account with and in the name of the Indenture Trustee for the benefit
of the Noteholders from which all payments with respect to the Notes will be
made from the SUBI Collection Account and the Reserve Fund, if necessary (the
"Note Distribution Account"). On or prior to the Closing Date, the Owner
Trustee will establish a trust account for the benefit of the
Certificateholders from which all payments with respect to the Certificates
will be made (the "Certificate Distribution Account"). On each Distribution
Date, (i) the Origination Trustee (acting through the Trust Agent) shall
deposit or cause to be deposited from the SUBI Collection Account and (ii)
the Indenture Trustee shall deposit from the Reserve Fund, if necessary,
respectively, all amounts allocable to the Noteholders, as set forth in
"-- Distribution on the Notes -- Distributions of Interest" and "-- Application
and Distribution of Principal" for the related Distribution Date, in the Note
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Distribution Account. On each Distribution Date, the Indenture Trustee will
distribute to the Noteholders the allocated amounts for the related
Collection Period. See "Description of the Notes -- The Accounts -- The SUBI
Collection Account".
THE PAYAHEAD ACCOUNT
In the event that any of the Monthly Remittance Conditions are not
met, the Origination Trustee will establish and maintain an account with the
Trust Agent into which Payments Ahead received by the Servicer will be
deposited (the "Payahead Account"). For so long as the Monthly Remittance
Conditions are not met, the Servicer will continue to deposit all Payments
Ahead into the Payahead Account and on each Deposit Date will transfer the
amount of any Payments Ahead which became Payahead Credits into the SUBI
Collection Account. In the event, the Monthly Remittance Conditions are met,
the Servicer will not need to use the Payahead Account and may deposit the
applicable Payahead Credits on each Deposit Date into the SUBI Collection
Account.
MAINTENANCE OF THE ACCOUNTS
The Accounts will be maintained with the Indenture Trustee or the
Trust Agent so long as either (i) the short-term unsecured debt obligations
of the related entity are rated at least "A-1" or its equivalent by the
Rating Agencies or (ii) the related entity is a depository institution or
trust company having a long-term unsecured debt rating acceptable to each
Rating Agency and corporate trust powers and the related Account is
maintained in a segregated trust account in the corporate trust department of
the related entity (the "Required Deposit Ratings"). If the Indenture Trustee
or the Trust Agent at any time does not qualify under either of these
criteria, the Servicer shall, with the assistance of the Indenture Trustee or
the Trust Agent, as the case may be, cause the related Account to be moved to
a depository institution organized under the laws of the United States or any
state thereof, which meets the Required Deposit Ratings.
ELIGIBLE INVESTMENTS
Upon receipt of directions from the Servicer, the Indenture Trustee
or the Trust Agent, as applicable, shall invest funds on deposit in the
Accounts in one or more Eligible Investments maturing (i) no later than the
Business Day immediately preceding the Deposit Date immediately succeeding
the date of such investment, in the case of amounts on deposit in the SUBI
Collection Account, the Reserve Fund or Payahead Account or (ii) on the
Business Day immediately preceding the Distribution Date immediately
succeeding the date of such investment in the case of amounts on deposit in
the Note Distribution Account. Notwithstanding the foregoing, investments on
which the entity at which the related Account is located is the obligor may
mature on the related Deposit Date or Distribution Date, as the case may be.
All income or other gain from the foregoing investments generally
shall be retained in the related Account with such gain in respect of funds
in the SUBI Collection Account and the Note Distribution Account generally
being treated as Interest Collections received in respect of the related
Collection Period. Any loss resulting from such investments shall be charged
to the related Account.
"Eligible Investments" will be specified in the SUBI Trust Agreement
and will include, among other things, U.S. treasury securities, certificates of
deposit issued by highly rated U.S. depository institutions or trust companies
(including the Trustee), demand or time deposits of bankers acceptances insured
by, or federal funds sold by highly rated U.S. depository institutions or trust
companies or other
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savings institutions that are fully insured by the FDIC, certain repurchase
obligations held by any Owner Trustee backed by similar securities and
certain debt securities issued by highly rated U.S. corporations, (including
money market funds for which the Trustee or an Affiliate of the Trustee
serves as an investment advisor, administrator, shareholder servicing agent
and/or custodian).
STATEMENTS TO NOTEHOLDERS
On each Distribution Date, the Indenture Trustee will include with
each distribution to each Noteholder as of the close of business on the
related Record Date a statement, setting forth with respect to such
Distribution Date or the related Collection Period, among other things, the
following:
(i) the Interest Collections and Principal Collections
allocable to the SUBI Interest for such Collection Period;
(ii) the amount being distributed to Noteholders (the
"Note Distribution Amount") and the portion thereof allocable to
interest and to principal on each Class of Notes;
(iii) the amount of the Note Distribution Amount allocable
to any Class A-1 Interest Carryover Shortfall, any Class A-2 Interest
Carryover Shortfall, any Class A-3 Interest Carryover Shortfall, any
Class A-4 Interest Carryover Shortfall and any Class B Interest
Carryover Shortfall;
(iv) the amount, if any, of any unpaid Class A-1 Interest
Carryover Shortfall, unpaid Class A-2 Interest Carryover Shortfall,
unpaid Class A-3 Interest Carryover Shortfall, unpaid Class A-4
Interest Carryover Shortfall and unpaid Class B Interest Carryover
Shortfall, after giving effect to distribution of the Note Distribution
Amount;
(v) the Note Balance, the Class Note Balance for each
Class of Notes, the Certificate Balance the Note Factor for each Class
of Notes and the Class Allocation Percentage for each Class of Notes,
in each case after giving effect to distribution of the Note
Distribution Amount;
(vi) the aggregate amount, if any, of the reimbursement of
Loss Amounts included in distribution of the Note Distribution Amount
and the amount thereof allocated to each Class of Noteholders;
(vii) the amount of the Note Distribution Amount allocable
to reimbursement of previous Note Principal Loss Amounts of each Class
of Notes, in each case together with the amount of accrued interest
thereon included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed
Note Principal Loss Amounts of each Class of Notes, after giving effect
to distribution of the Note Distribution Amount;
(ix) the amount of any unreimbursed Class B Note Principal
Carryover Shortfall;
(x) the Investor Percentage of the Servicing Fee;
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(xi) the amount of any Required Amount included in the
Note Distribution Amount, the balance on deposit in the Reserve Fund on
such Distribution Date, after giving effect to withdrawals therefrom
and deposits thereto on such Distribution Date, the change in such
balance from the immediately preceding Distribution Date, the Reserve
Fund Requirement and any Reserve Fund supplemental requirement;
(xii) the amount of Released Amounts, if any, included in
the Note Distribution Amount;
(xiii) the Aggregate Net Investment Value as of the end of
such Collection Period;
(xiv) the aggregate amount of Payments Ahead on deposit in
the SUBI Collection Account or otherwise retained by the Servicer and
the change in such amount from the immediately preceding Distribution
Date; and
(xv) the amounts of Advances made in respect of such
Collection Period and the amount of unreimbursed Advances on such
Distribution Date.
Each amount set forth pursuant to clauses (ii) through (iv) and (vi)
through (ix) above will be expressed in the aggregate and as a dollar amount
per $1,000 of original principal balance of a Class A Note or Class B Note,
as applicable. Copies of such statements may be obtained by Noteholders or
Note Owners by a request in writing addressed to the Indenture Trustee. In
addition, within the prescribed period of time for tax reporting purposes
after the end of each calendar year during the term of the Agreement, the
Indenture Trustee will mail to each person who at any time during such
calendar year shall have been a Class A or Class B Noteholder or a Note
Owner, a statement containing the sum of the amounts described in clauses
(ii) through (v) and (vii) through (x) above for the purpose of preparing
such person's federal income tax return.
TERMINATION OF THE TRUST; REDEMPTION OF THE NOTES
The respective obligations and responsibilities of the Transferor
and the Indenture Trustee created by the Agreement will terminate upon the
earliest to occur of (i) the disposition of the SUBI Interest, or its
expiration or termination by virtue of the maturity, sale or other
liquidation, as the case may be, of the last outstanding Contract and Leased
Vehicle evidenced by the SUBI, and the distribution of all proceeds thereof,
together with all amounts on deposit in the Accounts, in the manner to be
prescribed in the Agreement, (ii) the day following the Distribution Date on
which the Notes have been paid in full and after which there is no
unreimbursed Note Principal Loss Amount or Class B Note Principal Carryover
Shortfall (together with accrued interest thereon) and (iii) the purchase of
the corpus of the Trust and the resulting redemption of the Notes as
described below. In order to avoid excessive administrative expenses, the
Servicer will be permitted at its option to purchase all of the assets of the
Trust on any Distribution Date if, either before or after giving effect to
any payment of principal required to be made on such Distribution Date, the
Note Balance and Certificate Balance is less than or equal to 10% of the
Initial Note Balance and the Initial Certificate Balance. The purchase price
will be equal to the greater of (i) the sum of the Class A Note Balance, the
Class B Note Balance and the Certificate Balance, in each case plus accrued
and unpaid interest thereon at the related Note Rate or Certificate Rate, as
applicable, plus certain other accrued and unpaid amounts, if any, due to the
Noteholders, the Certificateholders or the Servicer, and (ii) 99.8% of the
Aggregate Net Investment Value as of the last day of the preceding Collection
Period. If the Transferor purchases the assets of the Trust, the Indenture
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Trustee will furnish a redemption notice to each Noteholder not more than 30
days and not less than 15 days prior to the applicable Redemption Date.
Failure to give notice of redemption, or any defect in the notice, to any
Noteholder of any Note selected for redemption will not impair or affect the
validity of the redemption of any Note. The Notes will, on the Redemption
Date, become due and payable and no interest will accrue on the Notes for any
period after such Redemption Date.
The final distribution to any Noteholder will be made only upon
surrender and cancellation of such Noteholder's Note at an office or agency
of the Indenture Trustee specified in the notice of termination. Any funds
remaining that are payable in such final distribution to a Noteholder, after
the Indenture Trustee has taken certain measures to locate such Noteholder
and such measures have failed, will be distributed to the Transferor.
BOOK-ENTRY REGISTRATION
A Note Owner may hold through DTC (in the United States), or
Cedelbank, SOCIETE ANONYME ("Cedelbank") or the Euroclear system
("Euroclear") (in Europe), which in turn hold through DTC, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems ("Participants"). All references herein to
actions by Note Owners shall refer to actions taken by DTC upon instructions
from DTC Participants, and all references herein to distributions, notices,
taken by DTC upon instructions from DTC participants, and all references
herein to distributions, notices, reports and statements to Note Owners shall
refer to distributions, notices, reports and statements to Cede & Co., as the
registered holder of the Notes for distribution to Note Owners in accordance
with DTC procedures. As such, it is anticipated that the only Noteholder will
be Cede & Co., as nominee of DTC. Note Owners will not be recognized by the
Trustee as Note Owners as such term is used in the Agreement or Servicing
Supplement, and Note Owners will only be permitted to exercise their rights
as such indirectly through DTC and DTC Participants, as further described
below.
Cede, as nominee for DTC, will hold the Notes. Cedelbank and
Euroclear will hold omnibus positions on behalf of their Participants through
customers' securities accounts in the Depositaries which in turn will hold
such positions in customers' securities accounts in DTC through Citibank,
N.A. or The Chase Manhattan Bank, the relevant depositaries (collectively,
the "Depositaries") of Cedelbank or Euroclear, respectively, and each a
participating member of DTC. Unless and until Definitive Notes are issued, it
is anticipated that the only Noteholder will be Cede, as the nominee of DTC.
Note Owners will only be permitted to exercise their rights indirectly
through DTC.
Transfers between Participants in DTC ("DTC Participants") will
occur in accordance with DTC rules. Transfers between Participants in
Cedelbank ("Cedelbank Participants") and Participants in Euroclear
("Euroclear Participants") will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of Cedelbank or Euroclear by its Depositary.
However, each such cross-market transaction will require delivery of
instructions to Cedelbank or Euroclear by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). Cedelbank or Euroclear 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
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accordance with normal procedures for same-day funds settlement applicable to
DTC. Cedelbank Participants and Euroclear Participants may not deliver
instructions directly to the related Depositaries.
Because of time-zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a DTC Participant
will be made during subsequent securities settlement processing and dated the
Business Day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Cedelbank Participants or Euroclear Participants on
such business day. Cash received in Cedelbank or Euroclear as a result of
sales of Notes by or through a Cedelbank Participant or Euroclear Participant
to a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant Cedelbank or Euroclear cash account
only as of the business day following settlement in DTC. As used in this
paragraph, "Business Day" means a Business Day on which Cedelbank and
Euroclear are also transacting settlements in securities.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") in effect in
the State of New York and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). DTC holds securities that DTC Participants
deposit with DTC. DTC also facilitates the clearance and settlement of
securities transactions among DTC Participants through electronic
computerized book-entry changes in accounts of DTC Participants, thereby
eliminating the need for physical movement of securities certificates. DTC
Participants include securities brokers and dealers (including the
underwriters), banks, trust companies, clearing corporations and certain
other organizations. Indirect access to the DTC system also is available to
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
(the "Indirect DTC Participants"). The rules applicable to DTC and DTC
Participants are on file with the Securities and Exchange Commission (the
"Commission").
Note Owners that are not DTC Participants or Indirect DTC
Participants but that desire to purchase, sell or otherwise transfer
ownership of, or an interest in, Notes under the DTC System may do so only
through DTC Participants or Indirect DTC Participants. DTC Participants will
receive a credit for the Notes in DTC's records. The ownership interest of
each Note Owner in turn will be recorded on the DTC Participants' and
Indirect DTC Participants' respective records. Note Owners will not receive
written confirmation from DTC of their purchase, but Note Owners are expected
to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the DTC Participant or
Indirect DTC Participant through which the Note Owner entered into the
transaction. Transfers of ownership interests in the Notes will be
accomplished by entries made on the books of DTC Participants acting on
behalf of Note Owners.
To facilitate subsequent transfers, all Notes deposited by DTC
Participants with DTC will be registered in the name of Cede, as nominee of
DTC. The deposit of Notes with DTC and their registration in the name of Cede
will effect no change in beneficial ownership. DTC will have no knowledge of
the actual Note Owners and its records will reflect only the identity of the
DTC Participants to whose accounts such Notes are credited, which may or may
not be the Note Owners. DTC Participants and Indirect DTC Participants will
remain responsible for keeping account of their holdings on behalf of their
customers. While the Notes are held in book-entry form, Note Owners will not
have access to the list of Note Owners, which may impede the ability of Note
Owners to communicate with each other.
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Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect DTC Participants and by DTC
Participants and Indirect DTC Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers among
DTC 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. DTC Participants and Indirect DTC Participants with which Note
Owners have accounts with respect to the Notes similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of
their respective Note Owners.
Principal and interest payments with respect to the Notes will be
made to DTC. DTC's practice is to credit DTC Participants' accounts on each
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by DTC Participants and Indirect DTC
Participants to Note Owners will be governed by standing instructions and
customary practices, as in the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such DTC Participant and Indirect DTC Participant and not
of DTC, the Indenture Trustee, the Owner Trustee, the Origination Trustee,
the Servicer or the Transferor, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal of
and interest on the Notes to DTC will be the responsibility of the Indenture
Trustee, disbursement of such payments to DTC Participants will be the
responsibility of DTC and disbursement of such payments to Note Owners will
be the responsibility of DTC Participants and Indirect DTC Participants. As a
result, under the book-entry format, Note Owners may experience some delay in
their receipt of payments.
Because DTC can only act on behalf of DTC Participants, who in turn
act on behalf of Indirect DTC Participants and certain banks, the ability of
a Note Owner to pledge Notes to persons or entities that do not participate
in the DTC system, or otherwise take actions with respect to such Notes, may
be limited due to the lack of a physical Note for such Notes.
DTC has advised the Transferor that it will take any action
permitted to be taken by a Noteholder only at the direction of one or more
DTC Participants to whose account with DTC the Notes are credited.
Additionally, DTC has advised the Transferor that it will take such actions
with respect to specified percentages of the Note Owners' interest only at
the direction of and on behalf of DTC Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of DTC Participants whose holdings
include such undivided interests.
Neither DTC nor Cede will consent or vote with respect to the Notes.
Under its usual procedures, DTC mails an "Omnibus Proxy" to the Indenture
Trustee as soon as possible after any applicable record date for such a
consent or vote. The Omnibus Proxy assigns Cede's consenting or voting rights
to those DTC Participants to whose accounts the Notes are credited on that
record date (identified in a listing attached to the Omnibus Proxy).
None of the Transferor, the Servicer, the Origination Trustee, the
Owner Trustee nor the Indenture Trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Notes held by Cede, as nominee of DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
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Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for Cedelbank
Participants and facilitates the clearance and settlement of securities
transactions between Cedelbank Participants through electronic book-entry
changes in accounts of Cedelbank Participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in
Cedelbank in any of 34 currencies, including United States dollars. Cedelbank
provides to Cedelbank Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedelbank interfaces
with domestic markets in several countries. As a professional depositary,
Cedelbank is subject to regulation by the Luxembourg Monetary Institute.
Cedelbank Participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Indirect
access to Cedelbank is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedelbank Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for 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 any of 34 currencies, including United
States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in more than 25 countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator"), under contract with Euroclear Clearance System S.C., a
Belgian cooperative corporation (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 Board establishes policy for
the Euroclear System. 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 Euroclear,
withdrawals of securities and cash from Euroclear and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear 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 Cedelbank or Euroclear
will be credited to the cash accounts of Cedelbank Participants or Euroclear
Participants in accordance with the relevant
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system's rules and procedures, to the extent received by its Depositary. Such
distributions will be subject to tax reporting and withholding in accordance
with relevant United States tax laws and regulations. For further information
in this regard, see "Material Income Tax Considerations -- Federal Taxation
- -- Federal Income Tax Consequences to Foreign Investors" herein and "Global
Clearance, Settlement and Tax Documentation Procedures -- Certain U.S.
Federal Income Tax Documentation Requirements" in Annex I hereto. Cedelbank
or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Noteholder on behalf of a Cedelbank Participant or
Euroclear Participant only in accordance with its relevant rules and
procedures and subject to the related Depositary's ability to effect such
actions on its behalf through DTC.
Distributions with respect to Notes held through Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank 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 withholding in accordance with relevant United States tax
laws and regulations. SEE "Material Income Tax Considerations" and "Annex I
- -- Global Clearance, Settlement and Tax Documentation Procedures--Certain
U.S. Federal Tax Documentation Requirements". Cedelbank or other Euroclear
Operator, as the case may be, will take any other action permitted to be
taken by a Noteholder on behalf of a Cedelbank 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, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among Participants of
DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued
at any time.
ISSUES RELATED TO YEAR 2000 DATE CONVERSION. DTC management is aware
that some computer applications, systems, and the like for processing date
("DTC Systems") that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a
program so that the DTC Systems, as the same relate to the timely payment of
distributions (including principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC ("DTC Services"),
continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information of the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of
any kind.
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If the DTC Systems are not year 2000 compliant by the year 2000,
DTC's ability to provide DTC Services, including payments on the Notes may be
materially and adversely affected. If this were to occur, Note Owners could
experience delays in payments due or may not ultimately receive all interest
and principal due to the Note Owners.
DEFINITIVE NOTES
Definitive Notes will be issued to Note Owners rather than to DTC
only if (i) DTC is no longer willing or able to discharge its
responsibilities with respect to the Notes, and neither the Indenture Trustee
nor the Transferor is able to locate a qualified successor, (ii) the
Transferor, at its option, elects to terminate the book-entry system through
DTC or (iii) after an Indenture Event of Default, Note Owners representing in
the aggregate more than 50% of the Voting Interests of the Notes, voting
together as a single class, advise the Indenture Trustee through DTC or its
successor in writing that the continuation of a book-entry system through DTC
or its successor is no longer in the best interest of Note Owners.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Indenture Trustee will be required to
notify all Note Owners, through Participants, of the availability through DTC
of Definitive Notes. Upon surrender by DTC of the certificates representing
the related Notes and the receipt of instructions for re-registration, the
Indenture Trustee will issue Definitive Notes to Note Owners, who thereupon
will become Noteholders for all purposes of the Agreement.
Payments on the related Notes will thereafter be made by the
Indenture Trustee directly to holders of such Notes in accordance with the
procedures set forth herein and to be set forth in the Indenture. Interest
payments and any principal payments on the Definitive Notes on each
Distribution Date will be made to holders in whose names the Definitive Notes
were registered at the close of business on the Record Date with respect to
such Distribution Date. Payments will be made by check mailed to the address
of such holders as they appear on the note register (the "Note Register") or,
under the circumstances to be provided by the Agreement, by wire transfer to
a bank or depository institution located in the United States and having
appropriate facilities therefor. The final payment on any Notes (whether
Definitive Notes or global certificates registered in the name of Cede
representing the Notes), however, will be made only upon presentation and
surrender of such Definitive Notes or global certificates at the office or
agency specified in the notice of final distribution to Noteholders.
Definitive Notes will be transferable and exchangeable at the
offices of the Indenture Trustee or the Note Registrar to be set forth in the
Agreement. No service charge will be imposed for any registration of transfer
or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in
connection therewith.
THE INDENTURE TRUSTEE
The Bank of New York will be the Indenture Trustee under the
Indenture. The Corporate Trust Office of the Indenture Trustee is located at
4 Albany Street, New York, New York 10010. The Bank of New York is not
affiliated with AHFC, although it does act as a service provider to AHFC.
The Indenture Trustee may resign at any time, in which event the
Trust will be obligated to appoint a successor Indenture Trustee. Noteholders
representing in the aggregate more than 50% of the Voting Interests of the
Notes, voting together as a single class, may remove the Indenture Trustee by
delivering notice thereof to the Indenture Trustee and the Trust. The Trust
may also remove the
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Indenture Trustee if the Indenture
Trustee ceases to be eligible to continue as such under the Indenture,
becomes legally unable to act or becomes insolvent. In such circumstances,
the Trust will be obligated to appoint a successor Indenture Trustee. Any
resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee will not become effective until acceptance of the
appointment by such successor Indenture Trustee.
The Indenture Trustee must be a corporation organized under the laws
of a state of the United States, the District of Columbia or the Commonwealth
of Puerto Rico, authorized to exercise corporate trust powers under those
laws, and subject to supervision or examination by federal or state laws,
with a combined capital and surplus of at least $50 million and a long-term
deposit rating no lower than Baa3 by Moody's, or must be otherwise acceptable
to each Rating Agency. A co-trustee or separate trustee need not meet these
eligibility requirements.
Noteholders representing in the aggregate more than 50% of the
Voting Interests of the Notes, voting together as a single class, generally
will have the power to direct any proceeding for any remedy available to the
Indenture Trustee under the Agreement, and the exercise of any trust or power
conferred on the Indenture Trustee by the Agreement (including actions by the
Indenture Trustee in its capacity as a party to, or a third-party beneficiary
of, the SUBI Trust Agreement or the Servicing Agreement). However, the
Indenture Trustee will not be required to follow such a direction if, after
being advised by counsel, it concludes that the action is unlawful, or if it
in good faith determines that the proceedings directed would be illegal,
would subject it to personal liability or would be unduly prejudicial to the
rights of other Noteholders.
A Noteholder may institute proceedings under the Indenture, but only
if such holder previously has given to the Indenture Trustee written notice
of default and unless the Noteholders representing in the aggregate not less
than 25% of the Voting Interests of the Notes, voting together as a single
class, have made written request upon the Indenture Trustee to institute such
proceeding in its own name as Indenture Trustee and have offered to the
Indenture Trustee reasonable indemnity and the Trustee for 60 days has
neglected or refused to institute any such proceeding. The Indenture Trustee
will be under no obligation to exercise any of the rights or powers vested in
it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Noteholders, unless such holders have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby. Noteholders will have no express
right to institute a proceeding directly under the SUBI Trust Agreement or
the Servicing Agreement.
LIST OF NOTEHOLDERS
Upon a written request of the Servicer, the Indenture Trustee, as
Note Registrar, will provide to the Servicer within 15 days after receipt of
such request a list of the names and addresses of all Noteholders. In
addition, three or more Noteholders or Noteholders representing in the
aggregate not less than 25% of the Voting Interests of any Class of Notes,
upon compliance by such Noteholders with certain provisions of the Agreement,
may request that the Indenture Trustee, as Note Registrar, afford such
Noteholders access during business hours to the current list of Noteholders
for purposes of communicating with other Noteholders with respect to their
rights under the Indenture. For further information regarding communications
with Noteholders, see "Description of the Notes -- Book-Entry Registration"
and " -- Definitive Notes".
The Indenture will not provide for the holding of any annual or
other meetings of Noteholders.
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SECURITY FOR THE NOTES
GENERAL
The Notes will be secured by the property of the Trust, which as
more fully described under "The Trust and the SUBI -- The SUBI", will
primarily consist of the SUBI Interest evidenced by the SUBI Certificate,
including the beneficial interest in the Contracts and Leased Vehicles and
certain amounts on deposit from time to time in the SUBI Collection Account
monies on deposit in the Reserve Fund and the Note Distribution Account. The
Indenture Trustee and the Owner Trustee will be third-party beneficiaries of
the SUBI Trust Agreement and the Servicing Agreement. In no event will the
Owner Trustee or the Indenture Trustee be deemed to have a perfected security
interest in the Leased Vehicles.
THE RESERVE FUND
GENERAL
On or prior to the Closing Date, the Owner Trustee will establish a
trust account with and in the name of the Indenture Trustee for the benefit
of the Noteholders (the "Reserve Fund"). The Reserve Fund is designed to
provide additional funds for the benefit of the Noteholders in the event that
on any Distribution Date, Interest Collections allocable to the Notes for the
related Collection Period, plus Released Amounts otherwise distributable, are
insufficient to pay, among other things, the sum of (i) accrued interest and
any overdue interest (with interest thereon) at the applicable Note Rate on
the Notes on such Distribution Date, (ii) the Investor Percentage of any Loss
Amount for such Collection Period, and (iii) any unreimbursed Note Principal
Loss Amounts, together with interest thereon at the applicable Note Rates. In
addition, to the extent not otherwise required to make any of the payments
described under "Description of the Notes -- Distributions on the Notes
- --Distributions of Interest", monies on deposit in the Reserve Fund will be
available to make payments to the Noteholders should Collections ultimately
be insufficient to reduce the Class Note Balance of any Class of Notes to
zero.
The Reserve Fund will be created with an initial deposit by the
Transferor of $__________ (the "Initial Deposit") (which amount will equal
_____% of 99.8% of the Aggregate Net Investment Value as of the Cutoff Date).
On each Distribution Date, the funds in the Reserve Fund will be supplemented
by (i) certain Interest Collections, and (ii) in certain circumstances, the
deposit of monies in respect of the related Collection Period remaining in
the SUBI Collection Account after making all payments required to be made
therefrom on such Distribution Date prior to such deposit, including monies
that would otherwise be distributed or applied in respect of the
Certificates, until the amount on deposit in the Reserve Fund equals the
Reserve Fund Requirement.
THE RESERVE FUND REQUIREMENT. The "Reserve Fund Requirement" with
respect to any Distribution Date will equal the lesser of (i) $____________
(I.E., ____% of 99.8% of the Aggregate Net Investment Value as of the Cutoff
Date) and (ii) the Note Balance as of the related Distribution Date (after
giving effect to reductions in the Note Balance on such Distribution Date).
Notwithstanding the foregoing, as described under "Additional Document
Provisions -- The Servicing Agreement -- Compliance with ERISA", in the event
that the ERISA Compliance Test is not satisfied on any Determination Date,
all Excess Interest Collections in respect of each Distribution Date
thereafter will be deposited in the Reserve Fund until the Distribution Date
following the Determination Date on which the ERISA Compliance Test has been
satisfied. As of any Distribution Date, the amount of funds actually on
deposit in the Reserve Fund may, in certain circumstances, be less than the
Reserve Fund Requirement.
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"Current Contracts" will be all Contracts other than Charged-off,
Liquidated, Matured and Additional Loss Contracts. A "Liquidated Contract"
will be a Contract that has been the subject of a Prepayment in full or
otherwise has been paid in full. An "Additional Loss Contract" will be a
Contract that has been sold or otherwise disposed of by the Servicer, acting
on behalf of the Origination Trust, to pay an Additional Loss Amount.
The Transferor may, from time to time after the date of this
Prospectus, request each Rating Agency to approve a change in the manner by
which the Reserve Fund is funded If each Rating Agency confirms to the
Indenture Trustee to the effect that the use of any such new formula or
change will not result in a qualification, reduction or withdrawal of its
then-current rating of any Class of Notes, and the Transferor's counsel
delivers an opinion as and to the extent required, as described under
"Additional Document Provisions --Additional Agreement Provisions --
Amendment", then such new formula or change will be implemented and, to the
extent necessary, the Agreement will be amended, without the consent of any
Noteholder or Note Owner.
WITHDRAWALS FROM THE RESERVE FUND. On each Distribution Date, the
Indenture Trustee shall withdraw from the Reserve Fund, to the extent
available, an amount equal to the Required Amount. The "Required Amount" will
equal the lesser of (i) the amount on deposit in the Reserve Fund on the
related Deposit Date after all deposits thereto and (ii) the amount, if any,
by which (a) the full amount distributable on the related Distribution Date
pursuant to clauses (i) through [(vi) and (viii) through (xiv)] in the first
paragraph under "Description of the Notes -- Distributions on the Notes --
Distributions of Interest" exceeds (b) the sum of (1) the Investor Percentage
of Interest Collections for the related Collection Period, and (2) any
Released Amounts applied to cover such distributable amount on such
Distribution Date.
Monies on deposit in the Reserve Fund on a Distribution Date in
excess of the Reserve Fund Requirement will be released to the Transferor.
Income on investment amounts held in the Reserve Fund will be retained by the
Servicer. Any such amounts received by the Servicer shall be free of any
claim of the Trust, the Indenture Trustee or the Noteholders and shall not be
available to the Indenture Trustee or the Trust for the purpose of making
deposits to the Reserve Fund or making payments to the Noteholders, nor shall
the Transferor be required to refund any amount properly received by it.
THE CONTINGENT AND EXCESS LIABILITY INSURANCE POLICIES
As additional protection in the event that any lessee fails to
maintain the minimum levels of automobile liability insurance required by the
Contracts, AHFC maintains a primary contingent and excess automobile
liability insurance policy with a $1 million limit for each accident and no
annual or aggregate limit on the number of accidents covered. This insurance
protects the Origination Trust from claims for bodily injury and property
damage suffered by third persons caused by any vehicle owned by the
Origination Trust and leased to a lessee. The insurance policy is subject to
a $1 million per accident deductible payable by AHFC, with that deductible
obligation supported by an irrevocable letter of credit in favor of the
insurer. This insurance responds if, at the time of an accident, the
insurance to be provided by the lessee in accordance with the Contract is not
collectible or has inadequate limits to protect the Origination Trust. AHFC
also maintains with other insurers substantial amounts of excess insurance
coverage for which the Origination Trust is an additional named insured
(together with the foregoing primary contingent and excess automobile
liability insurance policy, the "Contingent and Excess Liability Insurance
Policies"). The Contingent and Excess Liability Insurance Policies provide
insurance coverage in excess of $10 million per occurrence.
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To the extent that such insurance coverage was exhausted and damages
were assessed against the Origination Trust, claims could be imposed against
the Origination Trust Assets, including the SUBI Assets. In such event,
investors in the Notes could incur a loss on their investment. However, the
Origination Trust and the Origination Trustee will be additional named
insureds under the Contingent and Excess Liability Insurance Policies and
payments made thereunder will constitute SUBI Assets. To the extent that
payments under the Contingent and Excess Liability Insurance Policies are
made to third party claimants, they will reduce the Additional Loss Amounts
that otherwise would be required to be paid out of the SUBI Assets. See "Risk
Factors-Possible Liability as a Result of Lessees' Operation of Leased
Vehicles", "Certain Legal Aspects of the Origination Trust and the SUBI-The
SUBI" and "Certain Legal Aspects of the Contracts and the Leased
Vehicles-Vicarious Tort Liability" for a discussion of related risks.
The Servicing Agreement will provide that so long as any
Notes are outstanding, AHFC may not terminate or cause the termination of any
Contingent and Excess Liability Insurance Policies unless, among other
things, a replacement insurance policy providing a primary limit of $1
million per accident with no limit on the number of accidents covered, and
additional excess limits providing a total of at least $10 million of
coverage per accident, is obtained and each Rating Agency has delivered a
letter to the Owner Trustee (as the holder of the SUBI Certificate) and the
Indenture Trustee to the effect that the obtaining of any such replacement
insurance will not cause its then-current rating of any Class of Notes to be
qualified, reduced or withdrawn. The foregoing obligations of AHFC will
survive any termination of AHFC as Servicer under the Servicing Agreement.
ADDITIONAL DOCUMENT PROVISIONS
THE INDENTURE
EVENTS OF DEFAULT
An "Indenture Event of Default" will be any of the following events:
(a) the Trust defaults in the payment of any interest or principal on any
Note for a period of five Business Days after any such payment is due; (b)
the Trust defaults in the observance or performance in any material respect
of any other covenant or agreement made in the Indenture, or any
representation or warranty of the Trust made in the Indenture was incorrect
in any material respect as of the time made, which default materially and
adversely affects the rights of the Noteholders and which continues uncured
for a period of 60 days after written notice shall have been given to the
Trust by the Indenture Trustee or to the Trust and the Indenture Trustee by
the Holders of at least 25% of the Voting Interests of the Notes, voting
together as a single class; or (c) certain events relating to the insolvency
or bankruptcy of the Trust.
If an Indenture Event of Default occurs and is continuing, then the
Indenture Trustee or Noteholders representing in the aggregate not less than
25% of the Voting Interests of the Notes, voting together as a single class,
may declare all the Notes to be immediately due and payable, by a notice in
writing to the Trust (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the Notes will become immediately due and
payable, except that upon an insolvency event with respect to the Trust, the
Notes will become immediately due and payable automatically without the
giving of any notice.
At any time after such a declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee, Noteholders representing in the aggregate
more than 50% of the Voting Interests of the Notes, voting
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together as a single class, by written notice to the Trust and the Indenture
Trustee, may rescind and annul such declaration and its consequences under
certain circumstances.
After acceleration of the Notes, the Indenture Trustee may institute
a proceeding to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the SUBI Interest (in accordance with the
procedures described below) or elect to have the Trust maintain possession of
the SUBI Interest and continue to apply collections as if there had been no
declaration of acceleration.
The Indenture Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any
of the holders of the Notes, if such Noteholders shall not have offered to
the Indenture Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in complying with such
request or direction. Subject to the provisions for indemnification and
certain limitations contained in the related Indenture, Noteholders
representing in the aggregate more than 50% of the Voting Interests of the
Notes, voting together as a single class, will have the right to direct the
time, method and place of conducting any proceeding or any remedy available
to the Indenture Trustee, and Noteholders representing in the aggregate more
than 50% of the Voting Interests of the outstanding Notes, voting together as
a single class, may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all the holders of 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) Noteholders representing in the aggregate not less than 25% of
the Voting Interests of the Notes, voting together as a single class, 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, and (v) no direction
inconsistent with such written request has been given to the Indenture
Trustee during such 60-day period by more than 50% of the Voting Interests of
the outstanding Notes, voting together as a single class.
If an Indenture Event of Default occurs, the Indenture Trustee may,
and, upon receipt of written instructions from Noteholders representing in
the aggregate Voting Interests of not less than a majority of interest of the
outstanding Class A Notes, voting together as a single class, or more than
50% of the Voting Interests of the outstanding Notes, voting together as a
single class, shall (subject to its election to maintain possession of the
SUBI Interest as described above), publish a notice stating that the
Indenture Trustee intends to sell or dispose of the SUBI Interest and the
SUBI Certificate and the other property of the Trust in a commercially
reasonable manner. Following such publication, unless otherwise prohibited by
applicable law, the Indenture Trustee will sell or otherwise dispose of the
SUBI Interest, the SUBI Certificate and such other property in a commercially
reasonable manner and on commercially reasonable terms; provided that such
sale shall not be made without the consent of all the Noteholders if proceeds
realized as a result of such sale would not be sufficient to discharge in
full the amounts then due and unpaid upon the Notes for principal and
interest. The net sale or disposition proceeds of the SUBI Interest, the SUBI
Certificate and such other property will be distributed to the Noteholders in
the priority provided for herein, and the principal portion of the Investor
Percentage of such proceeds will be distributed first, on a pro rata basis,
to the Class A-1, Class A-2, Class A-3 and Class A-4 Noteholders based on
their respective Class Note Balances until the Class A-1, Class A-2, Class
A-3 and Class A-4 Notes have been paid in full, and second, to the Class B
Noteholders. If such proceeds, together with all amounts on deposit in the
Accounts, the Reserve Fund, amounts otherwise payable to the Transferor in
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respect of the Certificates and, in the case of the Class A-4 Notes, certain
amounts otherwise distributable in respect of the Class B Notes, are
insufficient to pay the Note Balance of a Class of Notes, any unreimbursed
Note Principal Loss Amount in respect of such Class of Notes and any accrued
and unpaid interest thereon in full, the related Noteholders will suffer a
corresponding loss.
VOTING INTERESTS
The "Voting Interests" of the (i) Class A Notes will be allocated
among the Class A-1, Class A-2, Class A-3 and Class A-4 Noteholders or Note
Owners, as the case may be, in accordance with their respective Class Note
Balances, as the context may require, and (ii) Class B Notes will be
allocated among the Class B Noteholders in accordance with the Class B Note
Balance represented thereby. Notwithstanding the foregoing, in certain
circumstances, any Class A Notes or Class B Notes, as the case may be, held
or beneficially owned by the Transferor, AHFC or any of their respective
affiliates shall be excluded from such determination.
ANNUAL COMPLIANCE STATEMENT.
The Trust will be required to file annually with the Indenture
Trustee a written statement as to the fulfillment of its obligations under
the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT.
The Indenture Trustee will be required to mail each year to all
Noteholders a brief report relating to its eligibility and qualification to
continue as Indenture Trustee, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the Trust to the Indenture Trustee in its individual
capacity, the property and funds physically held by the Indenture Trustee as
such and any action taken by it that materially affects the Notes and that
has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE.
The Indenture will be discharged with respect to the collateral
securing the Notes upon the delivery to the Indenture Trustee for
cancellation of all Notes or, with certain limitations, upon deposit with
Indenture Trustee of funds sufficient for the payment in full of all such
Notes.
NO PETITION
The Indenture Trustee (or any co-trustee or separate trustee
appointed pursuant to the Indenture) will agree not to institute, or join in,
any bankruptcy or similar proceeding against the Trust until one year and one
day after the payment of the Notes in full.
GOVERNING LAW
The Indenture will be governed by the laws of the State of New York.
ADDITIONAL AGREEMENT PROVISIONS
Certain provisions of the Agreement are described under "Description
of the Notes". The following summarizes certain additional provisions of the
Agreement.
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NO PETITION
Each of the Indenture Trustee and the Owner Trustee will agree not
to institute, or join in, any bankruptcy or similar proceeding against the
Transferor, HFI, HTI, HTA LP, HTB LP, HTC LP, HTA LLC, HTB LLC and HTC LLC
(collectively, the "Transferor Affiliates"), the Origination Trust or the
Origination Trustee until one year and one day after the later of (i) payment
of the Notes in full and (ii) final payment of all other financings involving
interests in the Origination Trust (including the transaction described
herein and all other transactions involving the UTI and each Other SUBI).
THE OWNER TRUSTEE
U.S. Bank will be the Owner Trustee under the Agreement. The
Corporate Trust Office of the Owner Trustee is located at
________________________, _________, Wilmington, DE ____. _____________ is
not affiliated with AHFC or any of its affiliates.
The Owner Trustee may resign at any time, in which event the
Transferor will be obligated to appoint a successor Owner Trustee. The
Transferor may also remove the Owner Trustee if the Owner Trustee ceases to
be eligible to continue as such under the Agreement, becomes legally unable
to act or becomes insolvent. In such circumstances, the Transferor will be
obligated to appoint a successor Owner Trustee. Any resignation or removal of
the Owner Trustee and appointment of a successor Owner Trustee will not
become effective until acceptance of the appointment by such successor Owner
Trustee.
GOVERNING LAW
The Agreement will be governed by the laws of the State of Delaware.
THE SUBI TRUST AGREEMENT
THE SUBI, THE OTHER SUBIS AND THE UTI
HTA LP and HTB LP are the grantors and, as holders of the 99% UTI
Interest and 1% UTI Interest, respectively, initial beneficiaries of the
Origination Trust. In their capacity as grantors and beneficiaries, the UTI
Beneficiaries will from time to time assign, transfer, grant and convey (or
cause to be assigned, transferred, granted and conveyed) to the Origination
Trust or the Origination Trustee on behalf of the Origination Trust, the
Origination Trust Assets. HTA LP and HTB LP will hold the 99% UTI Certificate
and the 1% UTI Certificate, respectively, which represent a beneficial
interest in all Origination Trust Assets other than the SUBI Assets and the
Other SUBI Assets. The UTI Beneficiaries may in the future pledge the UTI
Certificates as security for obligations to third-party lenders, and may in
the future create and sell or pledge Other SUBIs in connection with
financings similar to the transaction described herein. Each holder or
pledgee of any UTI Interest and any interest in any Other SUBI will be
required to expressly disclaim any interest in the Origination Trust Assets
other than the UTI Assets or the Other SUBI Assets, respectively, and to
fully subordinate any claims to such other Origination Trust Assets in the
event that this disclaimer is not given effect. Except under the limited
circumstances described under "Certain Legal Aspects of the Origination Trust
and The SUBI -- The SUBI" and "Additional Document Provisions -- The SUBI
Trust Agreement -- The SUBI, The Other SUBIs and the UTI", the SUBI Assets
will not be available to make payments in respect of, or pay expenses
relating to, the UTI or any Other SUBIs, and the Other SUBI Assets evidenced
by any Other SUBIs will not be available to make payments on, or pay expenses
relating to, the SUBI, the UTI or any other SUBI.
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Each Other SUBI will be created pursuant to a supplement to the
Origination Trust Agreement (each, an "Other SUBI Supplement") which will
amend the Origination Trust Agreement only with respect to the Other SUBI to
which it relates. The SUBI Supplement will amend the Origination Trust
Agreement only as it relates to the SUBI and no Other SUBI Supplement will
amend the Origination Trust Agreement as it relates to the SUBI.
All Origination Trust Assets, including the SUBI Assets, will be
owned by the Origination Trustee on behalf of the beneficiaries of the
Origination Trust. The SUBI Assets will be segregated from the rest of the
Origination Trust Assets on the books and records of the Origination Trustee
and the Servicer and the holders of other beneficial interests in the
Origination Trust (including the UTI and any Other SUBIs) will have no rights
to the SUBI Assets. Liabilities of the Origination Trust shall be allocated
to the SUBI Assets, the UTI Assets or Other SUBI Assets, respectively, if
incurred with respect thereto, or will be allocated pro rata among all
Origination Trust Assets if incurred with respect to the Origination Trust
Assets generally.
SPECIAL OBLIGATIONS OF HTA LP AND HTB LP AS UTI BENEFICIARIES AND
GRANTORS
The UTI Beneficiaries will be jointly and severally liable for all
debts and obligations arising with respect to the Origination Trust Assets
allocated to the UTI or the operation of the Origination Trust; provided,
however, that their liability with respect to any pledge of any interest in
the UTI and any assignee or pledgee of a SUBI or a SUBI Certificate or any
Other SUBI or Other SUBI Certificate shall be as set forth in the financing
documents relating thereto. To the extent the UTI Beneficiaries pay or suffer
any liability or expense with respect to the Origination Trust Assets or the
operation of the Origination Trust, the UTI Beneficiaries will be
indemnified, defended and held harmless out of the assets of the Origination
Trust against any such liability or expense (including reasonable attorneys'
fees and expenses).
ORIGINATION TRUSTEE DUTIES AND POWERS; FEES AND EXPENSES
Pursuant to the SUBI Trust Agreement, the Origination Trustee will
be required to, among other things, (i) apply for and maintain (or cause to
be applied for and maintained) all licenses, permits and authorizations
necessary and appropriate to carry out its duties as Origination Trustee, and
(ii) file (or cause to be filed) applications for certificates of title as
are necessary and appropriate so as to cause the Origination Trust or the
Origination Trustee on behalf of the Origination Trust to be recorded as the
holder of legal title of record to the Leased Vehicles. In carrying out the
foregoing duties, the Origination Trustee will be required to exercise the
same degree of care and skill as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs.
The Origination Trustee may be replaced by the UTI Beneficiaries if
it ceases to be qualified in accordance with the terms of the SUBI Trust
Agreement, if certain representations and warranties made by the Origination
Trustee in the SUBI Trust Agreement prove to have been materially incorrect
when made, in certain events of bankruptcy or insolvency or at the discretion
of the UTI Beneficiaries. Upon removal of the Origination Trustee, the UTI
Beneficiaries will appoint a successor Origination Trustee. Any removal of
the Origination Trustee will not be effective until a successor trustee has
accepted its appointment. The Indenture Trustee, as pledgee of the SUBI
Certificate, on behalf of the Noteholders may, or at the direction of
Noteholders representing in the aggregate more than 50% of the Voting
Interests of the Notes, voting together as a single class, will, exercise its
powers under the SUBI Trust Agreement to cause the Origination Trustee to
remove or replace the Trust Agent for a material breach of its obligations.
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The Origination Trustee will make no representations as to the
validity or sufficiency of the SUBI, the SUBI Certificate or the Retained
SUBI Interest, or of any Contract, Leased Vehicle or related document, will
not be responsible for performing any of the duties of the UTI Beneficiaries
or the Servicer and will not be accountable for the use or application by any
owners of beneficial interests in the Origination Trust Assets of any funds
paid in respect of the Origination Trust Assets, or the investment of any of
such monies before such monies are deposited into the accounts relating to
the SUBI, the Other SUBIs and the UTI. The Origination Trustee will not
independently verify the Contracts or the Leased Vehicles. The duties of the
Origination Trustee will generally be limited to the acceptance of
assignments of lease contracts, the titling of the related leased vehicles in
the name of the Origination Trust or the Origination Trustee on behalf of the
Trust, the creation of the SUBI, the Other SUBIs and the UTI, the maintenance
of the SUBI Collection Account and accounts relating to the Other SUBIs and
the UTI and the receipt of the various certificates, reports or other
instruments required to be furnished to the Origination Trustee under the
SUBI Trust Agreement, in which case it will only be required to examine them
to determine whether they conform to the requirements of the SUBI Trust
Agreement.
The Origination Trustee will be under no obligation to exercise any
of the rights or powers vested in it by the SUBI Trust Agreement or to make
any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of the UTI Beneficiaries, the Servicer or by the holders of a
majority in interest in the SUBI, unless such party or parties have offered
to the Origination Trustee reasonable security or indemnity against the
costs, expenses and liabilities that may be incurred therein or thereby. The
reasonable expenses of every such exercise of rights or powers or examination
shall be paid by the party or parties requesting such exercise or examination
or, if paid by the Origination Trustee, shall be a reimbursable expense of
the Origination Trustee.
The Origination Trustee may enter from time to time into one or more
agency agreements with such person or persons, including without limitation
any affiliate of the Origination Trustee (each, a "Trust Agent"), as are by
experience and expertise qualified to act in a trustee capacity and otherwise
acceptable to the UTI Beneficiaries. The Origination Trustee has engaged U.S.
Bank as the initial Trust Agent. Pursuant to the SUBI Trust Agreement, the
Trust Agent shall perform each and every obligation of the Origination
Trustee under the SUBI Trust Agreement.
The Origination Trustee shall be paid reasonable compensation and
reimbursement of all reasonable expenses (including reasonable attorneys'
fees) out of Origination Trust Assets. However, with regard to the SUBI
Assets allocable to the SUBI Interest, this requirement is subject to the
provisions regarding Capped Origination Trust Administrative Expenses
described under "Description of the Notes -- Distributions on the Notes --
Distributions of Interest".
INDEMNITY OF ORIGINATION TRUSTEE AND TRUST AGENTS
The Origination Trustee and each Trust Agent will be indemnified and
held harmless out of and to the extent of the Origination Trust Assets with
respect to any loss, liability or expense, including reasonable attorneys' fees
and expenses (collectively, "Indemnified Amounts"), arising out of or incurred
in connection with (i) any of the Origination Trust Assets (including without
limitation any Indemnified Amount relating to lease contracts or leased vehicles
of the Origination Trust, any consumer leasing act violations,
misrepresentations, deceptive and unfair trade practices and any other claims
arising in connection with any lease, personal injury or property damage claims
arising with respect to any such leased vehicle or any claim with respect to any
tax arising with respect to any Origination Trust Asset) or
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(ii) the Origination Trustee's or the Trust Agent's acceptance or performance
of the trusts and duties contained in the Agreement or any agency agreement.
Notwithstanding the foregoing, neither the Origination Trustee nor any Trust
Agent will be indemnified or held harmless out of the Origination Trust
Assets as to any Indemnified Amounts (i) for which AHFC shall be liable
pursuant to the Servicing Agreement, (ii) incurred by reason of the
Origination Trustee's or such Trust Agent's willful misfeasance, bad faith or
negligence or (iii) incurred by reason of the Origination Trustee's or Trust
Agent's breach of its respective representations and warranties pursuant to
the SUBI Trust Agreement or the Servicing Agreement. Such indemnities may
result in Additional Loss Amounts to the extent payable in respect of the
SUBI Assets or allocated to the SUBI.
TERMINATION
The Origination Trust and the respective obligations and
responsibilities of the UTI Beneficiaries and the Origination Trustee shall
terminate upon the last to occur of (i) the payment to the UTI Beneficiaries
and each permitted purchaser, assignee and pledgee of any of the UTI
Beneficiaries' interests in the Origination Trust (including the Indenture
Trustee, with respect to the SUBI Interest) of all amounts and obligations
required to be paid to them, and the expiration or termination of all
financings secured by the Origination Trust Assets by their respective terms
and (ii) the maturity or liquidation and the disposition of all Origination
Trust Assets and the disposition to or upon the order of the UTI
Beneficiaries or any permitted purchaser, assignee or pledgee of all net
proceeds thereof.
NO PETITION
Each of the parties to the Origination Trust Agreement will agree
not to institute, or join in, any bankruptcy or similar proceeding against
either UTI Beneficiary, the Transferor, any other Transferor Affiliate, the
Origination Trust or the Origination Trustee, until one year and one day
after final payment of all financings involving interests in the Origination
Trust. Each pledgee or assignee of any UTI or other SUBI must give a similar
non-petition covenant.
OWNER TRUSTEE AND INDENTURE TRUSTEE AS THIRD-PARTY BENEFICIARIES
As the holder of the SUBI Interest, the Owner Trustee, and as the
pledgee of the SUBI Interest, the Indenture Trustee, will be third-party
beneficiaries of the SUBI Trust Agreement. Therefore, the Owner Trustee or
the Indenture Trustee may, and, upon the direction of Noteholders
representing in the aggregate more than 50% of the Voting Interests of the
outstanding Notes, voting together as a single class,, the Indenture Trustee
will, exercise any right conferred by the SUBI Trust Agreement upon a holder
or pledgee of any interest in the SUBI.
GOVERNING LAW
The SUBI Trust Agreement will be governed by the laws of the State
of Delaware.
THE SERVICING AGREEMENT
GENERAL
Pursuant to the Servicing Agreement, the Servicer will perform on
behalf of the Origination Trust all of the obligations of the lessor under the
Contracts, including, but not limited to, collecting and processing payments,
responding to inquiries of the lessees, investigating delinquencies, sending
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payment statements and reporting tax information to the lessees, collecting
and remitting certain sales and use and other taxes to state and local
governments and agencies, advancing certain licensing fees, payments of fines
for citations and costs of disposition of Leased Vehicles related to
Charged-off Contracts, Matured Contracts and Additional Loss Contracts and
policing the Contracts, commencing legal proceedings to enforce a Contract on
behalf of the Origination Trust, administering the Contracts, including
accounting for collections and furnishing monthly and annual statements to
the Origination Trustee with respect to distributions and generating federal
income tax information. The Origination Trustee will furnish the Servicer
with all powers of attorney and other documents necessary or appropriate to
enable the Servicer to carry out such servicing and administrative duties
under the Servicing Agreement. The Indenture Trustee and the Owner Trustee
will be third-party beneficiaries of the Servicing Agreement.
CUSTODY OF CONTRACT DOCUMENTS AND CERTIFICATES OF TITLE
To assure uniform quality in servicing the Contracts and AHFC's own
portfolio of motor vehicle lease contracts and to reduce administrative
costs, the Origination Trustee will appoint AHFC, as Servicer, to be its
agent, bailee and custodian of the Contracts, the certificates of title
relating to the Leased Vehicles and insurance policies and other documents
relating to the Contracts, the related lessees and the Leased Vehicles. Such
documents will not be physically segregated from other motor vehicle lease
contracts, certificates of title and insurance policies and other documents
relating to such lease contracts and leased vehicles of AHFC, or those which
AHFC services for others, including those leased vehicles constituting
Origination Trust Assets that are not evidenced by the SUBI. The accounting
records and computer systems of AHFC will reflect the interests of the
holders of interest in the SUBI in the Contracts and the Leased Vehicles and
"protective" UCC financing statements reflecting certain interests in the
Contracts and the Contract Rights will be filed, as more fully described
under "Certain Legal Aspects of the Contracts and Leased Vehicles -- Back-up
Security Interests". The Servicer will be responsible for filing all periodic
sales and use tax or property (real or personal) tax reports, periodic
renewals of licenses and permits, periodic renewals of qualification to act
as a business trust and other periodic governmental filings, registration or
approvals arising with respect to or required of the Origination Trustee or
the Origination Trust.
COLLECTIONS
The Servicer will service, administer and collect all amounts due on
or in respect of the Contracts. The Servicer will make reasonable efforts to
collect all such amounts and, in a manner consistent with the Servicing
Agreement, will be obligated to service the Contracts generally in accordance
with the customary and usual procedures used by the Servicer in respect of
lease contracts serviced by it for its own account.
Consistent with its usual procedures, the Servicer may, in its
discretion, extend the Maturity Date of any Contract by up to six months in
the aggregate, provided that no Contract may be extended more than one time
and that the new Maturity Date of any Contract so extended must not be later
than the last day of the month in which the Maturity Date of the Contract
with the latest maturity as of the Cutoff Date occurs. The amount of any
Extension Fee received by the Servicer in connection with the extension of a
Contract will be deposited into the SUBI Collection Account. The Servicing
Agreement will provide that in the event that the Servicer extends a Contract
in contravention of the foregoing, the Servicer will deposit into the SUBI
Collection Account an amount equal to the Reallocation Payment in respect of
such Contract on the Deposit Date relating to the Collection Period in which
such extension was granted, at which time such Contracts and the related
Leased Vehicles will no longer constitute
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SUBI Assets as they will be reallocated as UTI Assets, or in some cases, will
be transferred to the Servicer. The Servicing Agreement will additionally
require the Servicer to make an Advance in respect of each Contract that has
been extended to the extent that such extension would reduce the amount of
payments received in connection therewith relative to the originally
scheduled Monthly Payments.
NOTIFICATION OF LIENS AND CLAIMS
The Servicer will be required to notify the Transferor (in the event
that AHFC is not acting as the Servicer), the Indenture Trustee and the
Origination Trustee as soon as practicable of all liens or claims of whatever
kind made by a third party that would materially adversely affect the
interests of, among others, the Transferor, the Origination Trust or any SUBI
Asset (with respect to, among other things, any Contract or Leased Vehicle).
Following its learning of any such lien or claim with respect to any Leased
Vehicle (other than any Administrative Lien), the Servicer will take whatever
actions it deems reasonably necessary to cause such lien or claim to be
removed. See "Certain Legal Aspects of the Contracts and the Leased Vehicles
- -- Structural Considerations."
ADVANCES
On each Deposit Date, the Servicer will be obligated to make, by
deposit into the SUBI Collection Account, an advance in an amount equal to
the aggregate Monthly Payments due but not received during the related
Collection Period with respect to Contracts that are 31 days or more past due
as of the end of the related Collection Period or Contracts in respect of
which an extension has been made as described under " -- Collections"
(collectively, an "Advance").
Notwithstanding the foregoing, the Servicer will not be required to
make an Advance to the extent that such Advance would constitute a
Nonrecoverable Advance. A "Nonrecoverable Advance" will be any Advance that,
in the reasonable judgment of the Servicer, may not be ultimately recoverable
by the Servicer from Net Liquidation Proceeds or otherwise. In making
Advances, the Servicer will assist in maintaining a regular flow of scheduled
principal and interest payments on the Contracts, rather than to guarantee or
insure against losses. Accordingly, all Advances shall be reimbursable to the
Servicer, without interest, if and when a payment relating to a Contract with
respect to which an Advance has previously been made is subsequently
received. In addition, the Servicer will be reimbursed for all Nonrecoverable
Advances from collections on or in respect of the Contracts and Leased
Vehicles in general.
SECURITY DEPOSITS
The Origination Trust's rights related to the Contracts will include
all rights under the Contracts to the refundable security deposits paid by
the lessees at the time of origination of the Contracts (the "Security
Deposits"). As part of its general servicing obligations, the Servicer will
retain possession of each Security Deposit remitted by the lessees and will
apply the proceeds of such Security Deposits in accordance with the terms of
the Contracts, its customary and usual servicing procedures and applicable
law. However, in the event that any Contract becomes a Charged-off Contract
or the related Leased Vehicle is repossessed, the related Security Deposit
will, to the extent provided by applicable law and such Contract, constitute
Liquidation Proceeds. On the Deposit Date related to the Collection Period in
which the Security Deposit becomes Liquidation Proceeds, the Servicer will
deposit such amounts in the SUBI Collection Account. The Origination Trust
may not have an interest in the Security Deposits that is enforceable against
third parties until such time as they are deposited into the SUBI Collection
Account. The Servicer will not be required to segregate Security Deposits
from its own funds, and any
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income earned from any investment thereof by the Servicer shall be for the
account of the Servicer as additional servicing compensation.
MONITORING LESSEES' INSURANCE ON LEASED VEHICLES
AHFC uses a third party service provider (PDP Group of Hunt Valley,
Maryland) to verify that each lessee's insurance coverage complies with the
lease contract requirements. See "American Honda Finance
Corporation-Insurance." Coverage documentation is obtained shortly after each
lease inception and then monitored throughout the life of the lease to verify
that insurance policies are renewed upon scheduled expiration. If a lessee
fails to obtain or maintain the required insurance, the related lease
contract will be in default. AHFC's practice in such a circumstance is to
repossess the related leased vehicle rather than to obtain insurance on
behalf of and at the expense of the related lessee.
In the event that automobile physical damage (comprehensive
and collision) coverage was not obtained or maintained by a lessee, and
insurance proceeds for the damage or loss of a leased vehicle are not
collectible, the Servicing Agreement will require AHFC to promptly pay into
the SUBI Collection Account all amounts as would otherwise have been
recoverable as Insurance Proceeds. This obligation will survive any
termination of AHFC as Servicer under the Servicing Agreement.
REALIZATION UPON CHARGED-OFF CONTRACTS
The Servicer will use commercially reasonable efforts to repossess
and liquidate the Leased Vehicle relating to a Contract that comes into and
continues in default and for which no satisfactory arrangements can be made
for collection of delinquent payments (a "Defaulted Vehicle"). Such
liquidation may be through repossession of such Defaulted Vehicle and
disposition at a public or private sale, or the Servicer may take any other
action permitted by applicable law. The Servicer may enforce all rights under
any such Contract, sell the Defaulted Vehicle in accordance with the Contract
and commence and prosecute any proceedings in connection with the Contract.
In connection with any such repossession, the Servicer will follow its
customary practices and procedures in respect of any such lease contracts
serviced by it for its own account, and in any event in compliance with all
applicable laws. The Servicer will be required to repair the Leased Vehicle
only if it reasonably determines that the Liquidation Expenses will not
exceed the expected Liquidation Proceeds. The Servicer will be responsible
for all costs and expenses incurred in connection with the sale or other
disposition of Leased Vehicles related to Charged-off Contracts and other
Contracts as to which a lessee has defaulted and the related Leased Vehicles,
but will be entitled to reimbursement to the extent that such costs
constitute Repossession Expenses or other Liquidation Expenses or Insurance
Expenses. Proceeds from the sale or other disposition of repossessed
Defaulted Vehicles will constitute Repossession Proceeds and will be
deposited into the SUBI Collection Account. The Servicer will be entitled to
reimbursement of all related Repossession Expenses from amounts on deposit in
the SUBI Collection Account upon presentation to the Indenture Trustee of an
officer's certificate of the Servicer (or may net such amounts prior to the
deposit in the SUBI Collection Account) and Principal Collections in respect
of a Collection Period will include all Net Repossession Proceeds collected
during such Collection Period.
"Insurance Expenses" are any Insurance Proceeds (i) applied to the
repair of the related Leased Vehicle, (ii) released to the related lessee in
accordance with applicable law or the customary servicing procedures of the
Servicer or (iii) representing other related expenses incurred by the
Servicer not otherwise included in Liquidation Expenses and recoverable by
the Servicer under the Servicing Agreement.
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MATURED LEASED VEHICLE INVENTORY
Upon the scheduled maturity of a Contract, the related lessee has
the option to acquire the related Leased Vehicle for an amount equal to its
Residual Value plus any applicable taxes and all other incidental charges
which may be due under such Contract. If the lessee chooses not to exercise
this option but instead returns the Leased Vehicle, the originating Dealer
will have the option to purchase such vehicle for the same price. If any such
Leased Vehicle is returned to the Servicer, the Leased Vehicle will be placed
in Matured Leased Vehicle Inventory, and the Servicer will use commercially
reasonable efforts sell or otherwise dispose of the Leased Vehicle. See
"American Honda Finance Corporation -- Methods of Vehicle Disposal"
Principal Collections in respect of a Collection Period will include
all Net Matured Leased Vehicle Proceeds collected during such Collection
Period. The related Matured Leased Vehicle Proceeds will be deposited into
the SUBI Collection Account; provided that the related Matured Leased Vehicle
Expenses may be released from amounts on deposit in the SUBI Collection
Account upon presentation of an officer's certificate by the Servicer or may
be netted against Matured Lease Vehicle Proceeds prior to deposit in the SUBI
Collection Account. The Servicer will also be entitled to reimbursement of
certain payments made and expenses and charges incurred by it in the ordinary
course of servicing the Contracts (including payments it makes on behalf of
the related lessees in connection with the payment of taxes, vehicle
registration, clearance of parking tickets and similar items) from
Collections with respect to the related Contracts, separate payment thereof
by the related lessees or from amounts realized upon the final disposition of
the related Leased Vehicle. To the extent such amounts are not reimbursed
prior to or at the final disposition of such Leased Vehicle but remain unpaid
by the related lessee, such unreimbursed amounts, together with any unpaid
Monthly Payments under the related Contract, will be treated as Matured
Leased Vehicle Expenses or Liquidation Expenses and will reduce Net Matured
Leased Vehicle Proceeds or Net Liquidation Proceeds, as the case may be.
RECORDS, SERVICER DETERMINATIONS AND REPORTS
The Servicer will retain or cause to be retained all data
(including, without limitation, computerized records, operating software and
related documentation) relating directly to or maintained in connection with
the servicing of the Contracts. Upon the occurrence and continuance of a
Servicer Termination Event and termination of the Servicer's obligations
under the Servicer Agreement, the Servicer will use commercially reasonable
efforts to effect the orderly and efficient transfer of the servicing of the
Contracts to a successor servicer.
The Servicer will perform certain monitoring and reporting functions
on behalf of the Transferor, the Indenture Trustee, the Owner Trustee, the
Origination Trustee and the Noteholders, including the preparation and
delivery to the Indenture Trustee, the Origination Trustee and each Rating
Agency of a monthly certificate, on or before each Determination Date,
setting forth all information necessary to make all distributions required in
respect of the related Collection Period, and the preparation and delivery of
monthly statements setting forth information described under "Description of
the Notes -- Statements to Noteholders", and an annual officer's certificate
specifying the occurrence and status of any Servicer Termination Event.
EVIDENCE AS TO COMPLIANCE
THE SERVICING AGREEMENT WILL PROVIDE THAT A FIRM OF INDEPENDENT
ACCOUNTANTS WILL FURNISH TO THE INDENTURE TRUSTEE ON or before September 30 of
each year, beginning September 30, 2000, a statement as
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to compliance by the Servicer during the preceding twelve months ended March
31 (or since the Closing Date in the case of the first such statement) with
certain standards relating to the servicing of the Contracts, the Servicer's
accounting records and computer files with respect thereto and certain other
matters.
The Servicing Agreement will also provide for delivery to the
Indenture Trustee, on or before September 30 of such year, beginning
September 30, 1998, of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Agreement
throughout the preceding twelve months ended March 31 (or since the Closing
Date in the case of the first such certificate) or, if there has been a
default in the fulfillment of any such obligation, describing each such
default.
Copies of such statements and certificates may be obtained by Note
Owners or Noteholders by a request in writing addressed to the Indenture
Trustee at its Corporate Trust Office.
COMPLIANCE WITH ERISA
If the credit rating of AHFC becomes less than investment grade,
then, on a quarterly basis, AHFC shall provide the Indenture Trustee and each
Rating Agency with an officer's certificate stating that none of AHFC and its
affiliates for purposes of ERISA (i) maintains an ERISA plan which, as of its
last valuation date, had any unfunded current liability, (ii) anticipates
that the value of the assets of any ERISA plan it maintains would not be
sufficient to cover any current liability and (iii) is contemplating benefit
improvements with respect to any plans then maintained or the establishment
of any new ERISA plans, either of which would cause it to maintain an ERISA
plan with unfunded current liability (the "ERISA Compliance Test"). In the
event that AHFC does not timely make the foregoing certifications, all Excess
Interest Collections in respect of each Distribution Date, after giving
effect to all allocation and applications or payments required to be made
therefrom on such Distribution Date, will be deposited into the Reserve Fund
until the ERISA Compliance Test is satisfied. On the Distribution Date
following the date on which such failure is cured, monies on deposit in the
Reserve Fund in excess of the Reserve Fund Requirement shall be distributed
to the Transferor.
SERVICING COMPENSATION
The Servicer will be entitled to compensation for the performance of
its servicing obligations under the Servicing Agreement. The Servicer will be
entitled to receive on each Distribution Date, a monthly fee (the "Servicing
Fee") in respect of the related Collection Period equal to one-twelfth of the
product of 1.00% and the Aggregate Net Investment Value as of the first day
of such Collection Period (or, in the case of the first Distribution Date, as
of the Cutoff Date); the portion of the Servicing Fee allocable to the SUBI
Interest will be 99.8% thereof. The Servicing Fee will be calculated and paid
based upon a 360-day year consisting of twelve 30-day months. So long as AHFC
is the Servicer, it may, by notice to the Indenture Trustee and the
Origination Trustee, on or before a Determination Date, elect to waive the
Servicing Fee with respect to the related Collection Period, so long as AHFC
believes that sufficient collections will be available from Interest
Collections on one or more future Distribution Dates to pay such waived
Servicing Fee, without interest. In such event, the Servicing Fee for such
Collection Period shall be deemed to equal zero for all purposes of the
Agreement and the Servicing Agreement.
The Servicer will also be entitled to additional servicing compensation
in the form of late fees and other administrative fees or similar charges paid
with respect to the Contracts, and earnings from the
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investment of Security Deposits to the extent lawful and as provided in the
Contracts. See "Additional Document Provisions -- The Servicing Agreement --
Security Deposits". The Servicer will be entitled to retain any extension
fees paid in connection with an extended Contract ("Extension Fees") or any
applicable charge for excess mileage or excess wear and use ("Excess Mileage
Fee"), and also will be entitled to retain any other payments (whether or not
part of the fixed monthly payment) payable to the lessor representing a late
payment fee or an allocation to the related lessee of insurance premiums,
sales, personal property or excise taxes or any other similar charge
(collectively, the "Administrative Charge"). The Servicer will pay all
expenses incurred by it in connection with its servicing activities under the
Servicing Agreement, including the payment of Uncapped Administrative
Expenses allocable to the SUBI Interest, and will not be entitled to
reimbursement of such expenses except to the extent any such expenses
constitute Insurance Expenses or Liquidation Expenses in respect of a
Contract or Leased Vehicle or Reimbursable Servicer Expenses, or to the
extent that Uncapped Administrative Expenses are reimbursed out of Interest
Collections.
"Reimbursable Servicer Expenses" are amounts advanced by the
Servicer to pay costs or expenses associated with a proceeding in connection
with defending or asserting the interest of the Origination Trust in any
Origination Trust Asset, including the Contracts or the Leased Vehicles, and
the amounts paid by the Servicer to the Origination Trustee or any Co-Trustee
or Trust Agent as compensation or reimbursement pursuant to the SUBI Trust
Agreement.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of the Contracts as an agent for the
Origination Trustee under the Servicing Agreement, including collecting and
processing payments, responding to inquiries of lessees on the Contracts,
investigating delinquencies, sending payment statements and reporting tax
information to lessees, paying costs of sale or other disposition of Leased
Vehicles relating to defaulted Contracts and Leased Vehicles included in
Matured Leased Vehicle Inventory, policing the SUBI Assets, administering the
Contracts, making Advances, accounting for collections, furnishing monthly
and annual statements to the Indenture Trustee with respect to distributions
and generating federal income tax information.
SERVICER PURCHASE OPTION
In order to avoid excessive administrative expenses, the Servicer
will have an option to purchase all of the assets of the Trust as described
under "Description of the Notes -- Termination of the Trust; Redemption of
the Notes."
SERVICER RESIGNATION AND TERMINATION
The Servicer may not resign from its obligations and duties under
the Servicing Agreement unless it determines that its duties thereunder are
no longer permissible by reason of a change in applicable law or regulations.
No such resignation will become effective until a successor servicer has
assumed the Servicer's obligations under the Servicing Agreement. The
Servicer may not assign the Servicing Agreement or any of its rights, powers,
duties or obligations thereunder except as otherwise provided therein or
except in connection with a consolidation, merger, conveyance, transfer or
lease made in compliance with the Servicing Agreement.
The rights and obligations of the Servicer under the Servicing
Agreement may be terminated following the occurrence and continuance of a
Servicer Termination Event. See "Additional Document Provisions -- The
Servicing Agreement -- Rights Upon Servicer Termination Event".
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INDEMNIFICATION BY THE SERVICER
The Servicer will indemnify the Origination Trustee, any Trust Agent
or Co-Trustee and their respective agents for any and all liabilities,
losses, damages and expenses that may be incurred by them as a result of any
act or omission by the Servicer in connection with the performance of its
duties under the Servicing Agreement, provided that any such loss, liability,
claim, damage or expense arose out of the Servicer's negligence, willful
misconduct or bad faith in the performance of its duties under the Servicing
Agreement.
SERVICER TERMINATION EVENTS
"Servicer Termination Events" under the Servicing Agreement with
respect to the SUBI Assets will consist of, among other things: (i) any
failure by the Servicer to deliver to the Indenture Trustee for distribution
to Noteholders any required payment, which failure continues unremedied for
five Business Days after discovery of such failure by an officer of the
Servicer or receipt by the Servicer of notice thereof from the Indenture
Trustee, the Origination Trustee or holders of Notes evidencing not less than
25% of the Voting Interests of the Notes, voting together as a single class;
(ii) any failure by the Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Servicing Agreement
which failure materially and adversely affects the rights of holders of
interests in the SUBI or the Noteholders and which continues unremedied for
90 days after written notice of such failure is given as described in clause
(i) above; (iii) failure by the Servicer to deliver to the Origination
Trustee or the Indenture Trustee any report required to be delivered to the
Origination Trustee or the Indenture Trustee pursuant to the Servicing
Agreement within ten Business Days after the date such report is due; (iv)
any representation, warranty or statement of the Servicer made in the
Servicing Agreement or any other document relating to the Origination Trust
to which the Servicer is a party or by which it is bound or any certificate,
report or other writing delivered pursuant to the Servicing Agreement shall
prove to be incorrect in any material respect as of the time when the same
shall be made which continues unremedied for 30 days after written notice of
such failure is given as described in clause (i) above; (v) failure by the
Servicer to maintain or pay when due the premium in respect of any Contingent
and Excess Liability Insurance Policies; and (vi) a conservator, receiver or
bankruptcy trustee is appointed for the Servicer relating to the occurrence
of certain events relating to the insolvency or bankruptcy of the Servicer
(each, a "Servicer Insolvency Event"). Notwithstanding the foregoing, a delay
in or failure of performance referred to under clause (i) for a period of ten
Business Days, under clause (ii) for a period of 180 days, under clause (iii)
for a period of 20 Business Days or under clause (iv) for a period of 60
days, shall not constitute a Servicer Termination Event if such failure or
delay was caused by act of God or other similar occurrence. Upon the
occurrence of any such event, the Servicer shall not be relieved from using
all commercially reasonable efforts to perform its obligations in a timely
manner in accordance with the terms of the Servicing Agreement and the
Servicer shall provide to the Indenture Trustee, the Origination Trustee, the
Transferor and the Noteholders prompt notice of such failure or delay by it,
together with a description of its efforts to so perform its obligations.
RIGHTS UPON SERVICER TERMINATION EVENT
As long as a Servicer Termination Event remains unremedied, the
Origination Trustee, upon the direction of the Indenture Trustee or Noteholders
representing in the aggregate more than 50% of the Voting Interests of the
Notes, voting together as a single class, may terminate all of the rights and
obligations of the Servicer under the Servicing Agreement with respect to the
SUBI Assets. In the event of such a termination affecting the SUBI Assets, the
Origination Trust will be empowered to appoint a successor servicer pursuant to
a servicing agreement containing substantially the same provisions as the
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Servicing Agreement with respect to the SUBI Assets. If a successor servicer
is not appointed prior to the Servicer's termination or resignation, the
Trust Agent will succeed to the rights, powers, responsibilities, duties and
liabilities of the Servicer under the Servicing Agreement with respect to the
SUBI Assets (excluding certain specific obligations listed in the Servicing
Agreement). If the Trust Agent requests that the Origination Trust appoint a
different successor servicer, the Origination Trust will appoint or petition
a court of competent jurisdiction to appoint any established entity the
regular business of which includes the servicing of motor vehicle lease
contracts as a successor servicer with respect to the SUBI Assets.
Upon appointment of a successor servicer, the successor servicer
will assume all of the rights and obligations of the Servicer under the
Servicing Agreement; provided, however, that no successor servicer will have
any responsibilities with respect to the purchase of additional contracts or
leased vehicles by the Origination Trust or with respect to making Advances.
Any compensation payable to a successor servicer may not be in excess of that
permitted the predecessor servicer unless the holders of the UTI, the SUBI
and any Other SUBIs, as the case may be, bear such excess costs exclusively.
If a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Servicer Termination Event other than such appointment has
occurred, such trustee or official may have the power to prevent the
Origination Trustee, the Indenture Trustee or such Noteholders from effecting
a transfer of servicing. Notwithstanding the termination of the Servicer's
rights and powers in such event, the Servicer will remain obligated to
perform certain specific obligations listed in the Servicing Agreement and to
reimburse the Trust Agent for any losses incurred in performing certain such
obligations, and will be entitled to payment of certain amounts payable to it
for services rendered prior to such termination.
Noteholders representing in the aggregate more than 50% of the
Voting Interests of the Notes, voting together as a single class, with the
consent of the Origination Trustee and the Indenture Trustee (which consents
shall not be unreasonably withheld), may waive any default by the Servicer in
the performance of its obligations under the Servicing Agreement and its
consequences with respect to the SUBI Assets, other than a default in making
any required deposits to or payments from an Account in accordance with the
Servicing Agreement or in respect of a covenant or provision of the Servicing
Agreement that cannot be modified or amended without the consent of each
Noteholder (in which event the related waiver will require the approval of
holders of all of the Notes). No such waiver will impair the rights of the
Noteholders with respect to subsequent defaults.
NO PETITION
The Servicer will agree not to institute, or join in, any bankruptcy
or similar proceeding against either UTI Beneficiary, the Origination Trust,
the Origination Trustee, the Transferor or any other Transferor Affiliate
until one year and one day after final payment of all financings involving
interests in the Origination Trust.
TERMINATION
The Servicing Agreement shall terminate upon the earlier to occur of
(i) the dissolution of the Origination Trust, (ii) the discharge of the
Servicer in accordance with its terms or (iii) the termination of the
Agreement.
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INDENTURE TRUSTEE AND OWNER TRUSTEE AS THIRD-PARTY BENEFICIARIES
As the holder of the SUBI Interest, the Owner Trustee, and as the
pledgee of the SUBI Interest, the Indenture Trustee, will be third-party
beneficiaries of the Servicing Agreement.
GOVERNING LAW
The Servicing Agreement will be governed by the laws of the State of
California.
AMENDMENT OF BASIC DOCUMENTS
The Indenture, the Agreement, the SUBI Supplement, the Servicing
Agreement and the other agreements and instruments relating to the
transactions discussed herein (collectively, the "Basic Documents") may be
amended by the respective parties thereto, without the consent of the
Noteholders, to cure any ambiguity, to correct or supplement any provision
therein which may be inconsistent with any other provision therein; provided
that (i) any such action will not, in the good faith judgment of the parties,
materially and adversely affect the interests of any Noteholder or (ii) the
Origination Trustee and Indenture Trustee shall have been furnished with an
opinion of counsel to the effect that such amendment will not adversely and
materially affect the legal interest of any Noteholder.
The Basic Documents may also be amended from time to time by the
respective parties thereto (including with respect to changing the formula
for determining the Reserve Fund Requirement, changing the remittance
schedule for collection deposits in the Note Distribution Account, or
changing the definition of Eligible Investments) if (i) the Indenture Trustee
has been furnished with confirmation (written or oral) from each Rating
Agency to the effect that such amendment would not cause its then-current
rating on any Class of Notes to be qualified, reduced or withdrawn or (ii)
the Indenture Trustee has received the consent of the holders of Notes
evidencing more than 50% of the Voting Interests thereof, voting together as
a single class, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Indenture or of
modifying in any manner the rights of each Class of Noteholders; provided,
however, that: (i) any amendment eliminating the Reserve Fund shall also
require an opinion of the Transferor's counsel to the effect that, after such
amendment, for federal income tax purposes the Trust will not be treated as
an association taxable as a corporation, and the Notes will properly be
characterized as indebtedness that is secured by the assets of the Trust; and
(ii) (a) no such amendment shall increase or reduce in any manner the amount
of, or accelerate or delay the timing of, collections of payments on the SUBI
or the SUBI Certificate or distributions that shall be required to be made on
any Class of Notes or the applicable Note Rate and (b) no amendment of any
type shall reduce the percentage of the aggregate Voting Interests of the
Notes of any Class required to consent to any such amendment, in each case
without the consent of all Noteholders and Note Owners.
CERTAIN LEGAL ASPECTS OF THE ORIGINATION TRUST AND THE SUBI
THE ORIGINATION TRUST
The Origination Trust was formed as a Delaware business trust in July
1997. The Origination Trust has made trust filings or obtained certificates of
authority to transact business in certain states where, in the judgment of the
Servicer, such action may be required. Because the Origination Trust has been
registered as a business trust for Delaware and other state law purposes, in
similar form as a corporation, it may be eligible to be a debtor in its own
right under the United States Bankruptcy Code. See "Risk Factors -- Possible
Effects of an American Honda Finance Corporation or Honda Titling C
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L.P. Bankruptcy". As such, the Origination Trust may be subject to insolvency
laws under the United States Bankruptcy Code or similar state laws
("Insolvency Laws"), and claims against the Origination Trust Assets could
have priority over the beneficial interest therein represented by the SUBI.
In addition, claims of a third party against the Origination Trust Assets,
including the SUBI Assets, to the extent such claims are not covered by
insurance, would take priority over the holders of beneficial interests in
the Origination Trust, such as the Indenture Trustee, as more fully described
under "Security for the Notes -- The Contingent and Excess Liability
Insurance Policies" and "Certain Legal Aspects of the Contracts and Leased
Vehicles -- Vicarious Tort Liability".
QUALIFICATION OF HVT, INC. AS FIDUCIARY
State laws differ as to whether a corporate trustee that leases
vehicles in that state, such as HVT, Inc., must qualify as a fiduciary. The
consequences of the failure to be qualified as a fiduciary in a State where
such qualification is required differ by State, and could include penalties
against HVT, Inc. and its directors and officers ranging from fines to the
inability of HVT, Inc. to maintain action in the courts of that State.
AHFC believes that HVT, Inc. does not exercise sufficient discretion
in the performance of its duties under the SUBI Trust Agreement or take such
other discretionary actions that it should be considered to be exercising
fiduciary powers within the meaning of any applicable State law. However, no
assurance can be given that AHFC will prevail in this view. Because no State
in which (i) this issue is uncertain, (ii) HVT, Inc. has not taken the
actions necessary to qualify as a fiduciary and (iii) the consequences of
such failure would be material represents a significant percentage of the
value of the SUBI Assets, AHFC believes that the failure to be qualified as a
fiduciary in any State where such qualification may ultimately be required
will not materially and adversely affect the Noteholders. However, no
assurance can be given in this regard.
STRUCTURAL CONSIDERATIONS
Unlike many structured financings in which the holders of the
related securities have a direct ownership interest or a perfected security
interest in the underlying assets being securitized, the Trust will not own
directly the SUBI Assets. Instead, the Origination Trust will own the
Origination Trust Assets, including the SUBI Assets, and the Origination
Trustee will take action with respect thereto in the name of the Origination
Trust on behalf of and as directed by the beneficiaries of the Origination
Trust (I.E., the holders of the UTI Certificates, the SUBI Certificates or
any Other SUBI Certificate). The Trust will own the assets of the Trust, the
primary asset of which will be the SUBI Certificate evidencing a 99.8%
beneficial interest in the SUBI Assets, and the Owner Trustee will take
action with respect thereto in the name of the Trust and on behalf of the
Noteholders and the Transferor. Beneficial interests in the Contracts and
Leased Vehicles, rather than direct legal ownership thereof, are transferred
under this structure in order to avoid the administrative difficulty and
expense of retitling the Leased Vehicles in the name of the transferee. The
SUBI Assets will be segregated from the other Origination Trust Assets on the
books and records maintained with respect thereto by the Servicer and/or the
Origination Trustee. Except under the limited circumstances described below,
neither the Servicer nor any holders of other beneficial interests in the
Origination Trust will have rights in the SUBI Assets, and payments made on
or in respect of any Origination Trust Assets other than the SUBI Assets will
not be available to make payments on the Notes or to cover expenses of the
Origination Trust allocable to the SUBI Assets.
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ALLOCATION OF ORIGINATION TRUST LIABILITIES
Pursuant to the Origination Trust Agreement, the various liabilities
of the Origination Trust will be allocated to and charged against (i) to the
extent incurred specifically with respect thereto, the SUBI Assets, the Other
SUBI Assets or the UTI Assets, respectively, or (ii) pro rata among the
Origination Trust Assets if incurred with respect to the Origination Trust
Assets generally. The Origination Trustee and the beneficiaries of the
Origination Trust and their respective assignees and pledgees will be bound
by the foregoing allocation. Thus, any liability to third parties arising
from or in respect of a Contract or Leased Vehicle will be borne by the Trust
as a holder of interests in the SUBI. If any such liability arises from or in
respect of a contract or leased vehicle that is an Other SUBI Asset or a UTI
Asset, the SUBI Assets will not be subject to such liability unless such
Other SUBI Assets or UTI Assets are insufficient to pay the liability.
However, to the extent that there are no other assets from which to satisfy
such liability, and such liability is owed to entities other than the
Origination Trustee or other beneficiaries of the Origination Trust, the SUBI
Assets may be used to satisfy such liabilities. Under such circumstances,
investors in the Notes could incur a loss on their investment.
BACK-UP SECURITY INTEREST IN CERTAIN SUBI ASSETS
The transfer of the SUBI Certificate by the Transferor to the Trust
is intended to constitute a sale of the SUBI Certificate and of the
beneficial interest in the SUBI Assets evidenced thereby, subject in each
case to the rights of the Transferor as the holder of the Certificates. It is
possible that a court could recharacterize (for accounting and general state
law purposes) the transactions contemplated by the Origination Trust
Agreement and SUBI Supplement as a financing secured by a pledge of the SUBI
Certificate or the SUBI Assets rather than as a sale. In such an event,
absent prior perfection of the prior perfection of a security interest by the
Owner Trustee or the Indenture Trustee in the SUBI Assets, the holder of a
perfected lien in one or more SUBI Assets would have priority over the
respective interests of the Indenture Trustee and Owner Trustee in such SUBI
Assets.
Certain actions have been taken to ensure that, if the transfer of the
SUBI were to be so recharacterized as a transfer to secure a loan, the Indenture
Trustee would be deemed to have a perfected security interest in the SUBI
Certificate (and the assets of the SUBI evidenced thereby) and in the Contracts
and the rights thereunder susceptible of perfection by the filing of a financing
statement under the UCC as in effect in the States of Delaware, Illinois and
California. The SUBI Certificate will constitute a "financial asset" under the
UCC and the Indenture Trustee will be deemed to have a perfected security
interest therein (and the SUBI evidenced thereby) through its possession of the
SUBI Certificate. The Contracts will not be stamped to reflect the Indenture
Trustee's indirect interest therein. On or prior to the Closing Date, however,
"protective" UCC-1 financing statements will be filed in California, Illinois
and Delaware to perfect the Indenture Trustee's security interest. The "Contract
Rights" are all rights relating to the Contracts and the proceeds thereof,
including the documents evidencing such Contracts, Monthly Payments received or
due on or after the related Cutoff Date, Security Deposits (to the extent
applied to cover excess wear and tear charges or treated as Liquidation Proceeds
as described herein and as provided for in the Contracts), Prepayments,
Liquidation Proceeds and net Insurance Proceeds (to the extent constituting
proceeds of the related Contract rather than proceeds of the related Leased
Vehicle) received on or after the related Cutoff Date. However, no action will
be taken to perfect the lien that the Indenture Trustee would be deemed to have
in the Leased Vehicles in the event of such a recharacterization. Therefore, to
the extent that a valid lien is imposed by a third party against a Leased
Vehicle, the interest of the lienholder will be superior to the unperfected
beneficial interest of the Indenture Trustee in such Leased Vehicle. Although
the Servicing Agreement will require the Servicer to contest all such liens and
cause the removal of any liens that may be imposed,
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investors in the Notes could incur a loss on their investment if any such
liens are imposed against the Leased Vehicles. See "Additional Document
Provisions -- The Servicing Agreement -- Notification of Liens and Claims".
Additionally, any perfected security interest of the Indenture
Trustee in all or part of the property of the Trust could be subordinate to
claims of any trustee in bankruptcy or debtor-in-possession in the event of a
bankruptcy of the Transferor prior to any perfection of the transfer of the
assets transferred by the Transferor to the Trust pursuant to the Agreement.
See "Risk Factors -- Possible Effects of an American Honda Finance
Corporation or Honda Titling C L.P. Bankruptcy."
THE SUBI
The SUBI will be issued pursuant to the SUBI Trust Agreement and
will evidence a beneficial interest in the SUBI Assets. The SUBI will not
represent a direct interest in the SUBI Assets, nor will it represent an
interest in any Origination Trust Assets other than the SUBI Assets. Under
the allocation of Origination Trust liabilities described under "Additional
Document Provisions --The SUBI Trust Agreement -- The SUBI, the Other SUBIs
and the UTI", payments made on or in respect of such other Origination Trust
Assets will not be available to make payments on the Notes or to cover
expenses of the Origination Trust allocable to the SUBI Assets. Any liability
to third parties arising from or in respect of a Contract or Leased Vehicle
will be borne by the holders of interests in the SUBI (including the Trust).
If any such liability arises from a contract or leased vehicle that is an
Other SUBI Asset or a UTI Asset, the Origination Trust Assets (including the
SUBI Assets) will not be subject to such liability unless such Other SUBI
Assets or UTI Assets are insufficient to pay the liability. In such event,
because there will be no other assets from which to satisfy any such
liability, to the extent that it is owed to entities other than the
Origination Trustee and the beneficiaries of the Origination Trust, the other
Origination Trust Assets, including the SUBI Assets, will be available to
satisfy such liabilities. Under such circumstances, investors in the Notes
could incur a loss on their investment.
Similarly, to the extent that a third-party claim that otherwise
would be allocable to an Other SUBI or UTI is satisfied out of the SUBI
Assets rather than Other SUBI Assets or UTI Assets, and the claim exceeds the
value of the portfolio to which it should be allocated, the Origination
Trustee will not be able to reallocate the remaining Origination Trust Assets
so that each portfolio will bear the expense of the claim as nearly as
possible if the claim has been properly allocated. In such circumstances,
investors in the Notes could incur a loss on their investment.
Because the Owner Trustee and the Indenture Trustee will not own
directly or have a direct security interest in the SUBI Assets, including the
Leased Vehicles, and since their respective interests therein generally will be
an indirect beneficial ownership interest and a security interest in such
indirect beneficial ownership interest, perfected liens of third-party creditors
of the Origination Trust in one or more of such SUBI Assets will take priority
over the interests of the Owner Trustee and the Indenture Trustee in such SUBI
Assets. Therefore, a general creditor of the Origination Trust may obtain a lien
on one or more such SUBI Assets regardless of whether its claim would be
allocated to such SUBI Assets under the terms of the Origination Trust
Agreement. Potentially material examples of such liens could include tax liens
arising against the Transferor or the Trust, liens arising under various federal
and state criminal statutes, certain liens in favor of the Pension Benefit
Guaranty Corporation (the "PBGC"), judgment liens arising from successful claims
under federal and state consumer protection laws and Lemon Laws with respect to
leases and leased vehicles included in the Origination Trust Assets and judgment
liens arising from successful claims against the Origination Trust arising from
the operation of the leased vehicles constituting Origination Trust Assets. See
"Risk Factors -- Possible Liens Due to
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ERISA Liabilities" and "--Possible Liability as a Result of Lessees'
Operation of Leased Vehicles" and "Certain Legal Aspects of the Contracts and
the Leased Vehicles -- Vicarious Tort Liability" and " -- Consumer Protection
Laws" for a further discussion of these risks.
The Origination Trust Agreement provides that, to the extent that
such a third-party claim is satisfied out of one or more SUBI Assets rather
than Other SUBI Assets or UTI Assets, as the case may be, the Origination
Trustee will reallocate the remaining Origination Trust Assets (I.E., the
Other SUBI Assets and the UTI Assets) so that each portfolio will bear the
expense of the claim as nearly as possible as if the claim had been allocated
as provided in the Origination Trust Agreement as set forth under "Additional
Document Provisions -- The SUBI Trust Agreement -- The SUBI, the Other SUBIs
and the UTI".
The UTI Beneficiaries may pledge the UTI Assets as security for
obligations to third-party lenders, and may create and sell or pledge Other
SUBIs in connection with other financings. Each holder or pledgee of the UTI
or any Other SUBI will be required expressly to disclaim any interest in the
SUBI Assets, and to fully subordinate any claims to the SUBI Assets in the
event that this disclaimer is not given effect. Although no assurance can be
given, in the unlikely event of a bankruptcy of AHFC, the Transferor believes
that the SUBI Assets would not be treated as part of AHFC's bankruptcy estate
and that, even if they were so treated, the subordination by holders and
pledgees of the UTI and Other SUBIs should be enforceable.
The Owner Trustee will generally be deemed to own the SUBI
Certificate on behalf of the Trust and, through such ownership, to have an
indirect beneficial ownership interest in the Contracts and the Leased
Vehicles. If a court of competent jurisdiction were to recharacterize the
sale of the SUBI Certificate and the SUBI Interest evidenced thereby to the
Owner Trustee, the Owner Trustee (or, during the term of the Indenture, the
Indenture Trustee) could instead be deemed to have a perfected security
interest in the SUBI Certificate, but in no event would the Issuer or the
Indenture Trustee be deemed to have a perfected security interest in the
Leased Vehicles.
INSOLVENCY RELATED MATTERS
Although no assurance can be given, the Transferor believes that in
the unlikely event of a bankruptcy of AHFC, the SUBI Assets would not be
treated as part of AHFC's bankruptcy estate and that, even if they were so
treated, the subordination by holders and pledgees of the UTI Certificates
and Other SUBI Certificates should be enforceable. In addition, the
Transferor has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or
involuntary application for relief by AHFC under any Insolvency Laws will
result in consolidation of the assets and liabilities of the Origination
Trust, HTA, LP, HTB LP, the Transferor or the Trust with those of AHFC. With
respect to HTA LP, HTB LP and the Transferor, these steps include their
creation as separate, special purpose limited partnerships of which HTA LLC,
HTB LLC and HTC LLC, respectively, are the sole general partners, pursuant to
limited partnership agreements containing certain limitations (including
restrictions on the nature of their respective businesses and on their
ability to commence a voluntary case or proceeding under any Insolvency Law
without the affirmative vote of their respective independent members and, in
turn all of the directors of their respective independent members, including
each independent director). With respect to HTI and HFI, these steps include
their creation as separate, special purpose subsidiaries of AHFC pursuant to
articles of incorporation containing certain limitations (including the
requirement that each must have at all times at least two independent
directors and restrictions on the nature of their respective businesses and
on their ability to
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commence a voluntary case or proceeding under any Insolvency Law without the
affirmative vote of a majority of their respective directors, including each
independent director).
If, however, (i) a court concluded that the assets and liabilities
of the Origination Trust HTA LP, HTB LP, the Transferor or the Trust should
be consolidated with those of AHFC in the event of the application of
applicable Insolvency Laws to AHFC, (ii) a filing were made under any
Insolvency Law by or against the Origination Trust, HTA LP, HTB LP, the
Transferor or the Trust or (iii) an attempt were made to litigate any of the
foregoing issues, delays in payments on the Notes and possible reductions in
the amount of such payments could occur.
Reallocation Payments made by AHFC in respect of certain Contracts
as to which an uncured breach of certain representations and warranties or
certain servicing covenants has occurred payments made by AHFC in respect of
certain insurance policies required to be obtained and maintained by lessees
pursuant to the Contracts, unreimbursed Advances made by AHFC, as Servicer,
pursuant to the Servicing Agreement, and payments made by AHFC to the
Transferor may be recoverable by AHFC as debtor-in-possession or by a
creditor or a trustee in bankruptcy of AHFC as a preferential transfer from
AHFC if such payments were made within one year prior to the filing of a
bankruptcy case in respect of AHFC. In addition, the insolvency of AHFC could
result in the replacement of AHFC as Servicer, which could result in a
temporary interruption of payments on the Notes and Servicer Termination
Event under the Servicing Agreement.
On the Closing Date, O'Melveny & Myers LLP, special counsel to AHFC,
HTA LP, HTB LP and the Transferor, will render an opinion based on a reasoned
analysis of analogous case law (although there is no precedent based on
directly similar facts) that, subject to certain facts, assumptions and
qualifications specified therein, under present reported decisional authority
and statutes applicable to federal bankruptcy cases, if AHFC were to become a
debtor in a case under the United States Bankruptcy Code, it would not be a
proper exercise by a federal bankruptcy court of its equitable jurisdiction
to disregard the separate legal forms so as to substantively consolidate the
assets and liabilities of HTA LP, the Transferor or the Origination Trust
with those of AHFC. In addition, on the Closing Date, O'Melveny & Myers LLP
will render an opinion to the effect that (i) the transfer of the 99%
interest in the SUBI Assets from HTA to the Transferor constitutes a sale of
such 99% interest and related SUBI assets, and (ii) the transfer of the SUBI
Certificate by the Transferor to the Trust constitutes a sale of the SUBI
Certificate and the beneficial interest in the SUBI Assets evidenced thereby,
subject in each case to the rights of the Transferor as the holder of the
Certificates and the rights of the Indenture Trustee as pledgee of the SUBI
Certificate, or if such transfer does not constitute a sale, then the
Agreement creates a valid perfected security interest of the Owner Trustee in
the Transferor's right, title and interest in the SUBI Certificate.
LEGAL PROCEEDINGS
None of HTA LP, HTB LP or the Transferor is a party to any legal
proceeding. AHFC [and the Origination Trust are parties] to, and are
vigorously defending, numerous legal proceedings, all of which it believes
constitute ordinary routine litigation incidental to the business and
activities conducted by AHFC. and the Origination Trust. Certain of the
actions naming AHFC [and/or the Origination Trust] are or purport to be class
action suits. In the opinion of management of AHFC, the amount of ultimate
liability on pending claims and actions as of the date of this Prospectus
should not have a material adverse effect on its condition, financial or
otherwise, or on the Origination Trust, the Origination Trust Assets or the
SUBI. However, there can be no assurances in this regard.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS AND THE LEASED VEHICLES
BACK-UP SECURITY INTERESTS
The Contracts are "chattel paper" as defined in the UCC. Pursuant to
the California UCC, a non-possessory security interest in or transfer of
chattel paper in favor of the Origination Trust and the Transferor may be
perfected by filing a UCC-1 financing statement with the appropriate state
authorities in the jurisdiction in which the principal place of business of
the Transferor is located (I.E., the California Secretary of State). On or
prior to the Closing Date, "protective" UCC-1 financing statements will be
filed in California, Delaware and Illinois to effect this perfection. The
Indenture Trustee's back-up security interest in the Contracts could be
subordinate to the interest of certain other parties who take possession of
the Contracts before the filings described above have been completed.
Specifically, the Indenture Trustee's security interest in a Contract could
be subordinate to the rights of a purchaser of such Contract who takes
possession thereof without knowledge or actual notice of the Indenture
Trustee's security interest. The Contracts will not be stamped to reflect the
foregoing back-up security arrangements.
Various liens could be imposed upon all or part of the SUBI Assets
(including the Leased Vehicles) that, by operation of law, would take
priority over the Indenture Trustee's interest therein. Such liens could
include tax liens arising against the Transferor or the Trust, mechanic's,
repairmen's, garagemen's and motor vehicle accident liens and certain liens
for personal property taxes, in each case arising with respect to a
particular Leased Vehicle, liens arising under various state and federal
criminal statutes and certain liens of the PBGC in respect of certain
unfunded pension liabilities of the Transferor and its affiliates.
Additionally, any perfected security interest of the Indenture Trustee in all
or part of the property of the Trust could also be subordinate to claims of
any trustee in bankruptcy or debtor-in-possession in the event of a
bankruptcy of the Transferor prior to any perfection of the transfer of the
assets transferred by the Transferor to the Trust pursuant to the Agreement.
VICARIOUS TORT LIABILITY
Although the Origination Trust will own the Leased Vehicles and the
Trust will have a beneficial interest therein evidenced by the SUBI, the
Leased Vehicles will be operated by the related lessees and their respective
invitees. State laws differ as to whether anyone suffering injury to person
or property involving a leased vehicle may bring an action against the owner
of the vehicle merely by virtue of that ownership. To the extent that
applicable State law permits such an action, the Origination Trust and the
Origination Trust Assets may be subject to liability to such an injured
party. However, the laws of many States either do not permit such suits, or
the lessor's liability is capped at the amount of any liability insurance
that the lessee was required to, but failed to, maintain (except for some
States, such as New York, where liability is joint and several).
For example, in California, where the largest concentration of
Contracts were originated, under the California Vehicle Code, the owner of a
motor vehicle subject to a lease is responsible for injuries to persons or
property resulting from the negligent or wrongful operation of the vehicle by
any person using the vehicle with the owner's permission. The owner's
liability for personal injuries is limited to $15,000 per person and $30,000
in total per accident and for property damage is limited to $5,000 per
accident. However, recourse for any judgment arising out of the operation of
the vehicle must first be had against the operator's property if the operator
is within the jurisdiction of the court.
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In contrast to California and many other states, under New York law,
the holder of title of a motor vehicle, including a titling trust as lessor,
may be considered an "owner" and thus may be held jointly and severally
liable with the lessee for the negligent use or operation of such motor
vehicle. In New York, there is no limit on an owner's liability. Recently, in
TAUGHRIN V. RODRIGUEZ AND FORD MOTOR CREDIT COMPANY, 677 N.Y.S. 2d 861 (Oct.
2, 1998), the Supreme Court of New York ruled that a finance company acting
as an agent for a titling trust may be considered an "owner" of a motor
vehicle and thus subject to joint and several liability with the lessee for
the negligent use or operation of the leased motor vehicle for the duration
of a lease. The court's ruling in TAUGHRIN was in the context of the denial
of a summary judgment motion brought by defendant Ford Motor Credit Company
to dismiss the case. As a result of the rulings in New York, losses could
arise if lawsuits are brought against either the Origination Trust or
American Honda Finance Corporation, as agent of the Origination Trust, in
connection with the negligent use or operation of any leased vehicles which
are part of the Origination Trust.
The Origination Trust's insurance coverage is substantial. However,
in the event that all applicable insurance coverage was exhausted (including
the coverage provided by the Contingent and Excess Liability Insurance
Policies) and damages in respect of vicarious liability were assessed against
the Origination Trust, claims could be imposed against the assets of the
Origination Trust, including the Leased Vehicles and in certain circumstances
with respect to a leased vehicle that is an Other SUBI Asset or a UTI Asset.
However, such claims would not take priority over any SUBI Assets to the
extent that, in certain limited circumstances, the Indenture Trustee has a
prior perfected security interest therein (such as with respect to the
Contracts). If any such claims were imposed against the assets of the
Origination Trust, investors in the Notes could incur a loss on their
investment. See "Certain Legal Aspects of the Origination Trust and the SUBI
- -- Back-up Security Interest in Certain SUBI Assets".
REPOSSESSION OF LEASED VEHICLES
In the event that a default by a lessee has not been cured within a
certain period of time after notice, the Servicer will ordinarily retake
possession of the related leased vehicle. Some jurisdictions require that the
lessee be notified of the default and be given a time period within which to
cure the default prior to repossession. Generally, this right to cure may be
exercised on a limited number of occasions in any one-year period. In these
jurisdictions, if the lessee objects or raises a defense to repossession, an
order must be obtained from the appropriate state court, and the vehicle must
then be repossessed in accordance with that order. Other jurisdictions permit
repossession without notice (although in certain states a course of conduct
in which the lessor has accepted late payments has been held to create a
right of the lessee to receive prior notice), but only if the repossession
can be accomplished peacefully. If a breach of the peace cannot be avoided,
the lessor must seek a writ of possession in a state court action or pursue
other judicial action to repossess such leased vehicle.
After the Servicer has repossessed a Leased Vehicle, it may provide
the lessee with a period of time within which to cure the default under the
related Contract. If by the end of such period the default has not been
cured, the Servicer will attempt to sell the Leased Vehicle. The Net
Repossession Proceeds therefrom may be less than the remaining amounts due
under the Contract at the time of default by the lessee.
DEFICIENCY JUDGMENTS
The proceeds of sale of a leased vehicle generally will be applied
first to the expenses of resale and repossession and then to the satisfaction of
the amounts due under the related lease contract. While
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some states impose prohibitions or limitations on deficiency judgments if the
net proceeds from resale of a leased vehicle do not cover the full amounts
due under the related lease contract, a deficiency judgment can be sought in
those states that do not prohibit directly or limit such judgments. However,
in some states, a lessee may be allowed an offsetting recovery for any amount
not recovered at resale because the terms of the resale were not commercially
reasonable. In any event, a deficiency judgment would be a personal judgment
against the lessee for the shortfall, and a defaulting lessee would be
expected to have little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment. Even if a deficiency judgment is obtained, it may be
settled at a significant discount or may prove impossible to collect all or
any portion thereof.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose
requirements upon lessors and servicers involved in consumer leasing. The
federal Consumer Leasing Act of 1976 and Regulation M, issued by the Board of
Governors of the Federal Reserve System, for example, require that a number
of disclosures be made at the time a vehicle is leased, including the amount
and type of all payments due at the time of origination of the lease, a
description of the lessee's liability at the end of the lease term, the
amount of any periodic payments and manner of their calculation, the
circumstances under which the lessee may terminate the lease prior to the end
of the lease term, the capitalized cost of the vehicle and a warning
regarding possible charges for early termination. A number of states have
adopted Article 2A of the UCC which provides protection to lessees through
certain implied warranties and the right to cancel a lease contract relating
to defective goods. Additionally, certain states such as California have
enacted comprehensive vehicle leasing statutes that, among other things,
regulate the disclosures to be made at the time a vehicle is leased. The
various federal and state consumer protection laws would apply to the
Origination Trust as a "co-lessor" of the lease contract and may also apply
to the Trust as holder of the SUBI Certificate. The failure to comply with
such consumer protection laws may give rise to liabilities on the part of the
Servicer, the Origination Trust and the Origination Trustee, including
liabilities for statutory damages and attorneys' fees. In addition, claims by
the Servicer, the Origination Trust and the Origination Trustee may be
subject to set-off as a result of such noncompliance.
Courts have applied general equitable principles in litigation
relating to repossession and deficiency balances. These equitable principles
may have the effect of relieving a lessee from some or all of the legal
consequences of a default.
In several cases, consumers have asserted that the self-help
remedies of lessors violate the due process protection provided under the
Fourteenth Amendment to the Constitution of the United States. Courts have
generally found that repossession and resale by a lessor do not involve
sufficient state action to afford constitutional protection to consumers.
Many states have adopted laws (each, a "Lemon Law") providing redress
to consumers who purchase or lease a vehicle that remains out of conformance
with its manufacturer's warranty after a specified number of attempts to correct
a problem or after a specific time period. Should any Leased Vehicle become
subject to a Lemon Law, a lessee could compel the Origination Trust to terminate
the related Contract and refund all or a portion of payments that previously
have been paid. Although the Origination Trust may be able to assert a claim
against the manufacturer of any such defective Leased Vehicle, there can be no
assurance any such claim would be successful. To the extent a lessee is able to
compel the Origination Trust to terminate the related Contract, such Contract
will be deemed to be a Liquidated Contract and amounts received thereafter on or
in respect of such Contract will constitute Liquidation Proceeds. As noted
below, AHFC will represent and warrant to the Owner Trustee and the
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Indenture Trustee as of the Cutoff Date that none of the Leased Vehicles is
out of compliance with any law, including a Lemon Law. Nevertheless, there
can be no assurance that one or more Leased Vehicles will not become subject
to return (and the related Contract terminated) in the future under a Lemon
Law.
Representations and warranties will be made in the Servicing
Agreement that each Contract complies with all requirements of law in all
material respects. If any such representation and warranty proves to be
incorrect with respect to any Contract, has certain material adverse effects
and is not timely cured, AHFC will be required under the Servicing Agreement
to deposit an amount equal to the Reallocation Payment in respect of such
Contract into the SUBI Collection Account unless the breach is cured in all
material respects. See "Description of the Notes -- Reallocation Payments"
and "The Contracts --Representations, Warranties and Covenants" for further
information regarding the foregoing representations and warranties and the
Servicer's obligations with respect thereto.
OTHER LIMITATIONS
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including applicable Insolvency Laws,
may interfere with or affect the ability of a lessor to enforce its rights
under a motor vehicle lease contract. For example, if a lessee commences
bankruptcy proceedings, the lessor's receipt of rental payments due under the
lease contract is likely to be delayed. In addition, a lessee who commences
bankruptcy proceedings might be able to assign the lease contract to another
party even though the lease prohibits assignment.
MATERIAL INCOME TAX CONSIDERATIONS
FEDERAL TAXATION
GENERAL
Set forth below is a discussion representing the opinion of O'Melveny &
Myers LLP, special federal income tax counsel ("Federal Tax Counsel") to the
Transferor, as to material federal income tax consequences to holders of the
Notes who are original owners and who hold the Notes as capital assets under the
Internal Revenue Code of 1986, as amended (the "Code"). This discussion does not
purport to be complete or to deal with all aspects of federal income taxation or
any aspects of state or local taxation that may be relevant to Noteholders or
Note Owners in light of their particular circumstances, nor to certain types of
Noteholders or Note Owners subject to special treatment under the federal income
tax laws (for example, banks, life insurance companies, tax-exempt
organizations, and broker-dealers). This discussion is based upon present
provisions of the Code, the Treasury regulations promulgated thereunder and
published rulings and court decisions in effect as of the date hereof, all of
which are subject to change, which change may be retroactive. The parties do not
intend to seek a ruling from the Internal Revenue Service (the "IRS") on any of
the issues discussed below. Moreover, there can be no assurance that if such a
ruling were sought, the IRS would rule favorably. Taxpayers and preparers of tax
returns (including those filed by any partnership or other issuer) should be
aware that under applicable Treasury Regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice is (i) given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their respective
tax advisors and tax return preparers regarding the preparation of any item on a
tax return, even where the anticipated tax treatment has been discussed herein.
Prospective investors should consult their own tax advisors with regard to the
federal income tax consequences of the
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purchase, ownership or disposition of the Notes, as well as the tax
consequences arising under the laws of any state, foreign country or other
taxing jurisdiction.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
The Transferor, the Owner Trustee, each Noteholder, and each Note
Owner (by acquiring a beneficial interest in a Note) will express in the
Agreement and in the Indenture their intent that, for federal, state and
local income and franchise tax purposes, the Notes will be indebtedness,
secured by the assets of the Trust. The Transferor and the Owner Trustee, by
entering into the Agreement and the Indenture, and each Noteholder and each
Note Owner, by acquiring a beneficial interest in a Note, will agree to treat
the Notes as indebtedness for federal, state and local income and franchise
tax purposes.
In general, the characterization of a transaction for federal income
tax purposes is based upon economic substance, and the substance of the
transaction in which the Notes are issued is consistent with the treatment of
the Notes as debt for federal income tax purposes. The determination of
whether the economic substance of a property transfer is a sale or a loan
secured by the transferred property depends upon numerous factors designed to
determine whether the transferor has relinquished (and the transferee has
obtained) substantial incidents of ownership in the property. The primary
factors examined are whether the transferee has the opportunity to gain if
the property increases in value, and has the risk of loss if the property
decreases in value. Based upon its analysis of such factors, Federal Tax
Counsel is of the opinion that, for federal income tax purposes the
characterization of the Notes should be governed by the substance of the
transaction and accordingly, (i) the Trust will not be treated as an
association taxable as a corporation and (ii) the Notes will properly be
characterized as indebtedness that is secured by the Trust assets. However,
the opinion of Federal Tax Counsel is not binding on the Internal Revenue
Service ("IRS") and no asurrance can be given that such characterization will
prevail. Contrary characterizations that could be asserted by the IRS
are described under" -Possible Alternative Treatment of the Notes" below.
FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES NOTEHOLDERS
The discussion set forth below applies to "U.S. Holders." A "U.S.
Holder" is a Noteholder who is : (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any state or political subdivision thereof
(other than a partnership that is not treated as a United States person under
any applicable Treasury regulations), (iii) an estate whose income is subject
to United States federal income tax, regardless of its source or (iv) a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States persons who have authority to
control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in 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 so treated also shall be considered U.S. Holders.
TAXATION OF INTEREST AND DISCOUNT INCOME
Assuming that the Notes are debt obligations for federal income tax
purposes, interest generally will be taxable as ordinary income for federal
income tax purposes when received by U.S. Holders utilizing the cash method
of accounting and when accrued by U.S. Holders utilizing the accrual method
of accounting. Interest received on the Notes may also constitute "investment
income" for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense.
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ORIGINAL ISSUE DISCOUNT. Under regulations issued with respect to
the original issue discount ("OID") provisions of the Code, the Notes will be
deemed to have been issued with OID in an amount equal to the excess of the
"stated redemption price at maturity" of the Class A-1, Class A-2, Class A-3,
Class A-4 or Class B Notes, as the case may be (generally equal to their
principal amount as of the date of original issuance plus all interest other
than "qualified stated interest" payable prior to or at maturity), over their
issue price (determined as described below). Qualified stated interest
generally means interest payable at a single fixed rate or qualified variable
rate provided that such interest payments are unconditionally payable at
intervals of one year or less during the entire term of the Class A-1, Class
A-2, Class A-3, Class A-4 or Class B Notes, as the case may be. Under the OID
provisions of the Code, interest will only be treated as qualified stated
interest if it is "unconditionally payable". Interest will be treated as
"unconditionally payable" only if Noteholders have reasonable remedies to
compel payment of interest deficiencies (E.G., default and acceleration
rights). Because Noteholders will not be entitled to penalty payments of
interest on interest deficiencies, and Noteholders will have no default and
acceleration rights in the event of interest shortfalls, interest paid on the
Notes may not be treated by the IRS as qualified stated interest, and, in
such event, would be treated as OID. A U.S. Holder must include OID in gross
income (as ordinary interest income) over the term of the related Note under
a constant yield method. In general, OID must be included in income in
advance of the receipt of cash representing that income, regardless of the
U.S. Holder's method of accounting. The amount of OID on a Note will be
considered to be zero if it is less than a de minimis amount determined under
the Code.
The issue price of a Note is the first price at which a substantial
amount of Notes are sold to the public (excluding bond houses, brokers,
underwriters or wholesalers). If less than a substantial amount of a
particular Class of Notes is sold for cash on or prior to the Closing Date,
the issue price of such Class will be treated as the fair market value of
such Class on the Closing Date. The issue price of a Note also includes the
amount paid by a U.S. Holder for accrued interest that relates to a period
prior to the issue date of the Note.
Under the DE MINIMIS rule, OID on a Note will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Note multiplied by the weighted average maturity of the Note.
U.S. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Note is
held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest
method.
The U.S. Holder of a Note issued with OID must include in gross
income, for all days during its taxable year on which it holds such Note, the
sum of the "daily portions" of such original issue discount. The amount of
OID includible in income by a U.S. Holder will be computed by allocating to
each day during a taxable year a pro rata portion of the original issue
discount that accrued during the relevant accrual period.
If a U.S. Holder purchases a Note issued with OID at an "acquisition
premium" (I.E., at a price in excess of the adjusted issue price of the Note,
but less than or equal to the "stated redemption price at maturity"), the
amount of OID includible in the income of such U.S. Holder for each taxable
year will be reduced by that portion of the acquisition premium properly
allocable to such year.
Although the matter is not entirely clear, the Transferor currently
intends to report all stated interest on the Notes as qualified stated
interest and not as OID.
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MARKET DISCOUNT. U.S. Holders should be aware that the resale of a
Note may be affected by the market discount rules of the Code. These rules
generally provide that, subject to a de minimis exception, if a holder
acquires a Note at a market discount (I.E., at a price below its "adjusted
issue price"), gain on the sale or other disposition of a Note, and partial
principal payments on the Notes, will be treated as ordinary interest income
to the extent of accrued market discount. A U.S. Holder may elect to include
market discount currently in gross income in taxable years to which it is
attributable, computed using either a ratable accrual or a yield to maturity
method. The market discount rules also provide that a U.S. Holder who
acquires a Note at a market discount may be required to defer a portion of
any interest expense that otherwise may be deductible on any indebtedness
incurred or maintained to purchase or carry the Notes.
PREMIUM. A U.S. Holder who purchases a Note for more than its stated
redemption price at maturity will be subject to the premium amortization
rules of the Code. Under those rules, the U.S. Holder may elect to amortize
such premium on a constant yield method. Amortizable premium reduces interest
income on the related Note. If the U.S. Holder does not make such an
election, the premium paid for the Note generally will be included in the tax
basis of the Note in determining the gain or loss on its disposition.
Each U.S. Holder should consult his own tax advisor regarding the
impact of the original issue discount, market discount, and premium
amortization rules.
SALES OF NOTES
In general, a U.S. Holder will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of a Note measured by the
difference between (i) the amount of cash and the fair market value of any
property received (other than amounts attributable to, and taxable as,
accrued stated interest) and (ii) the U.S. Holder's tax basis in the Note (as
increased by any OID or market discount previously included in income by the
holder and decreased by any deductions previously allowed for amortizable
bond premium and by any payments, other than qualified stated interest
payments, received with respect to such Note). Subject to the market discount
rules discussed above and to the more than one-year holding period
requirement for long-term capital gain treatment, any such gain or loss
generally will be long-term capital gain or loss, provided that the Note was
held as a capital asset. The federal income tax rates applicable to capital
gains for taxpayers other than individuals, estates and trusts are currently
the same as those applicable to ordinary income; however, the maximum
ordinary income rate for individuals, estates and trusts is generally 39.6%,
whereas the maximum long-term capital gains rate for such taxpayers is 20%.
Moreover, capital losses generally may be used only to offset capital gains.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of investors that are not U.S. Holders ("Foreign Investors") if
the Notes are treated as debt.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor that is not effectively connnected with a trade or business
carried on by the Foreign Investor in the United States to a withholding tax at
a rate of 30% (unless such rate were changed by an applicable treaty). The
withholding tax, however, is eliminated with respect to certain "portfolio debt
investments" issued to Foreign Investors. Portfolio debt investments include
debt instruments issued in registered form for which the United States payor
receives a statement that the beneficial owner of the instrument is a
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Foreign Investor. The Notes will be issued in registered form; therefore, if
the information required by the Code is furnished (as described below) and no
other exceptions to the withholding tax exemption are applicable, no
withholding tax will apply to interest payments on the Notes.
In order to avoid withholding tax on interest payments on the Notes
under the portfolio debt exemption, the withholding agent must receive from
the Note Owner an executed IRS Form W-8 (or a statement substantially similar
in form to IRS Form W-8) signed under penalty of perjury by the Note Owner
stating that the Note Owner is a Foreign Investor and providing such Note
Owner's name and address. The statement must be received by the withholding
agent in the calendar year in which the interest payment is made, or in
either of the two preceding calendar years.
A Note Owner that is a nonresident alien or foreign corporation will
not be subject to United States federal income tax on gain realized on the
sale, exchange or redemption of such Note, provided that (i) such gain is not
effectively connected with a trade or business carried on by the Note Owner
in the United States, (ii) in the case of a Note Owner that is an individual,
such Note Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange or redemption occurs,
and (iii) in the case of gain representing accrued interest, the conditions
described in the immediately preceding paragraph are satisfied.
BACKUP WITHHOLDING
A Note Owner may be subject to a backup withholding at the rate of
31% with respect to interest paid on the Notes if the Note Owner, upon
issuance, fails to supply the Trustee or his broker with such Note Owner's
taxpayer identification number, fails to report interest, dividends or other
"reportable payments" (as defined in the Code) properly, or under certain
circumstances, fails to provide the Trustee or his broker with a certified
statement, signed under penalty of perjury, that such Note Owner is not
subject to backup withholding. Information returns will be sent annually to
the IRS and to each Note Owner setting forth the amount of interest paid on
the Notes and the amount of tax withheld thereon.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued 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, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES
Although, as described above, it is the opinion of Federal Tax
Counsel that the Notes will properly be characterized as debt for federal
income tax purposes, such opinion will not be binding on the IRS and thus no
assurance can be given that such a characterization shall prevail. If the IRS
were to contend successfully that the Notes did not represent debt for
federal income tax purposes, certain adverse tax consequences to the Trust
and the Noteholders would result. For example, the Trust would likely be
considered a "publicly-traded partnership," and as a result treated for U.S.
tax purposes as an association taxed as a corporation. In addtion, income to
certain tax-exempt entities (including pension funds) generally would be
"unrelated business taxable income", and income to foreign holders generally
would be subject to United States withholding tax and reporting requirements.
While AHFC strongly
97
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believes that any challenge by the IRS, if made, would be unsuccessful, there
can be no assurance of this result. Prospective investors are advised to
consult with their own tax advisors regarding the federal income tax
consequences of the purchase, ownership and disposition of the Notes.
ERISA CONSIDERATIONS
Subject to the following discussion, the Notes may be acquired by
pension, profit-sharing or other employee benefit plans, as well as
individual retirement accounts and Keogh plans (each a "Benefit Plan").
Section 406 of ERISA and Section 4975 of the Code prohibit 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 or the fiduciaries of the Benefit Plan. In
addition, Title I of ERISA also requires fiduciaries of a Benefit Plan
subject to ERISA to make investments that are prudent, diversified and in
accordance with the governing plan documents. Also, similar restrictions may
apply under state law with respect to employee benefit plans not subject to
ERISA.
Certain transactions involving the Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased Notes if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Regulation"), the assets of the Trust would be
treated as plan assets of a Benefit Plan for the purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the Code
only if the Benefit Plan acquired an "equity interest" in the Trust and none
of the exceptions to treatment as plan assets contained in the Regulation was
applicable. An equity interest is defined under the Regulation as an interest
other than an instrument which is treated as indebtedness under applicable
local law and which has no substantial equity features. Although there is
little guidance on the subject, the Transferor believes that, at the time of
their issuance, the Notes should be treated as indebtedness of the Trust
without substantial equity features for purposes of the Regulation. This
determination is based in part upon the traditional debt features of the
Notes, including the reasonable expectation of purchasers of Notes that the
Notes will be repaid when due, as well as the absence of conversion rights,
warrants and other typical equity features. The debt treatment of the Notes
for ERISA purposes could change if the Trust incurred losses.
However, without regard to whether the Notes are treated as an
equity interest for purposes of the Regulation, the acquisition or holding of
Notes by or on behalf of a Benefit Plan could give rise to a prohibited
transaction if the Trust, the Indenture Trustee, the Owner Trustee, the
Origination Trustee, the Transferor or AHFC is or becomes a party in interest
or a disqualified person with respect to such Benefit Plan. Certain
exemptions from substantial portions of the prohibited transaction rules
could be applicable to the purchase and holding of Notes by a Benefit Plan
depending on the type and circumstances of the plan fiduciary making the
decision to acquire such Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding transactions
effected by "in-house asset managers"; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 90-1, regarding investments by insurance
company pooled separate accounts; and PTCE 84-14, regarding transactions
effected by "qualified professional asset managers." By acquiring a Note,
each purchaser will be deemed to represent that either (i) it is not
acquiring the Notes with the assets of a Benefit Plan; or (ii) the
acquisition and holding of the Notes will not give rise to a nonexempt
prohibited transaction under Section 406(a) of ERISA or Section 4975 of the
Code.
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Due to the complexities of these rules and the penalties imposed
upon persons involved in prohibited transactions, it is important that the
fiduciary of a Benefit Plan considering the purchase of Notes consult with
its counsel regarding whether the assets of the Trust would be considered
plan assets, and the applicability of the prohibited transaction provisions
of ERISA and the Code (and in the case of an employee benefit plan not
subject to ERISA, any similar State law) to such investment. Moreover, each
Benefit Plan fiduciary should determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the
Notes is appropriate for the Benefit Plan, taking into account the overall
investment policy of the Benefit Plan and the composition of the Benefit
Plan's investment portfolio.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated __________, 1999 (the "Underwriting Agreement"),
the underwriters named below (the "Underwriters"), for whom Credit Suisse
First Boston Corporation is acting as representative (the "Representative"),
have severally but not jointly agreed to purchase from the Transferor the
following respective principal amounts of Notes:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class B
Underwriter Notes Notes Notes Notes Notes
----------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Credit Suisse First Boston Corporation...... $ $ $ $ $
............................................
............................................
............................................ -------------- ------------- ------------- ------------- ------------
Total.............................. $ $ $ $ $
============== ============= ============= ============= ============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent that the
Underwriters will be obligated to purchase all the Notes if any are
purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances the purchase commitments
of the non-defaulting Underwriter may be increased or the Underwriting
Agreement may be terminated.
The Transferor has been advised by the Representative that the
Underwriters propose to offer the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes the Class A-4 Notes and the Class B Notes to the public
initially at the public offering prices set forth on the cover page of this
Prospectus and to certain dealers at such prices less the concessions and
reallowance discounts set forth below.
99
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<TABLE>
<CAPTION>
Class Selling Concession Reallowance Discount
- ----- ------------------ --------------------
<S> <C> <C>
Class A-1 Notes..................... % %
Class A-2 Notes..................... % %
Class A-3 Notes..................... % %
Class A-4 Notes..................... % %
Class B Notes....................... % %
</TABLE>
After the initial public offering, the public offering price and
selling concessions and reallowance discounts to dealers may be changed by
the Underwriters.
The Transferor and AHFC have jointly and severally agreed to
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"), or contribute to payments which the Underwriters may be required to
make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Notes in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Notes originally sold by such
syndicate member are purchased in a syndicate covering transactions and
penalty bids may cause the prices of the Notes to be higher than they would
otherwise be in the absence of such transactions. These transactions, if
commenced, may be discounted at any time.
It is expected that delivery of the Notes will be made against
payment therefor on or about the date specified in the last paragraph of the
cover page of this Prospectus, which is the fifth business day following the
date hereof. Under Rule 15c6-1 of the Commission under the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to trade Notes on the date hereof
will be required, by virtue of the fact that the Notes initially will settle
five business days after the date hereof, to specify an alternate settlement
cycle at the time of any such trade to prevent a failed settlement.
Purchasers of Notes who wish to trade Notes on the date hereof should consult
their own advisor.
Until the distribution of the Notes is complete, 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.
Neither the Transferor nor any Underwriter makes any representation
or prediction 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 Transferor nor any Underwriter makes any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
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There is currently no market for the Notes. The Underwriters expect,
but will not be obligated, to make a market in each Class of Notes. There can
be no assurance that a secondary market for the Notes will develop or, if one
does develop, that it will provide the related Noteholders with liquidity of
investment or will continue for the life of the related Notes.
Certain of the Underwriters and their affiliates engage in
transactions with and perform services for AHFC and affiliates of AHFC in the
ordinary course of business and have engaged, and may in the future engage,
in commercial banking and investment banking transactions with AHFC and
affiliates of AHFC.
Upon receipt of a request by an investor who has received an
electronic Prospectus from an Underwriter or a request by such investor's
representative within the period during which there is an obligation to
deliver a Prospectus, the Transferor or the Underwriters will promptly
deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus.
RATINGS OF THE NOTES
It is a condition of issuance that at least two nationally
recognized rating agencies (the "Rating Agencies") rate the Class A-1 Notes
in the highest short-term rating category, the Class A-2 Notes the Class A-3
Notes and the Class A-4 Notes in the highest long-term rating category and
the Class B Notes at least "____" or its equivalent. The ratings of the Notes
will be based primarily upon the value of the Contracts, the Reserve Fund and
the terms of the Certificates (and the Class A Notes also on the terms of the
Class B Notes). There is no assurance that any such rating will not be
lowered or withdrawn by the assigning Rating Agency if, in its judgment,
circumstances so warrant. In the event that a rating with respect to any
Class of Notes is qualified, reduced or withdrawn, no person or entity will
be obligated to provide any additional credit enhancement with respect to
such Class of Notes.
The ratings of the Notes should be evaluated independently from
similar ratings on other types of securities. A rating is not a
recommendation to buy, sell or hold the related Notes, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The ratings of each Class of Notes addresses the likelihood of the
payment of principal of and interest on such Notes pursuant to their terms.
There can be no assurance as to whether any rating agency other than
a Rating Agency will rate the Notes, or, if one does, what rating will be
assigned by such other rating agency. A rating on any Class of Notes by
another rating agency, if assigned at all, may be lower than the ratings
assigned to such Notes by the Rating Agencies.
LEGAL MATTERS
Certain legal matters relating to the Notes, including federal
income tax matters, will be passed upon for the Transferor by O'Melveny &
Myers LLP, Los Angeles, California. Stroock & Stroock & Lavan LLP, New York,
New York will act as counsel for the Underwriters.
AVAILABLE INFORMATION
101
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The Transferor, as originator of the Trust, HTA LP and HTB LP, as
originators of the Origination Trust, the Origination Trust, as issuer of the
SUBI, and the Trust, as issuer of the Notes, have filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement, of which
this Prospectus is a part, under the Securities Act, with respect to the
Notes being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Suite 1300, Seven World Trade Center, New York, New York
10048. Copies of such information can 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 that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at
http://www.sec.gov. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as are required
under the Exchange Act, and the rules and regulations of the Commission
thereunder.
FORWARD LOOKING STATEMENTS
Information under the heading "American Honda Finance
Corporation-Year 2000" contains various "forward looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, which represent AHFC's expectations or beliefs concerning
future events, including the following: that completion of the assessment of
networks, personal computers and computerized systems and validation phases
on all computerized systems in connection with year 2000 issues is expected
by fiscal year end 1999; that the total cost associated with required year
2000 issues is not expected to have a material impact on AHFC's condition,
financial and otherwise, and that completion of the contingency plan relating
to year 2000 issues is expected by the end of fiscal year 1999.
AHFC cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements, including, without limitation: the
failure of AHFC's plan to resolve timely year 2000 issues due to
non-performance by outside contractors, the failure of third parties to
remediate their year 2000 issues or other factors and the failure of AHFC to
develop an adequate contingency plan relating to year 2000 issues. Results
actually achieved thus may differ materially from expected results included
in these statements.
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INDEX OF TERMS
Set forth below is a list of the capitalized terms used in this
Prospectus and the pages on which the definitions of such terms may be found.
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
1% UTI Interest....................................17
99% UTI Interest...................................17
ABS................................................40
Accounts...........................................54
Additional Loss Amounts............................47
Additional Loss Contract...........................67
Administrative Charge..............................80
Administrative Lien................................22
Advance............................................76
Aggregate Net Investment Value.....................33
Agreement..........................................18
AHFC...............................................17
AHMC...............................................23
AHSCC..............................................23
Allocation Percentage..............................48
banking organization...............................60
Basic Documents....................................83
Basic Servicing Agreement..........................17
Benefit Plan.......................................97
BONY...............................................18
Capped Contingent and Excess Liability Premiums....51
Capped Origination Trust Administrative Expenses...51
Capped Owner Trustee Administrative Expenses.......51
Cede...............................................44
Cedelbank..........................................59
Cedelbank Participants.............................60
Certificate Balance................................46
Certificate Distribution Account...................56
Certificate Interest Carryover Shortfall...........51
Certificate Principal Loss Amount..................50
Certificate Rate...................................45
Certificateholders.................................45
Certificates.......................................18
Charged-off Amount.................................47
Charged-off Contract...............................47
chattel paper......................................89
Class..............................................17
Class A Note Balance...............................46
Class A Noteholders................................45
Class A Notes......................................17
Class A Percentage.................................53
Class A-1 Interest Carryover Shortfall.............51
Class A-1 Note Principal Loss Amount...............50
Class A-1 Note Rate................................45
Class A-1 Noteholders..............................45
Class A-1 Notes....................................17
Class A-2 Interest Carryover Shortfall.............51
Class A-2 Note Principal Loss Amount...............50
Class A-2 Note Rate................................45
Class A-2 Noteholders..............................45
Class A-2 Notes....................................17
Class A-3 Interest Carryover Shortfall.............51
Class A-3 Note Principal Loss Amount...............50
Class A-3 Note Rate................................45
Class A-3 Noteholders..............................45
Class A-3 Notes....................................17
Class A-4 Interest Carryover Shortfall.............51
Class A-4 Note Principal Loss Amount...............50
Class A-4 Note Rate................................45
Class A-4 Noteholders..............................45
Class A-4 Notes....................................17
Class B Interest Carryover Shortfall...............51
Class B Note Principal Carryover Shortfall.........51
Class B Note Principal Loss Amount.................50
Class B Note Rate..................................45
Class B Noteholders................................45
Class B Percentage.................................53
Class Note Balance.................................46
Class B Notes......................................17
clearing agency....................................60
clearing corporation...............................60
Closing Date.......................................18
Code...............................................92
Collection Period..................................33
Collections........................................52
Commission.........................................60
Contingent and Excess Liability Insurance Policies.68
Contracts..........................................19
Cooperative........................................62
Co-Trustee.........................................18
Covered Loss Amounts...............................52
Current Contracts..................................67
Cutoff Date........................................19
daily portions.....................................94
103
<PAGE>
Dealer Agreements..................................17
Dealers............................................17
Defaulted Vehicle..................................77
Definitive Notes...................................45
Depositaries.......................................60
Determination Date.................................48
Discounted Contract................................33
Discounted Principal Balance.......................33
Distribution Date..................................45
DTC................................................44
DTC Participants...................................60
DTC Services.......................................64
DTC Systems........................................64
Early Termination Charge...........................34
ERISA..............................................97
ERISA Compliance Test..............................79
Euroclear..........................................59
Euroclear Operator.................................62
Euroclear Participants.............................60
Excess Interest Collections........................50
Excess Mileage Fee.................................80
Exchange Act.......................................60
Extension Fees.....................................80
Federal Tax Counsel................................92
Final Scheduled Distribution Date..................46
financial asset....................................85
Foreign Investor...................................95
Foreign Investors..................................95
Global Securities...................................1
HCFI...............................................23
HFI................................................22
HTA LLC............................................21
HTA LP.............................................17
HTB LLC............................................21
HTB LP.............................................17
HTC LLC............................................22
HTI................................................21
Indemnified Amounts................................74
Indemnified Parties.................................1
Indenture..........................................17
Indenture Event of Default.........................69
Indenture Trustee..................................18
independent members................................88
Indirect DTC Participants..........................60
Industry...........................................64
Initial Class A Note Balance.......................17
Initial Class A-1 Note Balance.....................17
Initial Class A-2 Note Balance.....................17
Initial Class A-3 Note Balance.....................17
Initial Class A-4 Note Balance.....................17
Initial Class B Note Balance.......................17
Initial Deposit....................................67
Initial Note Balance...............................17
Insolvency Laws....................................84
Insurance Expenses.................................78
Insurance Policy...................................21
Insurance Proceeds.................................54
Interest Collections...............................53
Investor Percentage................................47
IRS................................................93
Lease Rate.........................................33
Leased Vehicles....................................19
Lemon Law..........................................92
Liquidated Contract................................67
Liquidation Expenses...............................55
Liquidation Proceeds...............................54
Loss Amounts.......................................52
Matured Contract...................................33
Matured Leased Vehicle Expenses....................54
Matured Leased Vehicle Inventory...................33
Matured Leased Vehicle Proceeds....................54
Maturity Date......................................35
MBPO Program.......................................27
Monthly Payments...................................33
Monthly Remittance Conditions......................55
motor vehicles.....................................21
Net Insurance Proceeds.............................53
Net Liquidation Proceeds...........................53
Net Matured Leased Vehicle Proceeds................53
Net Repossession Proceeds..........................53
New Regulations....................................96
Nonrecoverable Advance.............................77
Note Balance.......................................46
Note Distribution Account..........................56
Note Factor........................................44
Note Owner.........................................44
Note Principal Loss Amount.........................52
Note Rates.........................................45
Note Register......................................65
Noteholders........................................45
Notes..............................................17
OID................................................93
Omnibus Proxy......................................62
Origination Trust..................................17
Origination Trust Agreement........................19
Origination Trust Assets...........................21
Origination Trustee................................19
Other SUBI Assets..................................20
Other SUBI Certificates............................20
Other SUBI Supplement..............................72
Other SUBIs........................................17
Outstanding Principal Balance......................33
Owner Trustee......................................18
Participants.......................................59
Payahead Account...................................56
Payahead Credit....................................54
104
<PAGE>
PBGC...............................................87
Prepayment.........................................54
Prepayment Assumption..............................40
Principal Allocation...............................52
Principal Collections..............................52
protective.........................................76
PTCE...............................................97
qualified stated interest..........................93
Rating Agencies...................................100
Realized Value.....................................34
Reallocation Payment...............................38
Record Date........................................45
Registration Statement.............................44
Regulation.........................................97
Reimbursable Servicer Expenses.....................80
Released Amounts...................................48
Repossession Expenses..............................54
Repossession Proceeds..............................54
Representative.....................................98
Required Amount....................................67
Required Deposit Ratings...........................56
Reserve Fund.......................................66
Reserve Fund Requirement...........................67
Residual Value.....................................33
Residual Value Loss Amount.........................48
Retained SUBI Certificate..........................19
Retained SUBI Interest.............................19
Schedule of Contracts and Leased Vehicles..........37
Securities Act.....................................99
Security Deposits..................................77
Servicer...........................................17
Servicer Insolvency Event..........................82
Servicer Letter of Credit..........................55
Servicer Reimbursement.............................56
Servicer Termination Events........................81
Servicing Agreement................................17
Servicing Fee......................................80
Servicing Supplement...............................17
SUBI...............................................17
SUBI Assets........................................19
SUBI Certificate...................................19
SUBI Collection Account............................54
SUBI Interest......................................17
SUBI Supplement....................................19
SUBI Trust Agreement...............................19
Terms and Conditions...............................63
Transferor.........................................17
Transferor Affiliates..............................71
Trust..............................................17
Trust Agent........................................19
U.S. Bank..........................................18
U.S. Person.........................................4
UCC................................................60
Uncapped Administrative Expenses...................52
Uncovered Loss Amounts.............................52
Underwriters.......................................98
Underwriting Agreement.............................98
UTI................................................17
UTI Assets.........................................20
UTI Beneficiaries..................................17
UTI Certificates...................................20
Voting Interests...................................70
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Notes
(the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through
any of DTC, Cedelbank 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.
Secondary market trading between investors holding Global Securities
through Cedelbank 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 Cedelbank or Euroclear and
DTC Participants holding Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedelbank 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, 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, Cedelbank and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts
as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt
obligations. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedelbank
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in the 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.
I-1
<PAGE>
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between
DTC Participants will be settled using the procedures applicable to U.S.
corporate debt obligations in same-day funds.
TRADING BETWEEN CEDELBANK AND/OR EUROCLEAR PARTICIPANTS. Secondary
market trading between Cedelbank Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in
same-day funds.
TRADING BETWEEN DTC SELLER AND CEDELBANK OR EUROCLEAR PURCHASER.
When Global Securities are to be transferred from the account of a DTC
Participant to the account of a Cedelbank Participant or a Euroclear
Participant, the purchaser will send instructions to Cedelbank or Euroclear
through a Cedelbank Participant or Euroclear Participant at least one
business day prior to settlement. Cedelbank 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, on the basis of actual days elapsed and a 360-day year.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month.
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 Cedelbank 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 Cedelbank
or Euroclear cash debit will be valued instead as of the actual settlement
date.
Cedelbank 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 Cedelbank or
Euroclear. Under this approach, they may take on credit exposure to Cedelbank
or Euroclear until the Global Securities are credited to their accounts one
day later.
As an alternative, if Cedelbank or Euroclear has extended a line of
credit to them, Cedelbank 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, Cedelbank 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 Cedelbank 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 Cedelbank
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.
I-2
<PAGE>
TRADING BETWEEN CEDELBANK OR EUROCLEAR SELLER AND DTC PURCHASER. Due
to time zone differences in their favor, Cedelbank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing systems,
through the respective Depositaries, to a DTC Participant. The seller will
send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement. In
these cases, Cedelbank or Euroclear will instruct the respective
Depositaries, 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 on the basis of actual days elapsed and a 360-day year.
The payment will then be reflected in the account of the Cedelbank
Participant or Euroclear Participant the following day, and receipt of the
cash proceeds in the Cedelbank 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 Cedelbank 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 the Cedelbank Participant's or Euroclear Participant's account would
instead be value as of the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Cedelbank
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 Cedelbank or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Cedelbank 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
Cedelbank 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 Cedelbank Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding through Cedelbank or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest (including original issue discount) on registered debt issued by
U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners
of Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a
I-3
<PAGE>
signed Form W-8 (Certificate of Foreign Status). If the information
shown on Form W-8 or the Tax Certificate changes, a new Form W-8 or
Tax Certificate, as the case may be, must be filed within 30 days of
such change.
EXEMPTION FOR NON-U.S. PERSON WITH EFFECTIVELY CONNECTED
INCOME (FORM 4224). A non-U.S. Person, including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the
United States, can obtain an exemption from the withholding tax by
filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the
United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN
TREATY COUNTRIES (FORM 1001). Non-U.S. Persons that are beneficial
owners of Global Securities residing in a country that has a tax treaty
with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for
a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Note
Owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain
a complete exemption from the withholding tax by filing Form W-9
(Payer's Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial
owner of a Global Security or, in the case of a Form 1001 or a Form
4224 filer, his agent, files by submitting the appropriate form to the
person through whom it holds (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8
and form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any state or political subdivision thereof
(other than a partnership that is not treated as a United States person under
any applicable Treasury regulations), (iii) an estate whose income is subject
to United States federal income tax, regardless of its source or (iv) a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States persons who have authority to
control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in 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 so treated also shall be considered U.S. Persons.
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.
I-4
<PAGE>
$
----------------
Honda Auto Lease Trust 1999-A
Motor Vehicle Lease
Asset Backed Notes
Honda Titling C L.P.
(Transferor)
American Honda Finance Corporation
(Servicer)
$_____________ _____% Class A-1 Notes
$_____________ _____% Class A-2 Notes
$_____________ _____% Class A-3 Notes
$_____________ _____% Class A-4 Notes
$________________ ____% Class B Notes
PROSPECTUS
Credit Suisse First Boston
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Notes being registered
hereby are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee....................................................... $278
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Blue sky fees and expenses................................................. *
Rating agency fees......................................................... *
Trustee's fees and expenses................................................ *
Printing................................................................... *
Miscellaneous.............................................................. *
--------
Total................................................................... $*
========
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17-108 of the Delaware Revised Uniform Limited Partnership
Act provides that, subject to such standards and restrictions, if any, as are
set forth in its partnership agreement, a limited partnership may and shall
have the power to, indemnify and hold harmless any partner or other person
from and against any and all claims and demands whatsoever.
Pursuant to the Agreement of Limited Partnership of Honda Titling C
L.P. (the "Transferor"), the Transferor will, to the fullest extent permitted
by law, indemnify its general partner, Honda Titling C LLC, and its
directors, officers, agents and employees acting within the scope of their
authority (the "Indemnified Parties") from and against any loss, expense
damage, liability or injury suffered or sustained by them by reason of any
acts, omissions or alleged acts or omissions arising out of any of such
Indemnified Party's activities on behalf of the Transferor or in furtherance
of the interest of the Transferor, provided that the acts, omissions, or
alleged acts or omissions upon which such actual or threatened action is
based were not made or omitted fraudulently or in bad faith or constituted
willful misconduct or gross negligence by such Indemnified Party.
Pursuant to the Agreement of Limited Partnership of Honda Titling A
L.P. ("HTA LP"), the Transferor will, to the fullest extent permitted by law,
indemnify its general partner, Honda Titling A LLC, and its directors,
officers, agents and employees acting within the scope of their authority
(the "HTA LP Indemnified Parties") from and against any loss, expense damage,
liability or injury suffered or sustained by them by reason of any acts,
omissions or alleged acts or omissions arising out of any of such HTA LP
Indemnified Party's activities on behalf of HTA LP or in furtherance of the
interest of HTA LP, provided that the acts, omissions, or alleged acts or
omissions upon which such actual or threatened action is based were not made
or omitted fraudulently or in bad faith or constituted willful misconduct or
gross negligence by such HTA LP Indemnified Party.
II-1
<PAGE>
Pursuant to the Agreement of Limited Partnership of Honda Titling B
L.P. ("HTB LP"), the Transferor will, to the fullest extent permitted by law,
indemnify its general partner, Honda Titling B LLC, and its directors,
officers, agents and employees acting within the scope of their authority
(the "HTB LP Indemnified Parties") from and against any loss, expense damage,
liability or injury suffered or sustained by them by reason of any acts,
omissions or alleged acts or omissions arising out of any of such HTB LP
Indemnified Party's activities on behalf of HTB LP or in furtherance of the
interest of HTB LP, provided that the acts, omissions, or alleged acts or
omissions upon which such actual or threatened action is based were not made
or omitted fraudulently or in bad faith or constituted willful misconduct or
gross negligence by such HTB LP Indemnified Party.
Reference is also made to the Underwriting Agreement among the
Transferor and Credit Suisse First Boston Corporation and the other
underwriters named therein (see Exhibit 1.1), which provides for
indemnification by the Transferor in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Agreement of Limited Partnership of Honda Titling C L.P. dated as of
February 1, 1999, between American Honda Finance Corporation and
Honda Titling C LLC.*
3.2 Limited Liability Company Agreement of Honda Titling C LLC, dated as
of February 1, 1999, between American Honda Finance Corporation and
Honda Funding Inc.*
3.3 Certificate of Incorporation of Honda Funding Inc.*
3.4 Bylaws of Honda Funding Inc.*
3.5 Agreement of Limited Partnership of Honda Titling A L.P, dated as of
July 1, 1997, between Honda Titling A LLC and American Honda Finance
Corporation.*
3.6 Limited Liability Company Agreement of Honda Titling A LLC., dated
as of July 1, 1997, between American Honda Finance Corporation and
Honda Titling Inc. *
3.7 Agreement of Limited Partnership of Honda Titling B L.P, dated as of
July 1, 1997, between Honda Titling B LLC and American Honda Finance
Corporation.*
3.8 Limited Liability Company Agreement of Honda Titling B LLC., dated
as of July 1, 1997, between American Honda Finance Corporation and
Honda Titling Inc.*
3.9 Certificate of Incorporation of Honda Titling Inc.*
3.10 Bylaws of Honda Funding Inc.*
3.11 Form of Securitization Trust Agreement, among Honda Titling C L.P.,
U.S. Bank National Association, as Owner Trustee, Wilmington Trust
Company, as Co-Trustee and The Bank of New York, as Indenture
Trustee (including form of Certificates).*
3.12 Form of Indenture, between Honda Auto Lease Trust 1999-A and Bank of
New York, as Indenture Trustee (including form of Class A Notes).*
5.1 Opinion of O'Melveny & Myers LLP with respect to legality.*
8.1 Opinion of O'Melveny & Myers LLP with respect to tax matters.*
10.1 Second Amended and Restated Trust and Servicing Agreement, dated as
of April 1, 1998, among American Honda Finance Corporation, Honda
Titling A L.P., Honda Titling B L.P., HVT, Inc., Delaware Trust
Capital Management, Inc. and U.S. Bank National Association.*
II-2
<PAGE>
HVT, Inc., Delaware Trust Capital Management, Inc. and U.S. Bank
National Association*
10.2 Form of Supplement 1999-A to the Second Amended and Restated Trust
and Servicing Agreement, among American Honda Finance Corporation,
Honda Titling A L.P., Honda Titling B L.P., HVT, Inc., Delaware
Trust Capital Management Inc. and U.S. Bank National Association.*
10.3 Servicing Agreement, dated as of April 1, 1998, among Honda Lease
Trust, Honda Titling A L.P., Honda Titling B L.P., and American
Honda Finance Corporation.*
10.3 Form of Supplement 1999-A to Servicing Agreement, among Honda Lease
Trust, Honda Titling A L.P., Honda Titling B L.P and American Honda
Finance Corporation.*
23.1 Consent of O'Melveny & Myers LLP (included as part of Exhibit 5.1).*
23.2 Consent of O'Melveny & Myers LLP (included as part of Exhibit 8.1).*
24.1 Power of Attorney (included on page II-10).
25.1 Form of T-1 of The Bank of New York.*
</TABLE>
- ------------------------
* To be filed by amendment.
b. Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
Each undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing date specified in
the Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to provide prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of such Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act will be deemed to be part of this registration statement
as of the time it was declared effective.
II-3
<PAGE>
(d) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effect amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
PROVIDED, HOWEVER, that the paragraphs (d)(i) and (d)(ii) do not
apply if the registration statement is on Form S-3, Form S-8, or form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by any registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement.
(e) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(f) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and the State of California, on the 11th day of February
1999.
HONDA TITLING C L.P., a Delaware limited
partnership
By: HONDA TITLING C LLC, a Delaware
limited liability company, its
general partner
By: HONDA FUNDING INC., a Delaware
corporation, its manager
By: /s/ Y. Kohama
----------------------------------------
Y. Kohama
President
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and the State of California, on the 11th day of February
1999.
HONDA TITLING B L.P., a Delaware limited partnership
By: HONDA TITLING B LLC, a Delaware limited
liability company, its general partner
By: HONDA TITLING INC., a Delaware corporation,
its manager
By: /s/ Y. Kohama
------------------------------------------------
Y. Kohama
President
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and the State of California, on the 11th day of February
1999.
HONDA TITLING A L.P., a Delaware limited partnership
By: HONDA TITLING A LLC, a Delaware limited
liability company, its general partner
By: HONDA TITLING INC., a Delaware corporation,
its manager
By: /s/ Y. Kohama
-------------------------------------------------
Y. Kohama
President
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and the State of California, on the 11th day of February
1999.
HONDA AUTO LEASE TRUST 1999-A,
a Delaware business trust
By: HONDA TITLING C L.P., a Delaware limited
partnership, solely as originator of Honda
Auto Lease Trust 1999-A
By: HONDA TITLING C LLC, a Delaware limited
liability company, its general partner
By: HONDA FUNDING INC., a Delaware corporation,
its manager
By: /s/ Y. Kohama
-----------------------------------------------
Y. Kohama
President
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and the State of California, on the 11th day of February
1999.
HONDA LEASE TRUST, a Delaware business trust
By: HONDA TITLING A L.P., a Delaware limited
partnership, solely as originator of the
Honda Lease Trust
By: HONDA TITLING A LLC, a Delaware limited
liability company, its general partner
By: HONDA TITLING INC., a Delaware corporation,
its manager
By: /s/ Y. Kohama
-----------------------------------------------
Y. Kohama
President
By: HONDA TITLING B L.P., a Delaware limited
partnership, solely as originator of the
Honda Lease Trust
By: HONDA TITLING B LLC, a Delaware limited
liability company, its general partner
By: HONDA TITLING INC., a Delaware corporation,
its manager
By: /s/ Y. Kohama
-----------------------------------------------
Y. Kohama
President
II-9
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Y. Kohama and John I. Weisickle, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign and file
any and all amendments, including post-effective amendments to this
Registration Statement, or any filing under Rule 462 related thereto, with
the Securities and Exchange Commission, granting to said attorney-in-fact
power and authority to perform any other act on behalf of the undersigned
required to be done in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Y. Kohama . Director and President February 11, 1999
- ------------------------ of the Manager of the General Partner of Honda
Y. Kohama Titling C L.P., Honda Titling A L.P. and Honda
Titling B L.P.
(Principal Executive Officer)
/s/ John I. Weisickle . Director, Treasurer and February 11, 1999
- ----------------------- Secretary of the Manager of the General Partner
John I. Weisickle of Honda Titling C L.P., Honda Titling A L.P.
and Honda Titling B L.P. (Principal Financial
And Accounting Officer)
/s/ S. Imai . Director of the Manager of the General Partner February 11, 1999
- ----------------------- of Honda Titling C L.P. , Honda Titling A L.P.
S. Imai and Honda Titling B L.P.
/s/ Scott J. Nelson . Director of the Manager of the General Partner February 11, 1999
- ----------------------- of Honda Titling C L.P. , Honda Titling A L.P.
Scott J. Nelson and Honda Titling B L.P.
/s/ Scott J. Ulm . Director of the Manager of the General Partner February 11, 1999
- ----------------------- of Honda Titling C L.P. , Honda Titling A L.P.
Scott J. Ulm and Honda Titling B L.P.
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Agreement of Limited Partnership of Honda Titling C L.P. dated as of
February 1, 1999, between American Honda Finance Corporation and
Honda Titling C LLC.*
3.2 Limited Liability Company Agreement of Honda Titling C LLC, dated as
of February 1, 1999, between American Honda Finance Corporation and
Honda Funding Inc.*
3.3 Certificate of Incorporation of Honda Funding Inc.*
3.4 Bylaws of Honda Funding Inc.*
3.5 Agreement of Limited Partnership of Honda Titling A L.P, dated as of
July 1, 1997, between Honda Titling A LLC and American Honda Finance
Corporation.*
3.6 Limited Liability Company Agreement of Honda Titling A LLC., dated
as of July 1, 1997, between American Honda Finance Corporation and
Honda Titling Inc. *
3.7 Agreement of Limited Partnership of Honda Titling B L.P, dated as of
July 1, 1997, between Honda Titling B LLC and American Honda Finance
Corporation.*
3.8 Limited Liability Company Agreement of Honda Titling B LLC., dated
as of July 1, 1997, between American Honda Finance Corporation and
Honda Titling Inc.*
3.9 Certificate of Incorporation of Honda Titling Inc.*
3.10 Bylaws of Honda Funding Inc.*
3.11 Form of Securitization Trust Agreement, among Honda Titling C L.P.,
U.S. Bank National Association, as Owner Trustee, Wilmington Trust
Company, as Co-Trustee and The Bank of New York, as Indenture
Trustee (including form of Certificates).*
3.12 Form of Indenture, between Honda Auto Lease Trust 1999-A and Bank of
New York, as Indenture Trustee (including form of Class A Notes).*
5.1 Opinion of O'Melveny & Myers LLP with respect to legality.*
8.1 Opinion of O'Melveny & Myers LLP with respect to tax matters.*
10.1 Second Amended and Restated Trust and Servicing Agreement, dated as
of April 1, 1998, among American Honda Finance Corporation, Honda
Titling A L.P., Honda Titling B L.P., HVT, Inc., Delaware Trust
Capital Management, Inc. and U.S. Bank National Association.*
<PAGE>
HVT, Inc., Delaware Trust Capital Management, Inc. and U.S. Bank
National Association*
10.2 Form of Supplement 1999-A to the Second Amended and Restated Trust
and Servicing Agreement, among American Honda Finance Corporation,
Honda Titling A L.P., Honda Titling B L.P., HVT, Inc., Delaware
Trust Capital Management Inc. and U.S. Bank National Association.*
10.3 Servicing Agreement, dated as of April 1, 1998, among Honda Lease
Trust, Honda Titling A L.P., Honda Titling B L.P., and American
Honda Finance Corporation.*
10.3 Form of Supplement 1999-A to Servicing Agreement, among Honda Lease
Trust, Honda Titling A L.P., Honda Titling B L.P and American Honda
Finance Corporation.*
23.1 Consent of O'Melveny & Myers LLP (included as part of Exhibit 5.1).*
23.2 Consent of O'Melveny & Myers LLP (included as part of Exhibit 8.1).*
24.1 Power of Attorney (included on page II-10).
25.1 Form of T-1 of The Bank of New York.*
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* To be filed by amendment
